Self-Selection Models in Determination of Target Dividend Payout Ratio of Real Estate Domestic Companies Quoted on the Warsaw Stock Exchange

Abstract

Real estate companies listed on the Warsaw Stock Exchange in recent years have changed their policy to pro-dividend and more and more often make decisions to pay increasing dividends. Hence a question arises about the target dividend payout ratio of these companies. In the article the Heckman model was proposed for estimating the target dividend payout ratio. It derives from the self-selection concept, which consists of two equations: probit equation of propensity to pay dividend and Lintner’s partial adjustment equation. The conducted research has shown that Heckman’s self-selection model proved to be a very good tool for analyzing dividend decisions not only because of formal properties ensuring the consistency of the parameters estimator but also because of an accurate description of the decision process, which is of a two-step nature (decision on payment — determining the payout level). This led to the conclusion that more willing to pay dividends for a given year were real estate domestic companies, which paid dividends for the previous year (sticky dividend effect) and were more profitable and that the relation between the market value to book value of assets ratio (Tobin’s q ratio), and the propensity to pay dividends has an inverted U shape. The calculated target dividend payout ratio was 66,7% and the calculated speed of adjustment alpha = 0,626 indicates relatively slow reaching of the target.