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Introduction
Dividend policy and its determinants remains a much researched topic in finance. Although some similarities exist among the various findings involving dividend determinants, differences emerge not only due to contextual differences between developed and emerging markets but also due to the research methodologies used. Dewasiri and Weerakoon (2016) maintained that the majority of finance studies in the last few decades use proxy variables in behavioral models. For instance, Wang et al. (2016) tested the catering theory of dividends by applying a proxy for investor’s demand or preference. Because actual behavior may differ from what is captured by using proxy variables, further investigation is required to help provide greater consensus about dividend determinants. Researchers typically rely on market data-based approaches when conducting dividend policy research and neglect the importance of supplementary approaches such as survey research (Baker et al., 2011).
As Frankfurter et al. (2002) noted, researchers cannot understand the dividend puzzle (i.e. why companies pay dividends) simply by analyzing market (secondary) data because such an approach cannot directly detect motivations. According to Bruner (2002, p. 50), “The task must be to look for patterns of confirmation across approaches and studies much like one sees an image in a mosaic of stones.” Baker et al. (2011) suggested that using multiple approaches or methodologies to confirm dividend determinants is likely to produce more generalizable findings than relying on a single approach.
The main research questions addressed in this study are as follows:
What are the major dividend policy determinants of Sri Lankan firms?
What theories best explain why Sri Lankan firms pay dividends?
This study contributes to the finance literature by using a triangulation approach to help lessen inherent weaknesses of a single approach. Triangulation is a powerful technique that facilitates validation of data through cross-verification from two or more sources.
Because using proxy variables can hinder the completeness and validity of dividend policy studies, triangulation provides a potential solution to this issue. The unresolved theoretical debate and contradictory findings of the same phenomenon in recent studies motivate this research. Thus, the study’s objectives are to identify both the major dividend determinants and theoretical explanations for paying dividends among Sri Lankan listed firms using a triangulation approach.
Theoretical explanations for paying dividends
Researchers...