The Impact of Ownership Structure on Firms’ Dividend Policy: Evidence from JSE Listed Firms
Keywords:
Institutional ownership; foreign ownership, managerial ownership; agency theory; South AfricaAbstract
This study examines the impact of ownership structures on dividend policy for 89 firms listed on the Johannesburg Stock Exchange All Share Index (ALSI) from 2010 to 2019. To achieve this objective, three ownership structures were examined; the study employs a panel regression model to investigate this relationship incorporating both the fixed effects (FE) and random effects (RE) models. First, our result revealed that ownership is concentrated with institutional shareholders. Second, our FE model results show that managerial and foreign ownership structure has no relationship with firms' dividend policy. In contrast, the result shows a negative relationship between institutional ownership and dividend policy of firms in South Africa. Additionally, firm size and profitability have a positive relationship with the dividend policy. The South African ownership structure context is contrary to the agency theory where large shareholders use increase in dividend pay-out to reduce available earnings for the benefit of managers. It is evident from the results that institutional investors are active monitors of managers' performances. This study is the first in South Africa to the author's knowledge. Lastly, this study proffers key insight into the impact of ownership structures on dividend pay-out for investors seeking to invest in JSE stocks.
References
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Al-Najjar, B., & Kilincarslan, E. (2016). The effect of ownership structure on dividend policy: evidence from Turkey. Corporate Governance: The International Journal of Business in Society, 16(1), 135-161. doi:10.1108/CG-09-2015-0129.
Ang, J. S., Cole, R. A., & Lin, J. W. (2000). Agency Costs and Ownership Structure. The Journal of Finance, 55(1), 81-106. doi:https://doi.org/10.1111/0022-1082.00201.
Björn, L., & Eriksson, L. (2016). Ownership structure's effect on dividend policy : Evidence from publicly listed Swedish firms. (Independent thesis Advanced level (professional degree) Student thesis). Umeå School of Business and Economics, Online. Retrieved from http://urn.kb.se/resolve?urn=urn:nbn:se:umu:diva-123941 DiVA database.
Booth, L., & Zhou, J. (2017). Dividend policy: A selective review of results from around the world. Global Finance Journal, 34, 1-15. doi:https://doi.org/10.1016/j.gfj.2017.07.002.
Buthelezi, L. (2021). Foreigners show record interest in SA companies at investor conference. Fin24. Retrieved from https://www.news24.com/fin24/economy/.
Chai, D. H. (2010). Foreign corporate ownership and dividends. Online: Centre for Business Research, University of Cambridge.
Easterbrook, F. H. (1984). Two Agency-Cost Explanations of Dividends. The American Economic Review, 74(4), 650-659. Retrieved from http://www.jstor.org/stable/1805130.
Eskandar, H., Mehrani, S., & Moradi, M. (2011). Ownership structure and dividend policy: Evidence from Iran. African Journal of Business Management, 5(17), 7516-7525. doi:10.5897/AJBM11.468.
Ezeagba, C. E. (2017). The effect of ownership structure on dividend policy: Evidence from selected firms in the Nigerian Stock Exchange: 2011-2015. Journal of Social Development, 3(6). doi:10.12816/0038070.
Firer, Gilbert, & Maytham. (2008). Dividend policy in South Africa. Investment Analysts Journal, 37(68), 5-19. doi:10.1080/10293523.2008.11082500.
Firer, & Viviers. (2011). Dividend policies of JSE-listed companies : 1989-2010. Management Dynamics : Journal of the Southern African Institute for Management Scientists, 20(4), 2-22. doi:10.10520/EJC119150.
Gilbert, E., & Strugnell, D. (2010). Does survivorship bias really matter? An empirical investigation into its effects on the mean reversion of share returns on the JSE (1984–2007). Investment Analysts Journal, 39(72), 31-42. doi:10.1080/10293523.2010.11082521.
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Hanady, B. (2021). The impact of ownership structure on dividend policy of listed firms in Jordan. Cogent Business & Management, 8(1), 1-18. doi:10.1080/23311975.2020.1863175.
Jensen, M. C. (1986). Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. The American Economic Review, 76(2), 323-329. Retrieved from http://www.jstor.org/stable/1818789.
Joliet, R., & Muller, A. (2015). Dividends and foreign performance signaling. Multinational Finance Journal, 19(2), 77-107.
JSE. (2021). History & Company Overview. Retrieved from https://www.jse.co.za/our-business/history-%26-company-overview.
Kien, D., & Chen, Y.-P. (2020). Ownership Structure Impact on Dividend Policy of Listed Companies on Vietnamese Securities Market Journal of Mathematical Finance 10(2), 223-241. doi:10.4236/jmf.2020.102014.
Kouki, M., & Guizani, M. (2009). Ownership structure and dividend policy evidence from the Tunisian stock market. European Journal of Scientific Research, 25(1), 42-53. Retrieved from http://www.eurojournals.com/ejsr.htm.
Le, T. V., & Le, T. H. (2017). Ownership and identities of the largest shareholders and dividend policy: Evidence from Vietnam. Organizations and Markets in Emerging Economies, 8(1), 86-104.
Levin, H. R. (1997). Aspects of exchange control - foreign investments, expatriation and repatriation of funds. De Rebus, 1997(353), 420-421. doi:10.10520/AJA02500329_9325.
Lintner, J. (1956). Distribution of Incomes of Corporations Among Dividends, Retained Earnings, and Taxes. The American Economic Review, 46(2), 97-113. Retrieved from http://www.jstor.org/stable/1910664.
Miller, M. H., & Modigliani, F. (1961). Dividend Policy, Growth, and the Valuation of Shares. The Journal of Business, 34(4), 411-433. Retrieved from http://www.jstor.org/stable/2351143.
Moloi, T., Nharo, T., & Hlobo, M. (2021). The relationship between the characteristics of the board of directors and the dividend payment policies: case of the 40 companies listed on the JSE. Journal of Academic Finance 12(1), 30-52. Retrieved from https://doi.org/10.5281/zenodo.4994763.
Mustapha, M., & Che Ahmad, A. (2011). Agency theory and managerial ownership: evidence from Malaysia. Managerial Auditing Journal, 26(5), 419-436. doi:10.1108/02686901111129571
Mvovo, S. (2020). The impact of institutional investors on dividend policy in South Africa. Retrieved from http://hdl.handle.net/11427/32872 Available from University of Cape Town OpenUCT database.
National Treasury. (2017). Ownership of JSE-listed companies. Retrieved from http://www.treasury.gov.za.
Ngo, A., Duong, H., Nguyen, T., & Nguyen, L. (2020). The effects of ownership structure on dividend policy: Evidence from seasoned equity offerings (SEOs). Global Finance Journal, 44. doi:https://doi.org/10.1016/j.gfj.2018.06.002.
Nyere, L., & Wesson, N. (2019). Factors influencing dividend payout decisions : evidence from South Africa. South African Journal of Business Management, 50(1), 1-16. doi:10.4102/sajbm.v50i1.1302.
Pequenino, D. (2018). Broad-Based Black Economic Empowerment Ownership Deals and their Impact on Dividend Policy: An Empirical Study. (MSc). University of the Witwatersrand, Online. Retrieved from https://wiredspace.wits.ac.za/.
Pound, J., & Zeckhauser, R. (1990). Clearly Heard on the Street: The Effect of Takeover Rumors on Stock Prices. The Journal of Business, 63(3), 291-308. Retrieved from http://www.jstor.org/stable/2353151.
Ross, S. A. (1977). The Determination of Financial Structure: The Incentive-Signalling Approach. The Bell Journal of Economics, 8(1), 23-40. doi:10.2307/3003485.
Shah, A., Ullah, W., & Hasnain, B. (2011). Impact of ownership sturcture on dividend policy of firm: Evidence from Pakistan. Paper presented at the 2010 International Conference on E-Business, Management and Economics IPEDR.
Sinnarajah, S. (2020). The Impact of Ownership Structure on Dividend Policy of Listed Companies in Srilanka: With Special Reference to the Banks Finance and Insurance Sector. Global Journal of Management And Business Research 20(3), 1-10. Retrieved from https://journalofbusiness.org/index.php/GJMBR/article/view/3287.
Suwaidan, M., & Khalaf, L. (2020). The Effect of Board Composition and Ownership Structure on Dividend Policy: Evidence from Jordan. International Journal of Innovation, Creativity and Change, 14(8), 1-18. Retrieved from www.ijicc.net.
Ullah, H., Fida, A., & HKhan, S. (2012). The Impact of Ownership Structure on Dividend Policy Evidence from Emerging Markets KSE-100 Index Pakistan. International Journal of Business and Social Science, 3(9). Retrieved from www.ijbssnet.com.
Al-Gharaibeh, M., Zurigat, Z., & Al-Harahsheh, K. (2013). The effect of ownership structure on dividends policy in Jordanian companies. Interdisciplinary journal of contemporary research in business, 4(9), 769-796.
Al-Najjar, B., & Kilincarslan, E. (2016). The effect of ownership structure on dividend policy: evidence from Turkey. Corporate Governance: The International Journal of Business in Society, 16(1), 135-161. doi:10.1108/CG-09-2015-0129.
Ang, J. S., Cole, R. A., & Lin, J. W. (2000). Agency Costs and Ownership Structure. The Journal of Finance, 55(1), 81-106. doi:https://doi.org/10.1111/0022-1082.00201.
Björn, L., & Eriksson, L. (2016). Ownership structure's effect on dividend policy : Evidence from publicly listed Swedish firms. (Independent thesis Advanced level (professional degree) Student thesis). Umeå School of Business and Economics, Online. Retrieved from http://urn.kb.se/resolve?urn=urn:nbn:se:umu:diva-123941 DiVA database.
Booth, L., & Zhou, J. (2017). Dividend policy: A selective review of results from around the world. Global Finance Journal, 34, 1-15. doi:https://doi.org/10.1016/j.gfj.2017.07.002.
Buthelezi, L. (2021). Foreigners show record interest in SA companies at investor conference. Fin24. Retrieved from https://www.news24.com/fin24/economy/.
Chai, D. H. (2010). Foreign corporate ownership and dividends. Online: Centre for Business Research, University of Cambridge.
Easterbrook, F. H. (1984). Two Agency-Cost Explanations of Dividends. The American Economic Review, 74(4), 650-659. Retrieved from http://www.jstor.org/stable/1805130.
Eskandar, H., Mehrani, S., & Moradi, M. (2011). Ownership structure and dividend policy: Evidence from Iran. African Journal of Business Management, 5(17), 7516-7525. doi:10.5897/AJBM11.468.
Ezeagba, C. E. (2017). The effect of ownership structure on dividend policy: Evidence from selected firms in the Nigerian Stock Exchange: 2011-2015. Journal of Social Development, 3(6). doi:10.12816/0038070.
Firer, Gilbert, & Maytham. (2008). Dividend policy in South Africa. Investment Analysts Journal, 37(68), 5-19. doi:10.1080/10293523.2008.11082500.
Firer, & Viviers. (2011). Dividend policies of JSE-listed companies : 1989-2010. Management Dynamics : Journal of the Southern African Institute for Management Scientists, 20(4), 2-22. doi:10.10520/EJC119150.
Gilbert, E., & Strugnell, D. (2010). Does survivorship bias really matter? An empirical investigation into its effects on the mean reversion of share returns on the JSE (1984–2007). Investment Analysts Journal, 39(72), 31-42. doi:10.1080/10293523.2010.11082521.
Gordon, M. J. (1959). Dividends, Earnings, and Stock Prices. The Review of Economics and Statistics, 41(2), 99-105. doi:10.2307/1927792.
Hanady, B. (2021). The impact of ownership structure on dividend policy of listed firms in Jordan. Cogent Business & Management, 8(1), 1-18. doi:10.1080/23311975.2020.1863175.
Jensen, M. C. (1986). Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. The American Economic Review, 76(2), 323-329. Retrieved from http://www.jstor.org/stable/1818789.
Joliet, R., & Muller, A. (2015). Dividends and foreign performance signaling. Multinational Finance Journal, 19(2), 77-107.
JSE. (2021). History & Company Overview. Retrieved from https://www.jse.co.za/our-business/history-%26-company-overview.
Kien, D., & Chen, Y.-P. (2020). Ownership Structure Impact on Dividend Policy of Listed Companies on Vietnamese Securities Market Journal of Mathematical Finance 10(2), 223-241. doi:10.4236/jmf.2020.102014.
Kouki, M., & Guizani, M. (2009). Ownership structure and dividend policy evidence from the Tunisian stock market. European Journal of Scientific Research, 25(1), 42-53. Retrieved from http://www.eurojournals.com/ejsr.htm.
Le, T. V., & Le, T. H. (2017). Ownership and identities of the largest shareholders and dividend policy: Evidence from Vietnam. Organizations and Markets in Emerging Economies, 8(1), 86-104.
Levin, H. R. (1997). Aspects of exchange control - foreign investments, expatriation and repatriation of funds. De Rebus, 1997(353), 420-421. doi:10.10520/AJA02500329_9325.
Lintner, J. (1956). Distribution of Incomes of Corporations Among Dividends, Retained Earnings, and Taxes. The American Economic Review, 46(2), 97-113. Retrieved from http://www.jstor.org/stable/1910664.
Miller, M. H., & Modigliani, F. (1961). Dividend Policy, Growth, and the Valuation of Shares. The Journal of Business, 34(4), 411-433. Retrieved from http://www.jstor.org/stable/2351143.
Moloi, T., Nharo, T., & Hlobo, M. (2021). The relationship between the characteristics of the board of directors and the dividend payment policies: case of the 40 companies listed on the JSE. Journal of Academic Finance 12(1), 30-52. Retrieved from https://doi.org/10.5281/zenodo.4994763.
Mustapha, M., & Che Ahmad, A. (2011). Agency theory and managerial ownership: evidence from Malaysia. Managerial Auditing Journal, 26(5), 419-436. doi:10.1108/02686901111129571
Mvovo, S. (2020). The impact of institutional investors on dividend policy in South Africa. Retrieved from http://hdl.handle.net/11427/32872 Available from University of Cape Town OpenUCT database.
National Treasury. (2017). Ownership of JSE-listed companies. Retrieved from http://www.treasury.gov.za.
Ngo, A., Duong, H., Nguyen, T., & Nguyen, L. (2020). The effects of ownership structure on dividend policy: Evidence from seasoned equity offerings (SEOs). Global Finance Journal, 44. doi:https://doi.org/10.1016/j.gfj.2018.06.002.
Nyere, L., & Wesson, N. (2019). Factors influencing dividend payout decisions : evidence from South Africa. South African Journal of Business Management, 50(1), 1-16. doi:10.4102/sajbm.v50i1.1302.
Pequenino, D. (2018). Broad-Based Black Economic Empowerment Ownership Deals and their Impact on Dividend Policy: An Empirical Study. (MSc). University of the Witwatersrand, Online. Retrieved from https://wiredspace.wits.ac.za/.
Pound, J., & Zeckhauser, R. (1990). Clearly Heard on the Street: The Effect of Takeover Rumors on Stock Prices. The Journal of Business, 63(3), 291-308. Retrieved from http://www.jstor.org/stable/2353151.
Ross, S. A. (1977). The Determination of Financial Structure: The Incentive-Signalling Approach. The Bell Journal of Economics, 8(1), 23-40. doi:10.2307/3003485.
Shah, A., Ullah, W., & Hasnain, B. (2011). Impact of ownership sturcture on dividend policy of firm: Evidence from Pakistan. Paper presented at the 2010 International Conference on E-Business, Management and Economics IPEDR.
Sinnarajah, S. (2020). The Impact of Ownership Structure on Dividend Policy of Listed Companies in Srilanka: With Special Reference to the Banks Finance and Insurance Sector. Global Journal of Management And Business Research 20(3), 1-10. Retrieved from https://journalofbusiness.org/index.php/GJMBR/article/view/3287.
Suwaidan, M., & Khalaf, L. (2020). The Effect of Board Composition and Ownership Structure on Dividend Policy: Evidence from Jordan. International Journal of Innovation, Creativity and Change, 14(8), 1-18. Retrieved from www.ijicc.net.
Ullah, H., Fida, A., & HKhan, S. (2012). The Impact of Ownership Structure on Dividend Policy Evidence from Emerging Markets KSE-100 Index Pakistan. International Journal of Business and Social Science, 3(9). Retrieved from www.ijbssnet.com.
Published
2021-10-12
How to Cite
Peerbhai, F., Gumede, B. ., Shabangu, N., Gumede, N., Ndhlovu, N., & Hlomela, T. . (2021). The Impact of Ownership Structure on Firms’ Dividend Policy: Evidence from JSE Listed Firms: Array. Acta Universitatis Danubius. Œconomica, 17(5). Retrieved from https://dj.univ-danubius.ro/index.php/AUDOE/article/view/1376
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Financial Economics
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