Dividend stability in a unique environment

Abstract

Purpose

This paper aims to examine the stability of dividend policy using a unique data set.

Design/methodology/approach

The paper is based on the Lintner model that is used to test the dividend smoothing behavior. The specific econometric method used for panel data is Tobit regression.

Findings

The evidence shows that Omani firms adopt a policy of smoothing dividends. This stability of dividends does not support the predictions suggested by the high bank leverage, absence of taxes, and the variability of dividend payments in Oman.

Research limitations/implications

This study highlights the need for further research in order to examine whether these results have any effect on dividend initiations and omissions in Oman.

Practical implications

The findings of this study show that there are differences in dividend policies between the Omani companies and those in developed markets. Potential investors in the Omani market should be aware about these differences in making their investment decisions.

Originality/value

This paper examines stability of dividend policy in a unique environment where firms distribute almost 100 percent of their profits in dividends, firms are highly levered mainly through bank loans, there are no taxes on dividends and capital gains, and there is variability in cash dividend payments. These factors suggest a diminished role of dividend stability in Oman. It is an empirical issue to examine whether this is indeed true. The authors are not aware of any other study on dividend stability using data with these unique factors.

Citation

Hamed Al‐Yahyaee, K., Pham, T. and Walter, T. (2010), "Dividend stability in a unique environment", Managerial Finance, Vol. 36 No. 10, pp. 903-916. https://doi.org/10.1108/03074351011070260