Abstract Book of the 7th International Conference on Future of Business, Management and Economics
Year: 2025
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The Impact of Earnings, Investment Opportunities Set (IOS), and Debt Capacity on Dividend Payout Ratios: Evidence from 100 Top World Bank Holding Companies
Syam Eko Nugroho
ABSTRACT:
This study analyzes the determinants of dividend payout ratio (DPR) for the 100 largest Bank Holding Companies (BHCs) globally. Using a Generalized Method of Moments (GMM) First Differences approach, the research spans the period from 2011-2023. The model successfully addresses endogeneity and is validated by the Hansen Test and Arellano-Bond AR(2) Test.
Estimation results show significant dividend persistence (DPR(-1)), indicating banks’ tendency to maintain their dividend policies based on previous payouts. Earning is positively and significantly related to DPR, confirming that more profitable banks tend to distribute higher dividends. Interestingly, the IOS variable exhibits a positive and significant influence on DPR, suggesting that the availability of investment opportunities can encourage dividend payments (supported by Signaling Theory). Similarly, debt capacity also positively and significantly affects DPR (supported by Signalling Theory and Agency Theory).
Analysis of interactions revealed that the positive effect of Earning on DPR is significantly weakened by both the IOS and Debt Capacity. This implies that profitable banks tend to retain earnings for reinvestment when abundant investment opportunities are available (consistent with the Residual Theory of Dividends), and they curb dividend payments when debt capacity is low (or leverage is high). Control variables such as current ratio, bank size, and capital ratio were also consistently positive and significant.
Keywords: Dividend Payout Ratio, Earning, Investment Opportunity Set, Debt Capacity, Bank Holding Companies, GMM