OWNERSHIP STRUCTURE AND DIVIDEND POLICY IN SRI LANKA

Abstract

The study investigates the implications of the corporate ownership structure has on the dividend policy by examining the equity ownership structure of hundred and one (101) companies listed in the Colombo Stock Exchange during the five year period from 2001 to 2005. Ownership groups are classified as ‘Institutional investors’, ‘other corporate owners’ and ‘members of the management’. The explanatory power of alternative models of dividend policy, Full Adjustment Model and Earnings Trend Model modified by incorporating factors representing ownership groups is examined in a panel data setting. The study finds that the Managerial and Institutional ownerships are significant and are positively related to the payout, and; that the existence of a parent – subsidiary or parent –associate relationship does not affect the level of payout. Level of earnings negatively related to the probability of a dividend distribution; the dividend payments do not reflect the earnings volatility. The payout level in the preceding year is a key determinant of the succeeding year’s payout and the relationship between successive dividend payments is negative. Further, evidence in support of the Asymmetric Information Hypothesis; that the firms signal performance to institutional shareholders through changing the level of dividends. These findings support the dominance of agency and signalling explanations for dividend payout policy in Sri Lanka.

Keywords: Ownership Structure, Dividends Policy, Panel Data, Sri Lanka

For full paper: fmscresearch@sjp.ac.lk