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This study aims to investigate determinants that impact a company’s dividend policy in the Vietnam and US markets by researching public nonbank financial firms from 2017 to 2021 by applying panel data of 30 businesses listed on the Vietnam Stock Exchange and 30 businesses listed on the American Stock Exchange during the reporting period. Panel data is constructed with four independent variables in the Vietnam market, including liquidity, size, profitability, and leverage, and five independent variables in the US market, including investment opportunities, liquidity, size, profitability, leverage. The model investigates the association between a firm’s dividend policy and the independent variables. The dependent variable in the panel model is the dividend yield, whereas the independent variables are Tobin’s Q (in the American market), current ratio, ln (total asset), return on equity, and debt-to-equity ratio. Other tests, including diagnostic tests (multicollinearity, heteroskedasticity, and Durbin-Watson), are also conducted in the study. This paper not only analyzes the determinants affecting dividend policy but also explores the dividend policy of the different researched markets. The first result implies that dividend yield changes in Vietnam can be explained by liquidity, size, and profitability; so, collected firms in Vietnam tend to pay dividends regularly. The second result shows that dividend yield changes in the US can be clarified by investment opportunities and liquidity, so collected firms in the US tend to reinvest in long-term growth objectives.

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Introduction

Three crucial decisions that businesses in corporate finance often need to make are investments, projects, and dividend policies. Businesses must strike a compromise when determining their dividend policy between shareholder profitability and long-term growth goals. The enterprise should keep its profits to reinvest in its operations, invest in long-term assets, or pay dividends to its shareholders as a reward for their investment. To be more specific, a suitable dividend policy is critical. Shareholders will receive too little if firms have a low ratio, and there will be too much free cash flow if enterprises do not have a business initiative. Furthermore, if the payout ratio is large, enterprises may face difficulties in investing for company projects: borrowing money from outside sources, difficulty in expanding business, and so on. It’s important to strike a balance between rewarding shareholders and ensuring the company has enough cash on hand to fund its operations and growth initiatives. There have been several discussions about which factors influence dividend policy decisions. Many studies have examined both internal and external aspects to determine which features truly influence dividend decision-making. However, the conclusions of the studies varied and have resulted in distinct points of view. There is a lot of research on dividend payment policies that might be debatable, including the typical following.

In 1961, Miller and Modigliani (1961) came up with the irrelevance theory, which also extends to the dividend policy of a company. The hypothesis suggests that the value or cost of capital of a company is not influenced by its dividend policy. This means that the overall value of the company remains unchanged, irrespective of whether it pays out dividends or retains earnings for reinvestment purposes. Hence, the dividend policy of a company is not critical in influencing its total worth and investors’ view of the company, as proposed by Gordon and Lintner (1963). Myron Gordon and John Lintner, famous researchers in the dividend policy of the corporate finance field, suggest that investors prefer the certainty of receiving dividends over the potential for future capital gains from stock investments. In 1982, Rozeff (1982) explored the factors that influence dividend payments, including growth, beta, and agency costs. Specifically, a stable dividend policy might signal to investors that the company has steady earnings and growth projections. On the other hand, a reduction in dividends may indicate that the company is experiencing financial difficulties or anticipates lower earnings in the future. In 2006, DeAngeloet al.(2006) proposed life-cycle explanations for dividends. Enterprises go through many life-cycle stages that influence dividend payout decisions. Firms are more inclined to hold earnings during the early phases to finance expansion prospects and, as a result, may pay little or no dividends. As businesses mature and have fewer investment options, they may raise their dividend payouts in the intermediate period. As they reach maturity and concentrate on maintaining stability rather than growth in the final stage, companies may reduce their dividend payouts. Jensen (1986) that dividend payouts were not as significant as many thought and that corporations should instead focus on maximizing their entire value, which included capital gains from reinvesting earnings. This researcher proposed that corporations invest their free cash flow in valuable projects and opportunities rather than delivering it to shareholders through dividends. A firm’s dividend policy should be based on its ability to generate profits and create value, rather than on the preferences of shareholders or management. This researcher believed that a firm’s ability to invest in profitable projects would ultimately lead to higher stock prices and increased shareholder value, regardless of the level of dividend payouts.

Numerous studies have been implemented globally on dividend policy. However, due to the distinct business environment and market conditions in each country, it is challenging to produce uniform outcomes across different markets. For that reason, the goal of this research is to focus on analyzing the determinants affecting dividend policy in different markets with economic conditions (Vietnam and the US) from 2017 to 2021. It is aimed that this paper will provide fascinating and relevant information for future research while also providing valuable contributions to two main aspects of corporate finance: shareholders’ welfare and company’s long-term growth. The paper is organized to achieve this goal as directed: segment 2 is the literature review, providing a summary of the theoretical materials and papers that aid in understanding the factors and models; segment 3 demonstrates how this study used the model to analyze the implications of factors of dividend policy specified in segment 2; segment 4 examines and analyzes the model’s results in order to clarify the association between variables; segment 5 presents and discusses the important results of the analysis; segment 6 demonstrates the policy implications that may arise from the emerging findings; segment 7 completes the research by highlighting some of the study’s limitations and potential directions for future research.

Literature Review

Theoretical Standpoints

Dividend Irrelevance Theory: Miller and Modigliani Hypothesis

The M&M dividend irrelevance theory proposes that in a perfectly competitive market, the cost of capital Fig. 1a or stock price Fig. 1b of a company is not influenced by its dividend policy payment. This means that whether a company decides to pay dividends or reinvest retained earnings, the total worth of the business remains unchanged. According to the dividend irrelevance theory, a corporation would be better off investing its money internally rather than paying out dividends. When corporations take on debt in order to maintain their dividend payments rather than reducing debt to enhance their balance sheet, the case makes sense.

Fig. 1. Dividend irrelevance theory: (a) the cost of capital, (b) stock price (y_fapro, 2023a).

Bird-in-Hand Theory

The bird-in-hand hypothesis was developed in the context of dividend policy and investment valuation by Gordon (1962) and Lintner (1956). The premise of this argument is that because capital gains are uncertain, investors would rather get dividends from stock price Fig. 1b than the cost of capital Fig. 2a. Even if the latter provided higher returns over the long term, investors would select investments with safer, more dependable returns over those with unsure capital gains. The hypothesis was created as an opposition to the M&M dividend irrelevance argument.

Fig. 2. Bird-in-hand theory: (a) the cost of capital, (b) stock price (y_fapro, 2023b).

Agency Theory

Agency theory strongly emphasizes the relationship between the agents and the principles. In a corporate structure, shareholders serve as the principals and firm executives as the agents. The concept highlights the conflicting interests and goals that exist between principals and agents. When they are collaborating to achieve a certain objective and the agents are operating on the principal’s behalf, conflict results. Since the principle frequently doesn’t know how well an agent is performing, they must have faith in the agent’s moral character. Corporate governance may encourage agents to work in accordance with the interests of their principals. The Agency theory idea gained popularity thanks to Jensen and Meckling (1976) (Fig. 3).

Fig. 3. Agency theory (Principal–Agent Problem, 2023).

Life Cycle Theory

The life cycle theory of dividends is based on the enterprise life cycle: Development stage (no cash dividends), Growth stage (stock dividends, low cash dividends), Expansion stage (stock dividends, low to moderate cash dividends, stock splits), Maturity (moderate to high cash dividends). According to this theory, a fledgling enterprise has an ample supply of investment options, but it lacks the ability to meet all its funding needs using internally generated cash. Also, it has significant challenges when trying to secure outside funding. Hence, the company will stop paying dividends to shareholders in order to save money. The company eventually reaches the maturity stage in its life cycle following a period of expansion (Fig. 4).

Fig. 4. Life cycle theory (McGee).

Signaling Theory

The dividend signaling theory was introduced by Akerlof (1970) and Bhattacharya (1979). An increase in a company’s dividend payout typically indicates that its stock will perform favorably in the future. On the other hand, drops in dividend payments typically indicate that the company will perform adversely in the future. Besides, this theory also suggests that dividends decrease the enterprise’s free cash flow, thereby raising the probability that the business will require outside money to make payments for all the projects it plans to undertake. In an unbalanced knowledge world, insiders who have more information use dividend policy as a costly way to signal their company’s future potential to outsiders who have less information. In these cases, the signaling theory happens.

Empirical Studies in US and Vietnam Markets

Banerjeeet al.(2002) used cross-sectional techniques to study dividend payout in companies listed on the NYSE and AMEX from 1963 to 2001. Investment opportunities may be a major figure in clarifying why businesses have a decreased association to distribute dividends, while profitability is a factor in increasing dividend payments. This outcome is consistent with the findings of Nissim and Ziv (2001) and Aivazian and Booth (2003). In 2004, Myers and Bacon (2004) conducted an empirical analysis of the Multex Investor Database. The study sampled 483 firms to clarify the influence of different financial variables on dividend decisions. The findings suggest that the management of the companies analyzed has the motivation to decrease dividends so that the forecasted value of stock options awarded as executive compensation can be increased. The payout ratio increases, and the firm’s risk decreases as its PE rises. In 2003, Grullonet al.(2003) examined the dividend announcements from 1963 to 1997 made by NYSE and AMEX-listed businesses. The dividend Signaling theory predicts that dividend modifications are positively associated with future alterations in earnings and profitability. However, the study found no evidence supporting this prediction. There was no information on dividend changes that could predict changes in earnings after considering the nonlinear patterns in earnings behavior. Additionally, their analysis demonstrates an unfavorable association between dividend changes and potential future profitability changes (return on assets). This finding aligns with the conclusions drawn in the research conducted by Benartziet al.(1997) on domestic companies traded on the NYSE or AMEX during the timeframe from 1979 to 1991.

The influence of corporate governance (CG) on the dividend policy (DP) of Vietnamese businesses is the subject of a study conducted by Haet al.(2021). This research was analyzed for companies listed on the Vietnam Stock Exchange between 2008 and 2018 with 2937 observations. This study demonstrated how dividend policy is affected by elements like profitability, investment opportunity, firm size, and financial leverage. The research outcome emphasizes businesses with poor corporate governance will distribute more dividends. Simultaneously, their study indicates that variables such as profitability (positive), leverage (negative), company size (positive), and investment opportunity (negative) influence dividend policy. A study by Ngoet al.(2022) investigates how board characteristics affected the dividend payout percentage of companies listed on the Vietnam Stock Exchange. From 2014 to 2019, data were gathered from 32124 publicly traded companies. According to the findings of the generalized least squares (GLS) method, board ownership, debt ratio, and firm size are negatively relevant to the dividend payout ratio. The dividend payout ratios of listed businesses were discovered to be positively impacted by corporate earnings as determined by ROA. Thaoet al.(2015) studied the elements influencing the dividend payout ratio of Vietnam’s listed businesses. This article looks at the factors that affect dividend payments for all businesses in the fields of real estate, telecommunications, food, healthcare, industry, energy, services-tourism, and education that the bank plans to list on the Ho Chi Minh Stock Exchange (HOXE) in the five years between 2010 and 2014. In this research, data from a sample of 101 businesses were empirically examined on financial websites like  cafef.vn and  Stockbiz68.com. The findings also indicate a negative link between dividend payout, firm size, leverage, and business risk. Profitability and liquidity had no significant effect on dividend payments received from listed companies in Vietnam.

Determinants of Dividend Policy: Hypothesized Relationship

A variety of hypotheses have been put up as the basis for the explanation of dividend policy. Numerous earlier research has shown a wide variety of variables that can have an enterprise’s dividend policy. It is challenging to choose which exact collection of factors is preferable to utilize because studies carried out in other nations assess various sets of firm-specific characteristics. Regularly researched firm-specific components from earlier studies are taken into consideration, along with probable factors based on dividend-relevant hypotheses.

The study aims to investigate whether a business’s dividend policy is impacted by its capital structure and profitability, as per the Irrelevance Theory. To achieve this, firm-specific factors such as leverage, and profitability will be taken into account. The Signaling Theory suggests that a company’s dividend policy can be influenced by its profitability. Therefore, the study will examine if a company’s profitability plays a crucial role in determining its dividend policies.

Additionally, dividend distributions combine the interests of investors and managers, which is one of the determinants obtained from agency theory. The Life-Cycle Theory also looks into the dividend-paying practices of corporations according to the stage of their business life cycles. From this, it is possible to infer the amount and quality of the investment opportunities that are significant to this study. Therefore, Investment Opportunities, Liquidity, Size, Profitability, and Leverage are five elements that can potentially be firm-specific elements influencing a company’s dividend policy, according to dividend-relevant theories and commonly studied components from prior studies.

Dividend Policy and Investment Opportunities

Other factors affecting dividend policy are given more attention than investment opportunities, as per studies by Lang and Litzenberger (1989) and John and Lang (1991). They suggest that differences in managers’ investment approach can be identified by changes in dividends, which are affected by a company’s lifecycle and strategy. Young and high-growth companies tend to use their earnings for business expansion rather than dividend payouts. Large, reliable corporations frequently pay dividends on a regular basis and more than the market average.

According to the studies Baker and Wurgler (2004), Yoon and Starks (1995), Amidu and Abor (2006), Ahmed and Javid (2012), Smith and Watts (1992), Bravet al.(2005), Fatemi and Bildik (2012), Ferriset al.(2009), Gugler (2003), Renneboog and Trojanowski (2011), businesses with high investment opportunities tend to distribute lower dividends, indicating a negative association between dividend policy and investment opportunities. However, D’Souza and Saxena (1999) stated that there is no correlation between investment opportunities and dividend policies. The Life-Cycle Theory (DeAngeloet al., 2006) and Agency theory have played a significant role in supporting this hypothesis. Young and fast-growing companies have more investment prospects than established and stable firms. Thus, these companies would rather reinvest additional cash than distribute dividends. This research is developed by the following hypothesis based on theories and prior studies:

• H1: The dividend policy of firms is negatively affected by investment opportunities.

Dividend Policy and Liquidity

Liquidity is an economic term used to refer to the cash conversion ability of an asset or product because money is universally accepted as a means of buying, selling, and paying for transactions. Highly liquid assets like stocks and bonds can be easily converted into cash, while assets such as real estate, factories, machinery, and inventories are low in liquidity because it takes a considerable amount of time to convert them into cash.

Earlier studies have found a link between dividend policy and liquidity. According to Banerjeeet al.(2007), Laiet al.(2020), Jabbouri (2016), enterprises with cautious financing may see smaller dividend payouts as liquidity increases. Otherwise, Kanwal and Sujata (2008) discovered no association between liquidity and dividend policy. In particular, Ho (2003), Lee (2010), Darling (1957), Jianget al.(2017), Iganet al.(2010), and Okpara (2010) observed that companies with higher liquidity tend to have a more generous dividend payout. This suggests that companies with greater access to liquid assets like stocks and bonds are more inclined to pass their profits to shareholders. It is believed that a company with greater liquidity will have fewer financial risks and, as a result, will be better able to boost dividend payments. Also, this fits with the Signaling Theory Bhattacharya (1979) and Jensen (1986) free cash flow theory. Businesses should pay out larger dividends if they have more cash because management might invest it carelessly otherwise. This research is developed by the following hypothesis based on theories and prior studies:

• H2: The dividend policy of firms tends to be positively impacted by the level of liquidity.

Dividend Policy and Firm Size

To conduct a comprehensive analysis of the dividend policy, it is crucial to examine the size of the firm. Firm size can be measured through various means, including total assets, sales, and market value of equity. In previous studies, the size of a corporation has been a commonly used metric, with many researchers asserting that it has a significant impact on dividend policy (Hellstrom & Inagambaev, 2012). Therefore, investigating the size of a company is an essential factor in dividend policy research.

The prior studies Denis and Osobov (2007), Holderet al.(1998), Al-Kuwari (2009), Redding (1995), Eriotis (2005), Olatundan (2003), Nizar Al-Malkawi (2007), Putriet al.(2021), Al-Ajmi and Hussain (2011), Labhane and Mahakud (2016), Yusof and Ismail (2016), Kumar and Sujit (2018), Singla and Samanta (2019), Al-Shubiri (2011) have presented a positive association between dividend policy and firm size. In fact, Ayman (2015) emphasized that larger companies tend to be more stable and mature than smaller ones, which makes them less risky and more able to distribute dividends. However, contrary to these findings, Muhammad (2011) discovered that a firm’s size did not have any effect on its dividend policy.

Research has shown that the relationship between an enterprise’s dividend policy and its size is positive. According to the Life-Cycle Theory (DeAngeloet al., 2006), businesses that are young and growing tend to distribute lower dividends as compared to mature and stable businesses. In contrast, older companies are typically more substantial and pay higher dividends as a result. This is believed to be a tactic to mitigate agency costs since larger firms are perceived to have more significant cash flows and managers with greater authority, as also suggested by the Agency Theory (Jensen, 1986; Jensen & Meckling, 1976). This research is developed by the following hypothesis based on theories and prior studies:

• H3: The dividend policy of a firm is positively correlated with its size.

Dividend Policy and Profitability

The success of a company in production and business activities can be gauged by its profitability, which is the ultimate measure. Net profitability accounting is crucial in determining this success. Investors are usually drawn to profitable businesses, as profitability is perceived to be linked to the ability to pay dividends. Prior studies have frequently relied on profitability to research the correlation between dividend policy and a company’s financial statements. Amidu and Abor (2006) regard it as the most critical factor, while Muhammad (2011) view it as the main determinant of a business’s capacity to distribute dividends.

Several studies have proven that there subsists a positive association between profitability and dividend policy. Some of the researchers who have made this assertion include Olowe and Moyosore (2014), Setiawan and Phua (2013), Abor and Bokpin (2010), Rehman and Takumi (2012), Ginting (2018), Perwira and Wiksuana (2018), Dewi and Abundanti (2020). Similarly, Jayesh (2003) and Baker and Powell (2000) affirmed that there is a positive correlation between dividends and the profitability trends of a firm. However, other studies Grullonet al.(2003), Benartziet al.(1997), Kania and Bacon (2005) have found a negative association between dividends and future modifications in profitability. However, Myers and Bacon (2004) and Ho (2003) both conclude that dividend distribution is unaffected by profitability.

Based on Agency Theory (Jensen & Meckling, 1976; Jensen, 1986), Signaling Theory (Akerlof, 1970; Bhattacharya, 1979), Life-Cycle Theory (DeAngeloet al., 2006), and according to the Bird-in-Hand Theory (Gordon, 1962; Lintner, 1956), there is a positive correlation between a business’s dividend policy and its profitability. As a business becomes more profitable, it generates more free cash flow. If the company pays out more dividends, it reduces agency problems and the manager’s control over cash. Large, mature organizations are more stable and profitable than small, immature businesses. Hence, businesses with higher profitability are additionally inclined to distribute higher dividends.

It is noted that enterprises increase the likelihood of sharing information with investors when they can’t tell the difference between good and bad businesses due to information asymmetry. Thus, businesses will convey positive information to investors by raising dividends. Investors presume that businesses have the potential for long-term profitability. This research is developed by the following hypothesis based on theories and prior studies:

• H4: The dividend policy of firms tends to be positively impacted by their profitability.

Dividend Policy and Leverage

A leverage ratio is the quantity of debt that a business uses to finance its operations compared to the amount of equity. Assessing a company’s financial leverage is a way to gauge the likelihood of the company defaulting on its debt obligations. The more debt a company has, the higher the risk of defaulting on its payments. However, taking on debt can also have its advantages, such as providing a tax shield due to the interest payments on the loan being tax-deductible. Nonetheless, taking on debt can lead to conflicts between creditors and equity holders. Creditors tend to get a business to make less risky investments than would be expected of those investing in its stock.

The correlation between an organization’s financial leverage and dividend payout has yielded mixed results. Franklin and Muthusamy (2010) argue that leverage plays a principal role in influencing a company’s dividend behavior. Some studies suggest a negative correlation between dividend payments and a business’s leverage. According to prior research Bradleyet al.(1998), Higgins (2015), Mancinelli and Ozkan (2006), Ahmed and Javid (2008), Jensenet al.(1992), Kathuoet al.(2020), Asad and Yousaf (2014), Nambukara-Gamage and Peries (2020), Odawo and Ntoiti (2015), Silviana and Adi (2020), businesses with higher levels of debt distribute lower dividends. However, Akhalumeh and Ogunkuade (2021) and Ajibade and Agi (2020) initiated a positive association between leverage and dividend payout. Large, well-known companies like big dividends because they can easily access outside cash by maintaining a strong financial reputation. Therefore, despite the face of robust growth and debt, dividends will remain large. According to the findings of Juhmani (2009) and Ho (2003), their research contends that financial leverage affects an enterprise’s dividend policy. Otherwise, Hunget al.(2018) investigate that there is no relationship between leverage and dividend policy.

Dividend policy and leverage have a negative relationship. According to Agency Theory, Managers tend to avoid taking risks and are hesitant to increase their debt burden Jensen and Meckling (1976), Easterbrook (1984). Managers prefer to keep cash flowing in order to counter financial risks since more leveraged firms face higher financial risks. Thus, dividend payments will be scaled back. As managers use money to pay off debt rather than distribute dividends, this supports the free cash flow notion Jensen (1986). This research is developed by the following hypothesis based on theories and prior studies:

• H5: Firms’ dividend payout policy is negatively impacted by their financial leverage.

Methodology

Research Tool and Sample and Data Collection

Eviews 12 software is applied for running OLS, REM, FEM models and varied tests such as redundant fixed effect test and Hausman test, Multicollinearity, Heteroskedasticity, Durbin-Watson. Panel data means a combination of cross-section (variables) and time series (five years) in an Excel file, then importing panel data in Eviews 12.

The study’s sample size includes 30 companies listed on the Vietnam stock exchange and 30 US companies listed on the American stock exchange during the period from 2017 to 2021, in total 5 years. The period of research is taken in recent years, with the year starting in 2017 and ending in 2021 (the effects of the Covid-19 pandemic). Besides, this research focused on public nonbank financial institutions such as investment companies, insurance companies, and venture capital corporations… over a researched period.

For each corporation in Vietnam, the data is properly obtained secondary data from  vietstock.vn and  cafef.vn websites, including the following parameters: dividend yield, current asset, current liabilities, total assets, ROE, total liabilities, and shareholder’s equity. For each firm in the US, the data is correctly gathered from secondary data from the websites  annualreports.com,  macrotrend.net, and  gurufocus.com: dividend yield, market value, current assets, current liabilities, total assets, ROE, total liabilities, and shareholder’s equity.

Equation in Vietnam and US Market

I n   V i e t n a m   m a r k e t : D Y i t = β 0 + β 1 C R i t + β 2 S I Z E i t + β 3 R O E i t + β 4 D E i t + ε i t

I n   U S   m a r k e t : D Y i t = β 0 + β 1 T O B I N + β 2 C R i t + β 3 × S I Z E i t + β 4 R O E i t + β 5 D E i t + ε i t

where

DYit – dividend yield for firm i at time t

TOBIN_Qit – Tobin’s Q for firm i at time t

CRit – current ratio for firm i at time t

SIZEit – natural logarithm of total assets for firm i at time

ROEit – return on equity for firm i at time t

DEit – total debt/total equity for firm i at time t

Beta – constant

ε – error variable

Measurement of the Variables

The dividend yield is preferred over the payout-to-dividend ratio as an indicator of dividend policy in this experiment. This is because the dividend yield is a more informative metric of a firm’s stock return and better aligns with the research’s model. Additionally, it highlights the connection between cash dividends and a company’s stock market price. Fama and French (1988) give investors an idea of the potential return on their investments. Berk and DeMarzo as such, present a more nuanced perspective on both enterprises and investors (Berk & DeMarzo, 2014).

Litzenberger and Ramaswamy (1979), Black and Scholes (1974), Miller and Scholes (1982), Friend and Puckett (1964), Long (1978) have also employed dividend yield as a measurement.

Tobin’s Q is used as a proxy for investment opportunities which is measured total market capitalization by total asset value (Lang & Litzenberger, 1989; John & Lang, 1991; Baker & Wurgler, 2004; Yoon & Starks, 1995; Johnet al., 2011). Liquidity is proxied by the current ratio, which is equal to current asset over current liabilities (Aivazian & Booth, 2003; Myers & Bacon, 2004; Kania & Bacon, 2005). Firm size is calculated by the natural logarithm of total assets as used by Dang and Li (2013), Gul (1999), Awan (2011). Profitability is measured as Net income divided by Total equity (Nissim & Ziv, 2001; Aivazian & Booth, 2003; Kania & Bacon, 2005; Freemanet al., 1982). Leverage is calculated as total liabilities to total equity (Rozeff, 1982; Ho, 2003; Nizar Al-Malkawi, 2007; Franklin & Muthusamy, 2010) (Table I).

Variables Symbol Description Expected coefficient sign
Dividend yield DY Dividend per share/Price per share
Investment opportunities Tobin’s Q Total market capitalization/Total asset value
Liquidity CR Current asset/Current liabilities +
Firm size SIZE = ln (Total asset) +
Profitability ROE Net income/Total equity +
Leverage DE Total liabilities/Total equity
Table I. Summary of Empirical Data

Results and Analysis

Descriptive Statistics

The means, medians, standard deviations, and minimum and maximum values for each of the variables are shown in Tables II and III.

Variables Dividend yield Liquidity Firm size Profitability Leverage
Symbol DY CR SIZE ROE DE
Mean 9.602400 1.894945 27.76413 12.22260 2.327773
Median 10.00000 1.337424 28.42500 10.84000 1.929161
Maximum 33.00000 16.00000 30.82000 60.20000 12.00000
Minimum 0.000000 0.230000 18.33000 −42.97000 0.177792
Std. dev. 7.036187 2.148641 2.264285 10.09957 1.744847
Observations 150 150 150 150 150
Table II. Summary Statistics in Vietnam Market
Variables Dividend yield Investment opportunities Liquidity Firm size Profitability Leverage
Symbol DY TOBIN_Q CR SIZE ROE DE
Mean 2.965667 1.147082 1.721133 14.82073 11.15420 2.415333
Median 2.820000 1.024624 0.615000 15.83500 8.435000 1.590000
Maximum 8.100000 3.774132 33.20000 17.58000 72.18000 11.12000
Minimum 0.000000 0.055617 0.000000 8.950000 −12.28000 0.010000
Std. dev. 1.584609 0.839160 3.421203 2.485135 12.12135 2.382149
Observations 150 150 150 150 150 150
Table III. Summary Statistics in the US Market

Table II generally reveals that the mean of CR, ROE, and DE exceeds their median. This implies that there is more data on the right side of the mean. Besides, the standard deviation of the distribution of series on CR and DE is moderately spread out, while ROE is quite highly dispersed, and its negative minimum value of (−42.97) shows the presence of potential areas of concern. The values of CR contain minimum (0.23), median (1.3), mean (1.89), and maximum (16), suggesting that collected firms in Vietnam have cash to pay dividends to their shareholders. Otherwise, the mean of DY and SIZE is lower than their median. This suggests that there is more data on the left side of the mean. There is a larger range in maximum and minimum value of DY, indicating that the data is more dispersed.

In Table III, the mean of dividend yield, Tobin_Q, CR, ROE, and DE, is greater than their median. This implies that there is more data on the right side of the mean. Nonetheless, according to the standard deviation of the series on dividend yield, Tobin_Q, DE is somewhat dispersed, whereas ROE is fairly dispersed, and a negative minimum value (ROE) of (−12.28) shows the presence of potential areas of concern. CR has a wide range of values between its maximum and minimum, signaling that a corporation with no current assets and a long-term asset focus. The median SIZE is greater than the mean, indicating that the distribution is to the left of the mean.

Overall, the current ratio is concerned with significant differences between the two chosen markets. Current asset means everything turns into cash. Usually, the companies don’t prefer to borrow current liabilities because it has high interest rates with small amounts of money.

The Result of Regression and Analysis

Tables IV and V are to answer the three crucial research questions, including what are the firm-specific determinants that influence the dividend policy decision for Vietnam and American public nonbank firms, how these factors influence the dividend policy, and what is the difference between the two chosen markets.

Variables Symbol Coefficient Standard error t-statistic Probability
Constant C −133.5265 39.03083 −3.421051 0.0009
Current ratio CR 1.903779 0.777062 2.449971 0.0158**
Firm size SIZE 5.019519 1.417275 3.541670 0.0006*
Profitability ROE 0.146531 0.061200 2.394294 0.0183**
Leverage DE −0.701220 0.456838 −1.534941 0.1275
Dependent Variable: DY Method: Panel
Periods included 2017-2021
Sample size 30
Observations 150
R-squared 0.577712
Prob (F-statistic) 0.000000
Durbin-Watson stat 1.659549
Table IV. Fixed Effects Model (FEM) in Vietnam Market
Variable Symbol Coefficient Standard error t-statistic Probability
Constant C 5.700918 2.158527 2.641115 0.0095
Investment opportunities TOBIN_Q −1.398379 0.379632 −3.683510 0.0004*
Current ratio CR 0.064289 0.032670 1.967817 0.0516***
Firm size SIZE −0.060644 0.136514 −0.444233 0.6577
Profitability ROE −0.024650 0.017022 −1.448094 0.1504
Leverage DE −0.028196 0.080789 −0.349015 0.7277
Dependent Variable: DY Method: Panel
Periods included 2017–2021
Sample size 30
Observations 150
R-squared 0.781956
Prob (F-statistic) 0.000000
Durbin-Watson stat 1.674103
Table V. Fixed Effects Model (FEM) in US Market

Especially, FEM is the most appropriate model in this research after testing the redundant fixed effect test (reject OLS) and Hausman test (reject REM) and meaning (R-square > 50%).

According to Table IV, R-squared (0.58) indicates that the independent variables can explain 58% of the variation in dividend yield. The probability of F-statistics being zero means that the dependent variable dividend yield can be clarified through at least one independent variable. CR, SIZE, and ROE have an effect on dividend yield at a level of significance of 5%, 1%, and 5%, along with t-statistic (2.449971; 3.541670; 2.394294), respectively. Moreover, the current ratio and dividend yield are found to be positively correlated. The Ln (Total Asset) and dividend yield have a positive relationship. Return on equity and dividend yield have a positive relationship.

In Table V, R-squared (0.78) suggests that the independent variables can account for 78% of the change in dividend yield. The probability of F-statistics approaching zero implies that the dependent variable dividend yield can be determined by at least one independent variable. Changes in a company’s TOBIN_Q and CR can explain variations in its dividend yield, with a level of significance of 1% and 10%, along with t-statistic (−3.683510; 1.967817), respectively. The table shows a strong negative correlation between Tobin’s Q and dividend yield and a positive correlation between the current ratio and dividend yield.

Generally, Vietnam nonbank financial firms were to increase their current ratio by one percentage point, it is estimated that their dividend yield would increase by 1.9% (coefficient in Table IV). Meanwhile, nonbank financial firms in US increased their current ratio by one percentage point, their dividend yield would rise by 0.06% (coefficient in Table V). This is also the value that clearly shows the difference between the two selected markets.

Table VI contributes to answer the third research question: ‘‘What is the difference in dividend policy between companies in Vietnam and the US?’’ It can be seen that there are more variables affecting dividend payments in Vietnam than in the US. Table XI summarizes the findings of different tests with the final model.

Hypothesis Vietnam US
H1: Investment opportunities will have a negative effect on dividend policy of firms.
H2: Liquidity will have a positive effect on the dividend policy of firms. + +
H3: Size will have a positive effect on dividend policy of firms. + Insignificant
H4: Profitability will have a positive effect on dividend policy of firms. + Insignificant
H5: Leverage will have a negative effect on dividend policy of firms. Insignificant Insignificant
Table VI. Summary of Comparison
DY CR SIZE ROE DE
DY 1.000000 0.196730 0.064113 0.206258 −0.168056
CR 0.196730 1.000000 −0.101710 −0.005614 −0.109770
SIZE 0.064113 −0.101710 1.000000 0.129915 −0.215402
ROE 0.206258 −0.005614 0.129915 1.000000 0.220409
DE −0.168056 −0.109770 −0.215402 0.220409 1.000000
Table VII. Matrix Correlation in Vietnam Market
DY TOBIN_Q CR SIZE ROE DE
DY 1.000000 0.020282 0.347160 0.131773 0.082305 0.174501
TOBIN_Q 0.020282 1.000000 0.106884 0.053973 0.360902 −0.326812
CR 0.347160 0.106884 1.000000 −0.266607 −0.047580 −0.137513
SIZE 0.131773 0.053973 −0.266607 1.000000 0.041819 0.073602
ROE 0.082305 0.360902 −0.047580 0.041819 1.000000 0.311091
DE 0.174501 −0.326812 −0.137513 0.073602 0.311091 1.000000
Table VIII. Matrix Correlation in the US Market
Likelihood ratio Value df Probability
92.51881 30 0.0000
Table IX. Heteroskedasticity Test in Vietnam Market
Likelihood ratio Value df Probability
103.6343 30 0.0000
Table X. Heteroskedasticity Test in the US Market
Diagnostic tests Multicollinearity Heteroskedasticity Durbin-Watson
Ho There is no multicollinearity There is heteroskedasticity There is no autocorrelation
Reason The correlation coefficients’ absolute values in Tables VII and VIII are less than 0.7 p-value < 0.01 in Tables IX and X, and Fem is the suitable model DW value closes to 2 (VN: 1.659549; US: 1.674103)
Status Not rejected Rejected Not rejected
Table XI. The Results of Diagnostic Tests

The independent variables (current ratio, firm size, profitability, leverage) have not been fully explained and it is still in the residual. It is considered that the determinants in the Vietnam market fluctuate greatly (Fig. 5). Therefore, there may be other factors affecting dividend payout.

Fig. 5. Residual graph in the Vietnam market.

In the US market, the independent variables (investment opportunities, liquidity, size, profitability, leverage) are distributed quite evenly and small on the residual graph (Fig. 6). However, there are a few times when the independent variables fluctuate strongly with a bounce downward and upward swings. This shows that some factors have suddenly changed in the independent variables affecting dividend policy.

Fig. 6. Residual graph in the US market.

Discussion and Conclusion

This research investigates based on the following three main research questions: What are the firm-specific determinants that influence the dividend policy decision for Vietnam and US public nonbank financial firms? How do these factors influence the dividend policy in Vietnam and US public nonbank financial firms? What is the difference in dividend policy between companies in Vietnam and the US? From 2017 to 2021, this study experimentally evaluated data for a sample of 30 listed firms on the Vietnam Stock Exchange and 30 listed companies on the American Stock Exchange.

In the Vietnam market, the findings suggest that the following elements (liquidity, size, and profitability) impact the dividend policy. Dividend yield changes in Vietnam cannot be explained by firms’ leverage. It can be seen that more liquid firms, larger firms, and higher profits have higher dividend payments. Therefore, these mature companies in Vietnam will use cash flow to pay dividends to shareholders on a regular and sustainable basis.

For the US market, the results imply that the dividend policy of US’s nonbank financial enterprises is determined by the following factors: investment opportunities and liquidity. Dividend yield changes in the US cannot be clarified by firm size, profitability, and leverage. It is obvious that firms with more investment opportunities and more liquid firms have higher dividend payments. Hence, corporations in the US market will use their cash flow to reinvest in long-term projects and assets instead of paying dividends.

Simultaneously, there are major theories such as irrelevance theory, bird in hand theory, signaling theory, life-cycle theory, and agency theory, and previous studies and model tests support the interpretation of the independent variables that are significant and affect dividend policy in this study.

Implications

The paper holds significant implications and can potentially serve as a reference source in theory. Firstly, dividend policy is seen as a significant factor in clarifying the value of a stock. Investors may also indirectly benefit from this by having stock options, which permit them to purchase a specific quantity of firm shares at a specific price. This can be a way for investors to potentially profit from the increase in stock value, which can be influenced by the payment of dividends. Secondly, the article expands a research approach to clarifying the relationship between dividend yield and different independent variables, including Tobin_Q, leverage, ln (total asset), ROE, and current ratio. Finally, companies must also consider their long-term growth objectives and financial stability when determining their dividend policies. It is important for investors to carefully analyze a company’s financial position and dividend history before making any investment decisions.

Limitations and Future Research

Firstly, due to time constraints, the number of companies in the sample size is only 30 in each country. Therefore, the sample size is not enough to demonstrate a significant difference between the developing country (Vietnam) and the developed country (US). Secondly, the number of years, including five years, is not long enough to see more specific movements. The evidence is clearly visible in residual graph results.

The study reveals some significant factors of dividend policy in public nonbank financial firms. It contains both the developed market (US) and the developing market (Vietnam). It raised some issues that need further research to address. Firstly, the study should examine more distinct firm-specific elements to completely identify the factors and to create a wealthier model in dividend policy, such as managerial ownership, business risk, ownership concentration, income tax, institutional ownership, stock price, and free cash flow. Besides, the residual graph theory also explains that there are other variables that can influence dividend policy (Figs. 5 and 6). Secondly, the sample of public nonbank financial firms can be collected more extensively in the model, and the study has been in use for five years. Hence, it suggests utilizing a longer time frame in future studies. Finally, if the findings from this study could be used in a different study over a longer amount of time or at different determinants or other specific markets, that would be interesting.

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