Dividend policy and life cycle of the firm

Abstract

Dividends are considered one of the most important business financial decisions. Some theories like agency costs or asymmetric information and signalization have contributed with theoretical arguments or financial determinants to explain the level of dividends distributed by firms. This study tests the impact of the life cycle of the firm, and phases that it goes through, on its dividend policy. It also tests some financial determinants that the above mentioned theories demonstrate to be significant: return on investment, dimension, risk, number of shareholders, annual growth rate of net income, investment opportunities, firm’s debt financing, growth rate of sales and dividend payout of the year before.

The empirical study is based on a data of European firms from 6 countries: Germany, Denmark, Finland, United Kingdom, Italy and Sweden. The results don’t confirm the life cycle’s hypotheses, showing that firms don’t pay necessarily more dividends in their maturity phase. The results validate other hypotheses and reinforce some financial determinants and also reveals some similarities and differences among the dividend policies of the six countries.