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Title: Determinants of the dividend payout ratio of companies listed on emerging stock exchanges : the case of the Gulf Corporation Council (GCC) countries
Author: Al-Kuwari, Duha
ISNI:       0000 0004 2750 7776
Awarding Body: Cardiff University
Current Institution: Cardiff University
Date of Award: 2007
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This thesis investigates the behavior of firms listed on the stock exchanges of the Gulf Co-operation Council (GCC) countries in relation to the determination of their dividend policies. This may be considered more generally as a case study of emerging stock exchanges, where the determinants of dividend policy in emerging stock markets have received little attention. The study uses panel data of non-financial firms listed on the stock exchanges of GCC countries as a whole, and of five individual countries (Kuwait, Saudi Arabia, Oman, Qatar and Bahrain,), for the five year period between 1999 and 2003. The study develops nine hypotheses, which relate to the agency cost theory and which have been investigated in the previous literature. Based on these hypotheses, three models have been tested to address the limitations of previous work. The first model considers the impact of government ownership, free cash flow, firm size, growth rate, growth opportunity, business risk, and firm profitability. As some of the GCC states stock markets disclosed additional information about ownership structure, two additional models have been used to investigate whether the additional information provides additional insight into dividend policy. The first additional model re-tests dividend payout policy after adding institutional ownership to the explanatory variables used in the general model. The second additional model introduces the variable large shareholders, whether government, institutions, or individuals. The hypotheses have been tested by using two methods (1) the fixed effects and random effects models, and (2) the random effects Tobit model, which is better able to represent the fact that a significant number of listed firms chose not to distribute cash dividends in some or all of the years of the study period. In general, the fixed and random effects approaches, gave results consistent with the random effects Tobit approach. These results suggest that the main characteristics of dividend payout policy in these firms is that dividend payment relates strongly and directly to government ownership and firm profitability. These results taken as a whole indicate that firms pay dividends with the intention of reducing the agency problem and maintaining firm reputation since the legal protection for outside shareholders is limited in these countries. In addition, and as a result of the significant agency conflicts interacting with the need to built firm reputation, a firm's dividend policy depends heavily on firm profitability for the same year. This may indicate that listed firms, in the GCC states, alter their dividend policy very frequently and do not have a long-run target dividend policy. The results also report that the common variables of transaction cost theory (growth rate, leverage ratio, and business risk) have lower importance in explaining dividend policy that may have been predicted by previous work, as these factors were found to be significant in very few cases. Hence, this study concludes that dividend policy of firms listed on the GCC stock exchanges is affected mainly by agency cost but partly by transaction cost theory. Overall, this research indicates that government ownership plays an important role in dividend policy, and this characteristic is of particular relevance to consider when evaluating firms listed on the GCC stock exchanges.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available