Firms’ Characteristics and Adjustment Speed of Dividend Payout Ratio: System-GMM and Differenced-GMM Approaches

Since paying over or not paying dividends can cause the firms to face financial crises, firms are always looking for discovery and using a target (optimal) dividend payout ratio. It should be noted that a dividend ratio is a dynamic number and a variety of factors affect it over time. The movement speed of the dividend payout ratio towards the target depends on several factors. This paper investigates the effect of firms’ characteristics (including size, growth opportunities, profitability, financial leverage and fluctuation in operating cash flows), on dividend payout adjustment speed using partial adjustment model with dynamic panel data and system-generalized method of moments in 148 firms listed in Tehran Stock Exchange during 2006-2017. The results show that firm size has a negative effect and, growth opportunities, financial leverage, and fluctuation in operating cash flows have a positive impact on dividend payout adjustment speed. The robustness tests using the differenced-generalized method of moments confirm the research primary findings.