Dividend Policy in Regulated Firms
AbstractWe study the impact of different regulatory contracts of electricity companies on their dividend policy. Using a panel of 106 publicly traded European electric utilities in the period 1986-2011 we link dividend pay-out and smoothing ratios to the implementation of different regulatory mechanisms (cost plus vs. incentive regulation) and also to firm ownership. After controlling for the potential endogeneity of the regulatory mechanism, our results show that electric utilities subject to incentive regulation smooth their dividends less than firms subject to cost plus regulation but also present higher target payout ratios; thus suggesting that incentive regulation leads firms to a dividend policy more responsive to earnings variability and more consistent with efficiency-enhancing pressures. This suggests that when managers are more sensitive to competition-like efficiency pressures following the adoption of incentive regulation, they are more inclined to cut dividends when necessary. These results seem to apply in particular to incentive regulated firms when they are privately controlled.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 48043.
Date of creation: Jun 2013
Date of revision:
Dividends; Lintner model; regulation; energy industry; price cap; incentive regulation;
Other versions of this item:
- G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-15 (All new papers)
- NEP-EFF-2013-07-15 (Efficiency & Productivity)
- NEP-ENE-2013-07-15 (Energy Economics)
- NEP-REG-2013-07-15 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert S. Hansen & Raman Kumar & Dilip K. Shome, 1994. "Dividend Policy and Corporate Monitoring: Evidence from the Regulated Electric Utility Industry," Financial Management, Financial Management Association, vol. 23(1), Spring.
- Fudenberg, Drew & Tirole, Jean, 1995.
"A Theory of Income and Dividend Smoothing Based on Incumbency Rents,"
Journal of Political Economy,
University of Chicago Press, vol. 103(1), pages 75-93, February.
- Fudenberg, Drew & Tirole, Jean, 1994. "A Theory of Income and Dividend Smoothing Based on Incumbency Rents," IDEI Working Papers 34, Institut d'Économie Industrielle (IDEI), Toulouse.
- Tirole, Jean & Fudenberg, Drew, 1995. "A Theory of Income and Dividend Smoothing Based on Incumbency Rents," Scholarly Articles 3160494, Harvard University Department of Economics.
- Brav, Alon & Graham, John R. & Harvey, Campbell R. & Michaely, Roni, 2005.
"Payout policy in the 21st century,"
Journal of Financial Economics,
Elsevier, vol. 77(3), pages 483-527, September.
- M Arellano & O Bover, 1990.
"Another Look at the Instrumental Variable Estimation of Error-Components Models,"
CEP Discussion Papers
dp0007, Centre for Economic Performance, LSE.
- Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
- Mark Armstrong & David Sappington, 2005.
"Regulation, Competition and Liberalization,"
0505011, EconWPA, revised 07 Oct 2005.
- Bortolotti, Bernardo & Cambini, Carlo & Rondi, Laura, 2012.
48073, University Library of Munich, Germany.
- Andrei Shleifer, 1998.
"State Versus Private Ownership,"
NBER Working Papers
6665, National Bureau of Economic Research, Inc.
- Andrei Shleifer, 1998. "State Versus Private Ownership," Harvard Institute of Economic Research Working Papers 1841, Harvard - Institute of Economic Research.
- Blundell, Richard & Bond, Stephen, 1998.
"Initial conditions and moment restrictions in dynamic panel data models,"
Journal of Econometrics,
Elsevier, vol. 87(1), pages 115-143, August.
- R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
- Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
- Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
- Carlo Cambini & Laura Rondi, 2011. "Independence, Investment and Political Interference: Evidence from the European Union," RSCAS Working Papers 2011/42, European University Institute.
- Bortolotti, Bernardo & Cambini, Carlo & Rondi, Laura & Spiegel, Yossi, 2008.
"Capital Structure and Regulation: Do Ownership and Regulatory Independence Matter?,"
CEPR Discussion Papers
7100, C.E.P.R. Discussion Papers.
- Bernardo Bortolotti & Carlo Cambini & Laura Rondi & Yossi Spiegel, 2011. "Capital Structure and Regulation: Do Ownership and Regulatory Independence Matter?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(2), pages 517-564, 06.
- Graeme Guthrie, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Journal of Economic Literature, American Economic Association, vol. 44(4), pages 925-972, December.
- Beck, T.H.L. & Clarke, G. & Groff, A. & Keefer , P. & Walsh, P., 2001. "New tools in comparative political economy: The database of political institutions," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125517, Tilburg University.
- Arellano, Manuel & Bond, Stephen, 1991.
"Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,"
Review of Economic Studies,
Wiley Blackwell, vol. 58(2), pages 277-97, April.
- Tom Doan, . "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Moyer, R. Charles & Chatfield, Robert E. & Sisneros, Phillip M., 1989. "Security Analyst Monitoring Activity: Agency Costs and Information Demands," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(04), pages 503-512, December.
- Joskow Paul L., 2008. "Incentive Regulation and Its Application to Electricity Networks," Review of Network Economics, De Gruyter, vol. 7(4), pages 1-14, December.
- Mark T. Leary & Roni Michaely, 2011. "Determinants of Dividend Smoothing: Empirical Evidence," Review of Financial Studies, Society for Financial Studies, vol. 24(10), pages 3197-3249.
- Carlo Cambini & Laura Rondi, 2010. "Incentive regulation and investment: evidence from European energy utilities," Journal of Regulatory Economics, Springer, vol. 38(1), pages 1-26, August.
- Moyer, R. Charles & Rao, Ramesh & Tripathy, Niranjan, 1992. "Dividend policy and regulatory risk: A test of the Smith hypothesis," Journal of Economics and Business, Elsevier, vol. 44(2), pages 127-134, May.
- Wintoki, M. Babajide & Linck, James S. & Netter, Jeffry M., 2012. "Endogeneity and the dynamics of internal corporate governance," Journal of Financial Economics, Elsevier, vol. 105(3), pages 581-606.
- Andres, Christian & Betzer, André & Goergen, Marc & Renneboog, Luc, 2009. "Dividend policy of German firms: A panel data analysis of partial adjustment models," Journal of Empirical Finance, Elsevier, vol. 16(2), pages 175-187, March.
- Roni Michaely & Michael R. Roberts, 2012. "Corporate Dividend Policies: Lessons from Private Firms," Review of Financial Studies, Society for Financial Studies, vol. 25(3), pages 711-746.
- Armstrong, Mark & Porter, Robert, 2007. "Preface to the Handbook of Industrial Organization, Volume 3," Handbook of Industrial Organization, Elsevier.
- Ai, Chunrong & Sappington, David E M, 2002. "The Impact of State Incentive Regulation on the U.S. Telecommunications Industry," Journal of Regulatory Economics, Springer, vol. 22(2), pages 133-59, September.
- Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-59, September.
- Newbery, D.M. & Pollitt, M.G., 1996. "The Restructuring and Privatisation of the CEGB: Was It Worth It?," Cambridge Working Papers in Economics 9607, Faculty of Economics, University of Cambridge.
- Newbery, David M & Pollitt, Michael G, 1997. "The Restructuring and Privatization of Britain's CEGB--Was It Worth It?," Journal of Industrial Economics, Wiley Blackwell, vol. 45(3), pages 269-303, September.
- Bennedsen, Morten, 2000. "Political ownership," Journal of Public Economics, Elsevier, vol. 76(3), pages 559-581, June.
- Ian Alexander & Timothy Irwin, 1997. "Price Caps, Rate-of-Return Regulation, and the Cost of Capital," World Bank Other Operational Studies 11575, The World Bank.
- Ilan Guttman & Ohad Kadan & Eugene Kandel, 2010. "Dividend Stickiness and Strategic Pooling," Review of Financial Studies, Society for Financial Studies, vol. 23(12), pages 4455-4495, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.