Dividend Policy in Regulated Firms
AbstractWe study the impact of different regulatory and ownership regimes on the dividend policy of regulated firms. Using a panel of 106 publicly traded European electric utilities in the period 1986-2010, we link payout and smoothing decisions to the implementation of different regulatory mechanisms (cost plus vs. incentive regulation) and to firm ownership (state vs. private). After controlling for the potential endogeneity of the regulatory mechanism, our results show that utilities subject to incentive regulation smooth their dividends less than firms subject to cost-based regulation and present higher impact effects and target payout ratios. This suggests that when managers are more sensitive to competition-like efficiency pressures following the adoption of incentive regulation, they adopt a dividend policy more responsive to earnings variability and more consistent with optimal cash management. These results, however, apply only to private utilities. If the state still has ultimate control, smoothing of dividends remains irrespective of the regulatory mechanism. It seems that corporate governance (i.e. state control) trumps regulation when it comes to dividend payout policy.
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Bibliographic InfoPaper provided by European University Institute in its series RSCAS Working Papers with number 2013/53.
Date of creation: Jul 2013
Date of revision:
Dividends; Lintner model; incentive regulation; electricity;
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-2013-09-28 (All new papers)
- NEP-CDM-2013-09-28 (Collective Decision-Making)
- NEP-CFN-2013-09-28 (Corporate Finance)
- NEP-EFF-2013-09-28 (Efficiency & Productivity)
- NEP-EUR-2013-09-28 (Microeconomic European Issues)
- NEP-REG-2013-09-28 (Regulation)
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