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Introduction: Why companies pay dividends and the determinants of dividend policy are considered an unresolved dividend puzzle. To reach a consensus over the puzzle, researchers must investigate the factors affecting dividend policy by incorporating all the determinants into a single research effort.

Purpose: We examine the dividend policy determinants of Sri Lankan firms, explicitly focusing on the banking, finance, and insurance (BFI) sectors.

Methodology: This study uses the quantitative approach applying the Generalized Method of Moments (GMM) system to examine the dividend policy determinants by obtaining secondary data from 51 listed BFI organisations in Sri Lanka.

Findings: The analysis disclosed that the variables of changes in revenues, firm size, liquidity, corporate tax, business risk, and profitability have a positive relationship with dividend yield, whereas investment opportunities, leverage, change in revenues, corporate tax, and firm size impact positively on the propensity to pay dividends in BFI organisations in Sri Lanka. Our findings opine that managers in the BFI industries should prioritise changing their dividend policies by paying close attention to factors, such as dividend yield, changes in revenue, firm size, liquidity, corporate tax ratio, business risk, and profitability because the dividend policy is critical to retaining current investors and luring new ones.

The purpose of this paper is to identify the determinants of dividend policy in an emerging and developing market.

The study employs a quantitative approach using 191 Sri Lankan firms and 1,337 firm-year observations as the sample. The authors apply a Binary Logistic Regression model to uncover the determinants of the propensity to pay dividends, and a Fixed Effect Panel Regression to investigate the determinants of dividend payout.

The authors identify past dividend decision, earnings, investment opportunities, profitability, free cash flow (FCF), corporate governance, state ownership, firm size and industry influence as the key determinants of propensity to pay dividends. In addition past dividends, investment opportunities, profitability and dividend premium are identified as the determinants of dividend payout. Moreover, there is a feedback between dividend yield and profitability in one lag and between dividend yield and dividend premium in two lags, as short-term relationships. Hence, past dividend decision or payout, profitability and investment opportunities are a common set of determinants with implications for both propensity to pay dividends and its payout. The findings support theories of dividends such as signaling, outcome, catering, life cycle, FCF and pecking order.

The findings are important for investors, managers and future research. Investors should focus on the determinants identified by our study when making investment decisions whereas managers should practice the same when formulating appropriate dividend policies for their firms. Future research should rely on propensity to pay dividends and its payout simultaneously to promote a theoretical consensus on the dividend determinant puzzle.

This is the first study that investigates determinants of propensity to pay dividends and dividend payout along with short-term relationships in a single study.

The purpose of this paper is to identify the dividend policy determinants of Sri Lankan firms and why they pay dividends.

The study uses several quantitative approaches to investigate dividend determinants using market (secondary) data of 190 Sri Lankan firms and 1,330 firm-year observations. Dividend determinants are also identified using survey (primary) data from 141 of the 190 firms. Triangulation is then used to facilitate validation of the data through cross-verification from two data sources.

Analysis of the market data reveals that firm size, industry impact, corporate governance, free cash flow, earnings, past dividends, profitability, investment opportunities, net working capital, concentrated ownership structure and investor preference represent the most important dividend determinants. Survey data confirm these findings. The evidence supports the pecking order, signaling, free cash flow, catering and outcome theories using both secondary and primary data and the bird-in-the-hand theory using survey data.

The findings are useful not only for corporate decision makers in establishing an appropriate dividend policy but also for shareholders in making investment decisions. Because the current study is limited to Sri Lanka, future researchers should study the same phenomenon in other countries using the triangulation approach.

This study provides a hybrid approach to dividend policy research by using both primary and secondary data in a single study. It is the first dividend study in Sri Lanka to use a triangulation approach.

The purpose of this paper is to examine the managerial views on the corporate financing practices of firms in the emerging market of Sri Lanka.

A survey approach was employed using chief financial officers (CFOs) from the top non-financial firms listed on the Colombo Stock Exchange.

CFOs’ views on corporate financing practices are not fully consistent with the theory: financial hierarchy appears to be more important and firms are less leveraged. Most Sri Lankan CFOs perceive some policy factors as important and theoretically support: volatility of earnings and cash flows, tax advantages of interest deductibility, transaction costs, timing of interest rates, low foreign interest rates and debt equity targets. These factors are high priority in emerging markets but either not important at all or less important in developed markets. Matching debt maturity with the life of assets is equally important in both markets. Most CFOs adhere their financing to the local debt market, while a few firms use foreign debt. CFOs are concerned about earnings per share (EPS) dilution, providing a natural hedge in foreign debt issues, credit ratings, under/overvaluation of stocks and corporate control, whereas they are significantly important in developed markets. Age and education mostly explain the differences.

The study is restricted to large companies in a relatively smaller market. Hence, sample size is relatively small, even though it shows a higher response rate.

The study offers insights for corporate financing decision-makers that could impact on firm value through a shift in emphasis toward capital structure theories.

The paper focuses on corporate financing practices in Sri Lanka in search of emerging market features that could mitigate the gap in the emerging market literature through survey evidence.

This chapter provides an overview of the explanations and factors affecting dividend policy. This study employs a systematic literature review approach to review a large sample of studies related to the dividend puzzle. Although the analysis reveals mixed evidence involving the theories and determinants of dividend policy, some determinants appear in numerous studies. However, no consensus exists on an optimal dividend to resolve the dividend puzzle, and the authors propose a model to deal with the same. When examining dividend policy, researchers should consider the firm, market, behavior, and other determinants. When making significant dividend or stock decisions, managers and shareholders should also contemplate the factors, interactions, inadequacies, and consequences. Future researchers should strive to take a more comprehensive view when resolving the dividend puzzle. This study provides a current and complete picture of dividend policy's available theories and empirical determinants. Its significant contribution is identifying some of the more consistently essential determinants of dividend policy while proposing a holistic model to address the prevailing dividend dilemma.