The Effect of Company Growth, Managerial Ownership, and Debt Policy on Dividend Policy: Evidence from Manufacturing Companies in Sri Lanka

Abstract

Introduction: The study probes into the effect of company growth, managerial ownership, and the debt policy on dividend policy of listed manufacturing companies in Sri Lanka. Dividend policy is the most important component of corporate finance decisions in company's trade-off between shareholder returns and the growth and financial viability of the company. This research adopts a quantitative approach in analyzing datasets from the top10 capital goods manufacturing companies of the Colombo Stock Exchange from 2014-2023.

Methodology: The study attempts to fill the existing in literature with regards to manufacturing in Sri Lanka by studying three important variables of dividend policy, growth of the company, ownership by management, and debt policy. For these variables, a conceptual framework was developed to show the impact of where dividend policy would be taken as the dependent variable. Secondary data like financial statements and annual reports would be analyzed using regression models and correlation techniques via STATA software.

Findings: The research has produced a significant positive impact between growth in a company and dividend policy; thus, the higher the rate of company growth, the greater the number of dividends distributed. Although a positive impact exists between managerial ownership and dividend policy, that impact is found not to be significant. The study established a significant negative impact between the debt policy and dividend policy, meaning that higher debt levels restrict a company from paying dividends.

Conclusion: The findings underscore the importance of company growth as a key driver of dividend policy in Sri Lankan manufacturing firms. Managerial ownership demonstrates a positive impact however, the absence of statistical significance indicates the role of more critical factors. The negative effect of debt policy on dividends emphasizes the careful management of levels of debt by companies to sustain returns to shareholders. This study, thus, provides critical insights for investors and policymakers in the understanding of dividend policies in manufacturing.