Dividend policy determinants of Sri Lankan firms : a triangulation approach

Purpose: The purpose of this paper is to identify the dividend policy determinants of Sri Lankan firms and why they pay dividends. Design/methodology/approach: The study uses several quantitative approaches to investigate dividend determinants using market (secondary) data of 190 Sri Lankan firms and 1,330 firm-year observations. Dividend determinants are also identified using survey (primary) data from 141 of the 190 firms. Triangulation is then used to facilitate validation of the data through cross-verification from two data sources. Findings: Analysis of the market data reveals that firm size, industry impact, corporate governance, free cash flow, earnings, past dividends, profitability, investment opportunities, net working capital, concentrated ownership structure and investor preference represent the most important dividend determinants. Survey data confirm these findings. The evidence supports the pecking order, signaling, free cash flow, catering and outcome theories using both secondary and primary data and the bird-in-the-hand theory using survey data. Research limitations/implications: The findings are useful not only for corporate decision makers in establishing an appropriate dividend policy but also for shareholders in making investment decisions. Because the current study is limited to Sri Lanka, future researchers should study the same phenomenon in other countries using the triangulation approach. Originality/value: This study provides a hybrid approach to dividend policy research by using both primary and secondary data in a single study. It is the first dividend study in Sri Lanka to use a triangulation approach.