Investment opportunities, corporate finance, and dividend payout policy: Evidence from emerging markets

The purpose of this paper is to investigate the effects of investment opportunities and corporate finance on dividend payout policy.

This issue is tested with a sample of 34 emerging market countries covering a 17‐year period, 1990‐2006. Fixed effects panel model is employed in our estimation.

A significantly negative relationship between investment opportunity set and dividend payout policy is found. There are, however, insignificant effects of the various measures of corporate finance namely, financial leverage, external financing, and debt maturity on dividend payout policy. Profitability and stock market capitalization are also identified as important in influencing dividend payout policy. Profitable firms are more likely to support high dividend payments to shareholders. However, firms in relatively well‐developed markets tend to exhibit low dividend payout policy.

The main value of the paper is in respect of the fact that it uses a large dataset from emerging market countries. The results generally support existing literature on investment opportunity set and dividend payout policy.