The Impact of Ownership Structure on Dividend Payout Policy of Listed Plantation Companies in Sri Lanka

Abstract

Ownership structure is one of the primary dimensions of corporate governance. The aim of this study is to examine the impact of ownership structure on dividend payout policy of plantation listed companies in Sri Lanka during the period 2019-2023. Seventeen listed plantation companies out of all nineteen plantation listed plantation companies were selected as a sample. Secondary data was obtained from the annual reports of listed plantation companies, as published on the website of the Colombo Stock Exchange (CSE), Sri Lanka.
The study considers ownership structure as an independent variable, measured through individual ownership structure, institutional ownership structure and foreign ownership structure. The dependent variable, dividend payout policy, is represented by the dividend payout ratio. This study used multiple regression and Pearson’s correlation analysis as the analytical framework.
The Pearson correlation coefficient matrix was used to identify the relationship between the ownership structure and dividend payout policy of listed plantation companies. The findings indicate a significant positive relationship between individual ownership structure and dividend payout policy. Conversely, institutional ownership showed a significant negative relationship with dividend payout. However, correlation coefficient between foreign ownership structure and dividend payout was not significant, exhibiting a negative but statistically insignificant relationship between foreign ownership structure and dividend payout.
Multiple regression analysis was conducted to observe how well the dividend payout policy (DPO) can be explained by ownership structure. The analysis revealed that 13.4% of the variability of dividend payout is decided by differences in the ownership structure such as ownerships of individual and institutional, and foreign ownership. Further, the remaining 86.6% of the variability of dividend payout is decided by other factors that are not included in this model.
Both individual and institutional ownership structures significantly affect dividend payout policy, while foreign ownership does not. Overall, ownership structure shows a significant influence on dividend payouts, except in the case of foreign ownership.
The results also reveal that approximately half of the plantation companies were not in a financial position to pay dividends annually, mainly due to the prevailing economic crisis and the COVID- 19 pandemic during the years of 2019 – 2023.
Additionally, Sri Lankan listed plantation companies exhibit highly concentrated ownership structures, predominantly led by institutional investors, followed by individual and foreign ownership structure.
The behavior of institutional, individual and concentrated owners in Sri Lankan listed plantation companies is associated with the clarifications of signaling, free cash flow and agency theory concerning dividend payouts.
These findings are valuable to regulators for guiding future policies in the Colombo Stock Exchange and to investors for forecasting firms’ dividend payouts and valuation of their stocks.