DIVIDEND POLICY AND SHAREHOLDER VALUE: A COMPARATIVE STUDY OF DEVELOPED AND DEVELOPING ECONOMIES

Abstract

Dividend policy plays a pivotal role in corporate finance, yet its influence on shareholder value varies across market contexts. In developed economies, mature capital markets, robust governance, and strong investor protections often temper the impact of dividend policy on firm valuation. Conversely, in developing economies, dividends frequently serve as vital signals of financial health and management credibility, reducing information asymmetry and bolstering investor confidence (Elyasiani et al., 2019; Ghose et al., 2022). Scholars have documented that in emerging markets like India and China, higher profitability and firm size correlate with greater dividend payouts, while leverage and free cash flow volatility tend to suppress dividend activity (Elyasiani et al., 2019; Ghose et al., 2022).

Beyond firm-specific traits, governance structures and institutional environments shape how dividends affect shareholder wealth. In Indonesian firms, for instance, managers prioritize investment opportunities over distributing dividends, consistent with residual dividend theory tailored to emerging market contexts (Budagaga, 2020). A literature review comparing developed and developing countries highlights that investor protection mechanisms—common law in developed markets versus civil law in developing ones—drive varying dividend behaviors, with developing-country firms often adopting more conservative payout practices depending on managerial discretion and regulatory frameworks (Husaini et al., 2021).

Despite these insights, few studies offer a direct, systematic comparison of dividend policy effects on shareholder value across both developed and developing economies. This comparative gap matters because the effectiveness of dividend strategies hinges on market efficiency, governance quality, and investor expectations—all of which differ markedly between these contexts.

Our study aims to fill this gap by quantitatively assessing how dividend policy influences shareholder value across a representative sample of firms in both developed and developing economies. By analyzing payout ratios, performance metrics, and market reactions, this research seeks to uncover whether dividends contribute more significantly to value creation in less institutionalized markets. The findings will inform corporate decision-makers and policymakers on tailoring dividend strategies to enhance shareholder wealth under varying market conditions, providing actionable guidance for global corporate finance.