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Applied Financial Economics

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Determinants of corporate dividend policy in Greece

a b c
Theophano Patra , Sunil Poshakwale & Kean Ow-Yong
a
Department of Finance , The American College of Greece , Athens , Greece
b
School of Management, Cranfield University, Bedford , Cranfield, MK43 0AL , UK
c
Birmingham Business School, University of Birmingham , Birmingham , UK
Published online: 12 Mar 2012.

To cite this article: Theophano Patra , Sunil Poshakwale & Kean Ow-Yong (2012) Determinants of corporate dividend policy in
Greece, Applied Financial Economics, 22:13, 1079-1087, DOI: 10.1080/09603107.2011.639734

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 Applied Financial Economics, 2012, 22, 1079–1087

Determinants of corporate dividend

policy in Greece
Theophano Patraa, Sunil Poshakwaleb,* and Kean Ow-Yongc
a
Department of Finance, The American College of Greece, Athens, Greece
b
School of Management, Cranfield University, Bedford, Cranfield,
MK43 0AL, UK
c
Birmingham Business School, University of Birmingham, Birmingham, UK
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This article examines the determinants of corporate dividend policy of

listed firms in Greece as a case study of an emerging market country. The
analysis is based on 945 firm year observations of 63 nonfinancial firms
which paid dividends annually from 1993 to 2007. The study uses the
Generalized Method of Moments (GMM) to estimate the firm level factors
that may determine why firms distribute dividends. We find that size,
profitability and liquidity factors increase the probability to pay dividends.
However, investment opportunities, financial leverage and business risk
decrease the likelihood to pay dividends. On the whole, the findings lend
support for the information asymmetry and agency cost theories. In
addition, the factors that influence dividend policy in developed markets
also appear to apply for this emerging market country.

Keywords: dividend policy; emerging markets; Greece; generalized method

of moments
JEL Classification: G35; G30

I. Introduction capital markets, a number of theories have been put

There has been extensive empirical research on
dividend policy, yet to date, there is no general
consensus as to what factors influence corporate
dividend policy and how these factors interact. Black
(1976) referred to this issue as the dividend puzzle.
Brealey et al. (2008) concluded that the dividend
payout controversy is one of the 10 unresolved
problems in finance. In this study, we attempt to
provide some insights into the dividend policy in an
emerging market, namely the Athens Stock
Exchange, where there is a lack of empirical evidence
about the determinants of corporate dividend policy.
Following Miller and Modigliani’s (1961) seminal
paper on the irrelevance of dividends in perfect
forward. They focus on how dividends and dividend
policy may affect firm value when the assumptions of
perfect capital markets are relaxed. Various explana-
tions as to why firms follow a particular dividend
policy can be grouped into at least two types of
market imperfections namely information asymmetry
and agency costs.
Extensive theoretical literature on information
asymmetry has been documented on whether or not
dividends convey information about current and
future earnings (for example Bhattacharya, 1979;
Aharony and Swary, 1980; John and Williams, 1985;
Miller and Rock, 1985). An inference from the agency
cost theory suggests that dividend policy can
be used to minimize the costs arising from

*Corresponding author. E-mail: sunil.poshakwale@cranfield.ac.uk

Applied Financial Economics ISSN 0960–3107 print/ISSN 1466–4305 online ß 2012 Taylor & Francis 1079
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http://dx.doi.org/10.1080/09603107.2011.639734
 1080
shareholder-manager (or controlling-minority share-
holder) conflict (see, e.g. Rozeff, 1982; Easterbrook,
1984; Jensen, 1986). The pecking order theory of
Myers and Majluf (1984) suggests that the higher the
level of asymmetric information, the lower the level of
dividends that is paid out.
The empirical findings based on the theoretical
literature have been mixed when considering which
factors may act as determinants of dividend policy.
Also, the published literature predominantly focuses
on dividend policy pursued in developed capital
markets. The unresolved theoretical debate and lack
of empirical studies on dividend policy in emerging
capital markets motivates this study which investi-
gates the potential factors influencing corporate
dividend policy in Greece.
The way in which firms adopt dividend policies
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may vary over time and across countries in both
developed and emerging capital markets. Glen et al.
(1995) reported that dividend payout ratios in devel-
oped countries were half as much as in developing
countries. However, Aivazian et al. (2003) observed
that ‘emerging market firms on the whole pay higher
dividends than their US counterparts’. It is interesting
to note that both Glen et al. (1995) and Aivazian
et al. (2003) draw their sample firms from the
International Finance Corporation (IFC) database
where only the largest listed firms on the local stock
exchange are included. Their mixed findings reveal
the controversy in determining the nature of dividend
policy.
A basic premise underlying information asymmetry
and agency cost models is the notion of separation of
ownership and control. Also, capital markets play an
important role in raising external finance for firms in
developed markets. However, markets including
Greece usually feature financial systems that rely
more on bank financing rather than equity markets.
This means that the banks’ role reduces the informa-
tion asymmetry between the market and that of the
firm’s management. Hence it diminishes the role of
dividends either as a means to signal or to reduce
agency cost. In addition, emerging market firms are
usually subject to relatively more financial constraints
than their counterparts in developed markets which
may then have an impact on their dividend policies.
These differences together with the specific charac-
teristics found in the emerging markets themselves
raise the issue about how useful it is to apply
competing dividend policy theories to markets such
as Greece.
Empirical evidence in the form of questionnaire
surveys were collected and analysed to ascertain why
investors want dividends. Brav et al. (2005) in a
sample survey of financial executives in the US, found
T. Patra et al.
that although dividend decisions convey information
to investors, managers do not use payout policies to
reveal private information about their firms’ ability to
pay dividends. Hence, Brav et al. (2005) concluded
that their evidence does not lend support to the
signalling models of Bhattacharya (1979) and Miller
and Rock (1985) which assume that firms deliberately
use dividends as a signal to reduce information
asymmetry between firms and outside shareholders.
Dong et al. (2005) in a questionnaire survey to a
panel of Dutch individual investors tested various
theories underlying a firm’s dividend payout policy.
The theories that they examined from an investor’s
perspective included signalling, agency costs, divi-
dend irrelevance, transaction costs, uncertainty reso-
lution, free cash flow and taxes. They found that
respondents strongly believe that dividend payments
send a signal about the profitability of the firm. They
concluded that firms are justified to keep up dividend
payments in good and bad times given the signalling
effect of dividends. Their survey results did not
support the Easterbrook (1984) agency theory
whereby agency costs are increased if a firm by
paying dividends would be expected to raise addi-
tional capital through financial markets, hence sub-
jecting it to monitoring and disciplining of these
markets. Their survey results are consistent with the
results of Baker et al. (2001) and Brav et al. (2005)
and suggest that individual investors prefer
management to use internal rather than external
funds to finance capital budgeting projects, which
thus supports Myers and Majluf (1984) pecking
order theory.
Brav et al.’s (2005) and Dong et al.’s (2005) studies
were drawn from questionnaire surveys of investors
and managers in mature markets of US and Holland,
respectively. Maditinos et al. (2007) carried out a
similar study, this time testing the various dividend
theories from the perspective of individual investors
in Greece, an emerging market country. Respondents
of their questionnaire survey adapted from Dong
et al. (2005) study strongly support the signalling
theory, a finding that is consistent with the results of
Dong et al. (2005). Maditinos et al. (2007)
reported their results did not support the agency
cost theory, a finding similar to the study of Dong
et al. (2005).
Thus, there are similarities between dividend
policies such as its signalling role, pursued by Greek
firms and firms from mature markets based on the
survey studies (Brav et al., 2005; Dong et al., 2005;
Maditinos et al., 2007). The purpose of this article is
to re-examine the dividend policy issue using Greek
firm data. The findings from this study could offer
 Determinants of corporate dividend policy in Greece
a basis for future comparative research of other
markets.
The rest of the article proceeds as follows. Section
II briefly discusses the dividend theories examined in
this article. The discussion includes the choice of
proxy variables used to represent the attributes
indicated by these theories as well as control vari-
ables. Section III describes the sample data and
methodology. Section IV reports and analyses the
results. Section V summarizes and concludes the
article.
II. Literature Review and Selection of
Variables
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Researchers have suggested a number of different
theories which explain the factors that determine a
firm’s dividend policy. These theories include tax,
asymmetric information (signalling and pecking
order implications), agency costs and behavioural
explanations as key factors in explaining dividend
policies pursued by firms (see, e.g. Allen and Izan,
1992; Easterbrook, 1984; Frankfurter and Wood,
2002; DeAngelo and DeAngelo, 2007). Some
researchers have developed and empirically tested
different models to explain dividend payout behav-
iour (see, e.g. Alli et al., 1993; Deshmukh, 2005;
Naceur et al., 2006; Li and Zhao, 2008). Others have
surveyed corporate managers to determine what
factors drive their firms’ dividend policy (see, e.g.
Baker et al., 2001; Brav et al., 2005; Baker and Smith,
2006).
As exemplified above, there is a large volume of
published literature on corporate dividend policy. We
limit our discussion to the asymmetric information
and the agency cost theories as well as the reasons for
choice of proxy variables to represent these two
theories and the control variables.
Models of information asymmetries
Signalling theory. Dividend payout decisions
convey information and can be seen as a means to
minimize information asymmetry between owners
and managers. Miller and Rock (1985) develop a
formal model on the role of dividend policy under
asymmetric information. They assume that the firm’s
managers possess more information about current
earnings than outside investors. Hence dividend
announcements provide information for outside
investors to deduce about the firm’s current earnings.
As their model assumes that earnings are correlated
1081
through time, future earnings can be inferred when
current earnings are known. Thus, dividends indi-
rectly act as a signal of future earnings of the firm.
Their model suggests that a firm with higher current
earnings is expected to pay a higher level of dividends
than a firm with lower current earnings. It also
implies that ceteris paribus, the dividend payout
under asymmetric information will be higher than
under full information scenario. So the signalling
effect predicts that the higher the level of asymmetric
information, the higher will be the level of dividends
paid out. A number of studies have shown that
dividends convey information (see, Bhattacharya,
1979; Aharony and Swary, 1980; Asquith and
Mullins, 1983). Some researchers (see,
Bhattacharya, 1979; Kane et al., 1984; Miller and
Rock, 1985) report that dividends can convey infor-
mation about earning levels. Others (Kumar, 1988;
Grullon et al., 2005) argue that dividends are weak
predictors of future earnings. In addition, Allen and
Michaely (2003), DeAngelo et al. (2004) and Brav
et al. (2005) provide empirical evidence that does not
support the predictive effect of dividend signalling
models. Thus, exactly what dividends actually signal
remains unresolved.
Dividend payout may also act as a signal of a
firm’s risk (Bulan et al. 2007; Hoberg and Prabhala,
2009). We hypothesize an inverse relationship
between a firm’s dividend payments and risk as
measured by its business risk. Specifically, firms with
higher business risk are expected to pay lower
dividends due to the volatility of their earnings.
Pecking order theory. When asymmetric informa-
tion is present, Myers and Majluf (1984) suggest that
a firm may underinvest under certain conditions.
They point out that a firm can reduce underinvest-
ment and consequently ex-ante loss in firm value by
holding financial slack and paying out less dividends.
Thus the dividend policy may be used to manage the
underinvestment problem arising from asymmetric
information. Based on this reasoning, the higher the
level of asymmetric information, the lower will be the
dividend payout in order to mitigate the problem of
underinvestment.
Using a similar argument, Myers’ (1984) pecking
order theory states that firms prefer to finance
investments by retaining earnings rather than from
external finance raised in capital markets. Therefore,
firms with higher investment opportunities and thus
higher fund requirements will pay out lower divi-
dends to reduce their dependence on outside capital.
In this study, investment opportunity is proxied by
the market-to-book ratio. We hypothesize that the
 1082
higher the market-to-book ratio, the lower will be the
dividend payout.
Agency cost theory. Agency cost theory suggests
that a firm’s capital structure is influenced by
attempts to minimize the costs associated with the
separation of ownership and control. Firms with
higher managerial ownership stakes are expected to
have lower agency costs due to the better alignment
of management and shareholder goals (Jensen and
Meckling, 1976). In addition another dimension of
agency costs is the conflict between shareholders and
debtholders. Debtholders interests may not be pro-
tected when high levels of dividend are paid out.
Hence dividend restrictions can be found in debt
covenants to alleviate this conflict (Kalay, 1982).
Rozeff (1982) suggests that ceteris paribus, firms
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with higher financial leverage tend to pay lower
dividends to reduce the transaction costs associated
with external financing. Jensen (1986) points out that
debt can be used as a substitute device for dividends
in reducing the agency costs of free cash flow. This
means that a firm with financial leverage will be
monitored by its debtholders and will have less
discretionary funds available to its managers.
Hence, highly leveraged firms are expected to pay
lower dividends.
We hypothesize a negative relationship between
leverage and a firm’s dividend policy. In this study,
we represent the leverage ratio by dividing a firm’s
total liabilities by its common equity.
Profitability is considered as a key determinant of
dividend policy in Lintner’s empirical work (1956),
Aivazian et al. (2003), Naceur et al. (2006) and others.
Agency cost theory suggests that the payment of
dividends reduces the free cash flow available to the
managers and attempts to minimize agency conflicts
(Easterbrook, 1984; Jensen, 1986). Shareholders
therefore expect managers of highly profitable firms
to pay higher dividends in order to reduce the agency
costs.
In this study, profitability is proxied by the return
on equity ratio. We hypothesize that a firm’s prof-
itability is positively associated with its dividend
payout.
Control variables. In addition to the proxy variables
mentioned above, there are other factors that may
influence a firm’s dividend policy but do not explicitly
relate to the dividend theories mentioned above. For
1
Cross sectional asset pricing studies typically exclude financial firms because of their high leverage and relatively greater
industry regulations (see, e.g. Fama and French (1992) among others).
2
Our dataset is not subject to survivorship bias since we have eliminated only 16 firms that stopped trading due to bankruptcy
(they represent less than 5% of the initial sample).
T. Patra et al.
example, some researchers have shown that a firm’s
size is a significant determinant of dividend policy
(see Aivazian et al., 2003; Al-Malkawi, 2008 among
others). The lack of theoretical justification meant
that we will treat firm size as a control variable.
We proxy size as measured by natural logarithm of
total assets. As larger firms would usually have more
institutional investors and relatively easier access to
capital markets, they tend to pay higher dividends.
We hypothesise a positive relationship between div-
idend payout and the firm’s size.
It is also expected that a firm’s dividend payout is
linked to its liquidity position. Less liquid firms tend
to pay lower dividends due to shortage of cash. Thus,
the second control variable we use is liquidity which is
represented by the current ratio. We hypothesize a
positive association between dividend payout and
liquidity.
III. Data and Methodology
Sample
Our initial sample consists of all firms listed on the
Athens Stock Exchange (ASE). Financial institutions
and banks have been excluded from the sample as
their different accounting practices compared to
industrial firms may significantly affect dividend
policy decision.1 The final sample includes 63 firms
for which complete data for the examined variables
are available for the period 1993–2007 (a total of 945
firm-year observations). We choose 1993 as the start
of our sample period because data on all 63 firms is
available only from this date. All selected firms have
been continuously trading during the sample period
and are representative of the Greek capital market.2
The sample accounts more than 70% of the ASE’s
equity market capitalization and almost 60% of the
ASE’s equity turnover.
Variables
The variables used in this study to explain firm’s
dividend decision are measures of size, profitability,
investment opportunities, leverage, liquidity and
business risk. The choice of the aforementioned
variables is influenced by available empirical litera-
ture and data was obtained from the annual reports
 Determinants of corporate dividend policy in Greece
of the selected firms. Definitions of the examined
variables are as follows:
(1) Dividend policy measures are represented by
the firm’s dividend payout ratio and dividend
yield.3 The payout ratio is defined as a firm’s
dividend per share divided by its earnings per
share. The dividend yield is defined as a firm’s
dividend per share divided by the average
of the high and low price in the firm’s financial
year.
(2) Size – measured as the natural logarithm of
total assets.
(3) Profitability (PROF) – proxied by the return on
equity ratio.4
(4) Investment opportunities (INV) – proxied by
the market-to-book ratio.
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(5) Leverage (LEV) – measured by total liabilities
divided by the book value of common equity.
(6) Liquidity (LIQ) – proxied by the current ratio
as at the end of the firm’s financial year.
(7) Business risk (Busrisk) – measured by year to
year volatility of earnings.
A list of the aforementioned variables and their
expected signs are shown in the Appendix 1. Table 1
presents descriptive statistics of all variables
employed in this study and the correlation coeffi-
cients among the variables are reported in Table 2.
Specifically, the results in Table 1 indicate that the
dividend payout ratio varies from 0.96% to 99.98%
with a mean of just over 43%. The sample firms’
profitability ranged from 1.62 to 11.01% and the
leverage mean of 41.36% is much higher than the
median of 13.74% suggesting that there are a large
number of firms with high leverage in our sample.
The results in Table 2 show that dividend payout
ratio is positively correlated with size, profitability,
liquidity and negatively correlated with investment
opportunities, leverage and business risk. The
correlation coefficients of the dividend yield ratio
with each of the independent variables are also
significant and consistent with the theoretical
predictions. Further, correlation matrix indicates
that strong correlations, which may induce
multicollinearity problems, are not present among
the regressors.
3
All 63 firms included in the sample reported positive earnings and paid dividends every year during the period examined.
4
Return on Equity (ROE) is a commonly used proxy for measuring profitability. The ratio is calculated as net income after
interest and taxes divided by the book value of equity.
5
Nickell (1981) has shown that FE estimator is biased (for large N and small T) because within transformation induces a
correlation of order 1/T between the lagged dependent variable and the error term.
6
See Greene (2012).
7
If the regression model contains unit roots, then the GMM approach of using estimators based on standard orthogonality
conditions breaks down (Binder et al., 2005).
1083
Methodology
Yit ¼ 0 þ Yi,t1 þ Zit þ i þ "it i ¼ 1, . . . , 63
t ¼ 1, . . . , 15 ð1Þ
Xit ¼ 0 þ Yi,t1 þ Zit þ i þ it i ¼ 1, . . . , 63
t ¼ 1, . . . , 15 ð2Þ
We consider the following dynamic panel data
regressions with dividend payout as the dependent
variable in Equation 1 while the dividend yield is the
dependent variable in Equation 2.
where firms are indicated by i and time by t. The
lagged dependent variables capture the dynamics of
dividend policy and Zit is a vector of explanatory
variables used in the regression estimation. The
parameter i accounts for unobserved firm specific
effects and the error terms "it and vit are assumed to
be mutually uncorrelated with zero mean and con-
stant variance.
However, the presence of lagged dependent vari-
ables and the potential endogeneity of the explana-
tory variables render both Fixed-Effects (FE) and
Random-Effects (RE) estimators inconsistent.5
Specifically, the endogeneity problem induced by
the directional causality between dividends and cer-
tain explanatory variables could seriously affect the
estimation results. The presence of interrelations
among the variables implies that the error term is
correlated with the endogenous regressors, and
therefore standard estimation procedures lead to
biased coefficients. Hence, we estimate our models
by using the Generalized Method of Moments
(GMM) specification.6 The variables employed are
also tested for stationarity by employing both Hadri
(2000) and Im et al.’s (2003) panel unit root tests.7
IV. Empirical Results
The panel unit root test statistics are summarized in
Table 3. For the level series, all variables except
investment and liquidity appear to be nonstationary
in the panel data set. For the first-differenced series,
there is no statistical evidence of presence of a
unit root.
 1084 T. Patra et al.
Table 1. Descriptive statistics

Variable Mean Median SD Min. Max. Skewness Kurtosis

Payout 43.06 39.45 23.27 0.96 99.98 0.42 2.55
Yield 2.51 1.95 2.13 0.01 16.72 1.72 7.53
Size 4.71 4.76 1.60 0.12 8.80 0.10 2.85
PROF 9.91 1.29 0.47 1.62 11.01 0.30 3.46
INV 2.96 0.84 0.69 0.03 4.86 1.73 7.55
LEV 41.36 13.74 16.91 0.02 81.04 0.60 2.61
LIQ 1.88 1.46 0.45 0.05 71.78 0.71 2.76
Busrisk 4.71 4.76 1.60 0.10 8.80 0.10 2.85

Notes: This table presents descriptive statistics for all variables employed in this study. Payout is a firm’s dividend per share
divided by its earnings per share. Yield is a firm’s dividend per share divided by the average of the high and low price in the
firm’s financial year. Size is measured as the natural logarithm of total assets. PROF is the net income after interest and taxes
divided by the book value of equity. INV is measured by total liabilities divided by the book value of common equity. LEV is
measured by total liabilities divided by the book value of common equity. LIQ is a firm’s current ratio at the end of its
financial year. Busrisk is measured by a firm’s year to year volatility of earnings.
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Table 2. Correlation matrix

Payout Yield Size PROF INV LEV LIQ Busrisk

Size 0.622 0.484 1.0 – – – – –
PROF 0.559 0.551 0.275 1.0 – – – –
INV 0.536 0.500 0.257 0.218 1.0 – – –
LEV 0.497 0.575 0.127 0.122 0.096 1.0 – –
LIQ 0.553 0.525 0.026 0.077 0.136 0.178 1.0 –
Busrisk 0.508 0.553 0.141 0.014 0.271 0.118 0.028 1.0

Notes: This table reports the correlation matrix between the variables used in this study. For variables explanation see notes in
Table 1.

Table 3. Panel unit root tests specification tests, the Sargan test for overidentifica-
tion accepts the validity of instruments and the m2
Im, Pesaran test does not reject the null of no second-order serial
Hadri Z-test and Shin W-test correlation.
First First The regression results in Table 4 show that all
Variable Level difference Level difference the variables are statistically significant and have the
expected sign. In particular, the coefficient on the
Payout 18.099** 1.999 5.093 14.013**
Yield 11.911** 1.534 2.562 9.334** firm size variable is positive and significant in both
Size 17.498** 1.457 1.452 3.917** panels suggesting that larger firms pay higher divi-
PROF 15.011** 1.638 1.871 11.405** dends. The profitability variable is highly significant
INV 1.497 7.623*** and positively related to dividend payments. This
LEV 11.179** 1.265 1.824 9.805** result is in line with the results of Naceur et al. (2006)
LIQ 1.354 9.274***
Busrisk 16.764** 1.751 1.242 10.134** and indicates that profitability is an important
determinant of a firm’s dividend policy. The signif-
Notes: This table reports the panel unit root tests and their icant negative coefficient on the investment variable
t-statistics from cross-section regressions. For variables supports the pecking order argument and implies that
explanation see notes in Table 1.
** Indicates significance at 1% level.
firms with high investment opportunities reduce
dividends. The coefficient of the leverage variable is
negative and significant, which is consistent with the
findings of Rozeff (1982). Liquidity has a strong
The effects of explanatory variables on dividend positive effect on dividend policy whereas business
policy decisions are reported in Table 4. Panel (a) risk is significant and inversely related to dividend
presents the results for dividend payout while in Panel decisions. Therefore, the empirical results suggest
(b) the dependent variable is dividend yield. As to the that larger, more profitable, high liquid firms pay
 Determinants of corporate dividend policy in Greece 1085
Table 4. GMM regression results

Panel (a) Panel (b)

Payout ratio as dependent variable Dividend yield as dependent variable

Variable Coefficient t-statistic p-value Coefficient t-statistic p-value

Size 8.203 24.258** [0.000] 0.482 16.986** [0.000]
PROF 0.120 3.922** [0.000] 0.004 21.696** [0.000]
INV 3.645 12.182** [0.000] 3.511 51.212** [0.000]
LEV 0.078 3.365** [0.000] 0.018 12.987** [0.000]
LIQ 0.690 5.701** [0.000] 0.007 3.087** [0.001]
Busrisk 0.131 2.523** [0.011] 0.001 3.770** [0.004]
Adj. R2 0.884 0.741
Sargan [0.65] [0.54]
m2 [0.81] [0.78]

Notes: This table shows the slope coefficients from the GMM regressions in Equations 1 and 2. The Sargan test is a test of
overidentifying restrictions. m2 is a test for second-order serial correlation in the residuals, asymptotically distributed as
N(0,1). For variables explanation see notes in Table 1.
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** Indicates significance at 1% level.

more dividends while riskier, more leveraged firms
with high investment opportunities tend to pay lower
dividends.8
V. Conclusions
This article investigates firm level variables that may
influence corporate dividend policy based on a
sample of Greek firms paying dividend between
1993 and 2007 with an aim to gain insights into the
corporate dividend policy in the Greek emerging
market where there is relatively less empirical
evidence.
Using the GMM technique, we find that all six
variables are statistically significant and carry the
expected signs. Specifically, firm size, profitability
and liquidity relate to dividend payments positively,
and investment opportunities, leverage and business
risk are inversely associated with dividend decisions.
The findings are broadly consistent with the
signalling, pecking order and agency cost theories
related to dividend policy. With regard to the
signalling effect of dividends, our findings are con-
sistent with those reported by Dong et al. (2005) and
Maditinos et al. (2007) via survey studies. However,
our results are inconsistent with Dong et al. (2005)
and Maditinos et al. (2007) who report weak support
for the agency cost theories. A possible reason for
these differences might be that the survey studies were
based on a relatively small sample of investors’ view
whereas our study focussed on the variables as
reported by our sample firms.
The study from this emerging market therefore
supports the evidence found in developed markets
regarding the signalling role played by dividends.
However, though our results support the earlier
findings about the impact of agency costs by
Easterbrook (1984) and Rozeff (1982), it is at
variance with the later findings by Brav et al.
(2005), Dong et al. (2005) and Maditinos et al.
(2007). This indicates that there is mixed evidence on
the effect of agency costs on dividend payout.
Perhaps, future research using the data post-2008
financial crisis based on Greek data may substantiate
or otherwise the relevance of agency costs in deter-
mining dividend payout policy in emerging markets.
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8
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 Determinants of corporate dividend policy in Greece 1087
Appendix 1

Appendix 1: Variable Definition and Expected Signs

Variable Definition Expected sign

Size Natural logarithm of total assets þ
Profitability (PROF) ROE ¼ net income/common equity þ
Investment opportunities (INV) Market-to-book ratio 
Leverage (LEV) Total liabilities/common equity 
Liquidity (LIQ) Current ratio ¼ current assets/current liabilities þ
Business risk (Busrisk) Volatility of earnings 
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