Dividend Drivers: Market Signals



Abstract: Using data of 314 manufacturing firms listed on Tehran Stock Exchange for the period 1994-2004, this paper empirically investigates the dividend decision. Unlike previous Iranian papers investigated the dividend policy, factors affecting dividends, and the effects of dividends on the stock prices, present paper focuses on the dividend decision and the effects of market factors on the dividend decision. Our results show that of the firm-based factors, only prior year dividend, current earnings, prior year earnings, and current earnings changes affect on dividend decision, and unlike prior researches, no strong evidences on the other firm based variables such as growth opportunities; leverage ratio, firm size, and ownership concentration are obtained. It seems also that current stock price return is considered by the firms deciding to reduce dividend. For the firms reducing dividends, weak evidences are obtained showing that the greater the current stock price is, the fewer dividends are paid.