ABSTRACT
Introduction Corporate dividend policy has attracted considerable attention in the literature over the last few decades (for a review, see Frankfurter and Wood, 2002). Dividend policy is concerned with how the earnings of a company are distributed. The proportion of earnings paid out as dividends to ordinary shareholders can vary considerably from company to company and from country to country. This is because, as often argued in the finance literature, a company’s dividend decision is frequently mixed up with other financing and investment decisions and influenced by a variety of factors including distributable profits, cash flow, the nature of business risk, investment opportunities, access to capital markets, the company’s ability to borrow, restrictive covenants, investors’ requirements, regulatory considerations and tax effects (e.g., Emery et al., 2004; Smart et al., 2004). While it is still inconclusive, researchers (e.g., Benartzi et al., 1997; Crawford and Franz, 2001) have attempted to determine whether there is any particular dividend policy that a firm can adopt to maximize its shareholder wealth.
