Factors influencing dividend policy: case study of bank, finance and insurance firms listed in colombo stock exchange

Abstract

The behavior of the dividend policy is the most debatable issue in corporate finance. Many researchers try to expose the issue regarding the dividend behavior or dynamics and determinants of dividend policy but still do not have an acceptable description for firms' observed dividend behavior. Therefore, the present research focused on analysing the factors influencing dividend policy giving special reference to the Bank Finance and Insurance firms listed in Colombo Stock Exchange to identify the factors influencing the dividend policy of Bank Finance and Insurance firms listed in Colombo Stock Exchange. The investigation was performed using panel data procedures for a sample of 26 Bank Finance and Insurance firms listed in the Colombo Stock Exchange during 2010-2011 – 2014-2015. This period was selected to identify financial behavior immediately after the ethnic crisis. Secondary data collected from annual reports published by the Colombo Stock Exchange was regressed to find the influence on dividend policy. Current earnings, liquidity constraints, operating cash flows, free cash flows, availability of investment opportunities and past dividend patterns significantly influence dividend policy in Bank Finance and Insurance firms listed in Colombo Stock Exchange. The findings revealed that the current earnings, liquidity constraints, and past dividend patterns significantly influence dividend policy on Bank Finance and Insurance firms listed on Colombo Stock Exchange. Free cash flows, operating cash flows, and the availability of investment opportunities have a significant negative influence on the dividend policy of Bank Finance and Insurance firms listed in the Colombo Stock Exchange. Findings will be benefited to the directors, top-level managers, shareholders and potential investors for their decision making.