Review Article

Corporate life cycle and dividend payout: A panel data analysis of companies in an emerging market

Ntungufhadzeni F. Munzhelele, Hendrik Wolmarans, John Hall
Journal of Economic and Financial Sciences | Vol 14, No 1 | a617 | DOI: https://doi.org/10.4102/jef.v14i1.617 | © 2021 Ntungufhadzeni F. Munzhelele, Hendrik Wolmarans, John Hall | This work is licensed under CC Attribution 4.0
Submitted: 01 September 2020 | Published: 01 July 2021

About the author(s)

Ntungufhadzeni F. Munzhelele, Department of Financial Management, Faculty of Economic and Management Sciences, University of Pretoria, Pretoria, South Africa; and, Department of Accountancy, School of Management Sciences, University of Venda, Thohoyandou, South Africa
Hendrik Wolmarans, Department of Financial Management, Faculty of Economic and Management Sciences, University of Pretoria, Pretoria, South Africa
John Hall, Department of Financial Management, Faculty of Economic and Management Sciences, University of Pretoria, Pretoria, South Africa


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Abstract

Background: The dividend payout policy remains one of the key functional areas of corporate finance because it is through receipt of dividends that shareholders can share in the profits of their investments. Amongst the dividend payout theories that have been developed over the decades, the life-cycle hypothesis has received little attention in research.

Aim: The aim of this study was to test the dividend life-cycle hypothesis in the South African contex.

Motivation for the study: Justification for this study in the context of South Africa is that there is minimal research in this regard in emerging economies. South Africa presents a good platform for this research because it is amongst the highly regarded emerging markets and this has been confirmed by its representation in Brazil, Russia, India, China and South Africa (BRICS) countries. Hence, results in this regard would shed some light in the form of a relative representation of overall emerging markets trend.

Research approach/design and method: A panel data of 119 Johannesburg Stock Exchange (JSE) listed sample companies were used to test the hypothesis during the period 2006–2015. A combination of basic and dynamic panel data estimators was used to analyse the data.

Main findings: The study finds that the dividend life-cycle hypothesis is prevalent amongst South African companies. Specifically, it was observed that the considered companies pursuing growth projects paid less dividends. Furthermore, the growth companies have shown to be more aggressive in their pursuit for growth and hence are able to create more value for shareholders than value for companies.

Managerial implications: Financial managers will be afforded with enhanced decision alternatives in respect of their fiduciary duties towards the shareholders in respect of maximising value.

Conclusion: These results provide a mirror image of those of the developed markets and a good context for future research in the same area in an emerging economy setting.


Keywords

life-cycle hypothesis; dividend payout; emerging market; growth companies; value companies

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