Why companies do not pay cash dividends: The Turkish experience

H. Kent Baker, Erhan Kilincarslan

Research output: Contribution to journalArticle

Abstract

This study uses a survey approach to examine the views of corporate managers of non-dividend-paying firms listed on the Borsa Istanbul (BIST) in order to identify the factors leading to the decision not to pay cash dividends in Turkey. Our survey results show that cash constraints, growth opportunities, low profitability and earnings, and the cost of raising external funds (debt) are the major reasons inducing BIST firms not to pay dividends. Additionally, non-dividend-paying firms consider their shareholder preferences when setting a policy of paying no cash dividends. Yet, they neither view taxes as an important factor for paying no dividends nor perceive that stock repurchases are substitutes for cash dividends. Statistical analysis using secondary data of publicly-traded BIST firms reveals whether the actual corporate actions are consistent with the managerial views revealed by our survey research. These tests show that growth opportunities and debt level have a negative effect on the dividend payment decisions of BIST firms. Also, large blockholders and the existence of multiple large shareholders reduce the likelihood and intensity of paying a cash dividend in the Turkish market. Overall, the evidence suggests that non-dividend-paying companies are likely to be smaller in size, relatively younger (in the earlier stage of their life cycle) with high-growth opportunities or with a low level of profitability (or even loss) and small (negative) earnings. By contrast, highly-profitable, mature and large-size corporations are more likely to pay cash dividends.

LanguageEnglish
Number of pages18
JournalGlobal Finance Journal
Early online date28 Feb 2018
DOIs
Publication statusE-pub ahead of print - 28 Feb 2018

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Cash dividends
Dividends
Growth opportunities
Profitability
Debt
Factors
Life cycle
Survey research
Tax
Cash
Shareholders
Statistical analysis
Secondary data
Multiple large shareholders
Substitute
Payment
Blockholders
Turkey
Managers
Stock repurchases

Cite this

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Why companies do not pay cash dividends : The Turkish experience. / Baker, H. Kent; Kilincarslan, Erhan.

In: Global Finance Journal, 28.02.2018.

Research output: Contribution to journalArticle

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