Dividend Policy in Regulated Firms
We 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.
|Date of creation:||Jun 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
References listed on IDEAS
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.:
- Mark Armstrong & David E.M. Sappington, 2006.
"Regulation, Competition and Liberalization,"
Journal of Economic Literature,
American Economic Association, vol. 44(2), pages 325-366, June.
- Andrei Shleifer, 1998.
"State Versus Private Ownership,"
Harvard Institute of Economic Research Working Papers
1841, Harvard - Institute of Economic Research.
- 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.
- 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.
- Guthrie, Graeme, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Working Paper Series 3851, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
- 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.
- 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.
- Tirole, Jean & Fudenberg, Drew, 1995. "A Theory of Income and Dividend Smoothing Based on Incumbency Rents," Scholarly Articles 3160494, Harvard University Department of Economics.
- 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.
- Bennedsen, Morten, 2000. "Political ownership," Journal of Public Economics, Elsevier, vol. 76(3), pages 559-581, June.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-59, September.
- 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.
- Armstrong, Mark & Porter, Robert, 2007. "Preface to the Handbook of Industrial Organization, Volume 3," Handbook of Industrial Organization, Elsevier.
- 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.
- 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.
- Bortolotti, Bernardo & Cambini, Carlo & Rondi, Laura, 2013.
Journal of Comparative Economics,
Elsevier, vol. 41(3), pages 804-828.
- 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.
- Carlo Cambini & Laura Rondi, 2011. "Independence, Investment and Political Interference: Evidence from the European Union," RSCAS Working Papers 2011/42, European University Institute.
- 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, 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.
- 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.
- 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.
- Tehmina Khan, 2006. "Company Dividends and Ownership Structure: Evidence from UK Panel Data," Economic Journal, Royal Economic Society, vol. 116(510), pages C172-C189, 03.
- 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.
- 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.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:48043. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.