Corporate dividend policy in Thailand: theory and evidence

Fairchild, Richard; Guney, Yilmaz; Thanatawee, Yordying

Abstract

This paper examines dividend changes in an emerging market: Thailand. We begin by considering the possible effects of the Thai corporate environment on dividend policy. We develop a theoretical model that considers the relationship between the strength of investor power and dividends in an agency cost/free cashflow framework. This allows us to consider the conditions for the outcome (positive relationship) or substitute (negative relationship) models, as discussed by La Porta et al. (2000). Our model also allows us to consider the expropriation hypothesis, in which the presence of large controlling shareholders may actually reduce outside investor power, leading to lower dividends. We then turn to our empirical analysis. Employing a large sample of companies that changed dividends in Thailand during the period 1996–2009, we test for the signaling, free cashflow and lifecycle hypotheses. A further contribution of our analysis is that we consider the impact of investor power and ownership on dividends in Thailand. Overall, we find little support for the signaling hypothesis, but we find considerable support for the free cashflow and life-cycle hypotheses. Our analysis of ownership variables suggests that increasing investor power (for example, high ownership concentration together with the presence of domestic institutional ownership) results in higher dividends, in support of the outcome model, rather than the substitution or expropriation models.

Citation

Fairchild, R., Guney, Y., & Thanatawee, Y. (2014). Corporate dividend policy in Thailand: theory and evidence. International review of financial analysis, 31, 129-151. https://doi.org/10.1016/j.irfa.2013.10.006

• Journal Article Type: Article
• Acceptance Date: Oct 21, 2013
• Online Publication Date: Nov 7, 2013
• Publication Date: 2014-01
• Deposit Date: May 2, 2018
• Journal: International Review of Financial Analysis
• Print ISSN: 1057-5219
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 31
• Pages: 129-151
• DOI: https://doi.org/10.1016/j.irfa.2013.10.006
• Keywords: Economics and Econometrics; Finance
• Public URL: https://hull-repository.worktribe.com/output/813436
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S1057521913001427?via%3Dihub
• Additional Information: This article is maintained by: Elsevier; Article Title: Corporate dividend policy in Thailand: Theory and evidence; Journal Title: International Review of Financial Analysis; CrossRef DOI link to publisher maintained version: http://dx.doi.org/10.1016/j.irfa.2013.10.006; Content Type: article; Copyright: Copyright © 2013 Published by Elsevier Inc.