DETERMINANTS OF CAPITAL STRUCTURE AND DIVIDEND POLICY

– A SYSTEMATIC REVIEW

ABSTRACT
The financing decision is considered as the major imperative in the business sector. The current research seeks out to
untangle the evolution of capital structure and dividend policy theories from both empirical and theoretical
perspectives. The most significant competing theories of capital structure and dividend policy theories are assumed.
It is shown that there are dependably significant industry level attributes, which identify the capital structures and
dividend policies of companies. This studyis undertaken in the form of a Meta-analysis, which covers different time
periods, five different regions such as US, China, Russia, UK and Australia and different marketplaces.Also, this
paper compares the results of empirical analyses on capital structures and dividend policies that have been carried
out in five different nations to those that were performed in the grown world. The main intention is to focus on the
impacts of two most significant determinants such as capital structure and dividend policy based on the key capital
structure and dividend policy theories including profitability, size of firms, growth opportunities, cost of financial
distress, tangibility, tax and non-dept tax shields. In the last investigation, it is shown that similarities in the
financing patterns among developed nations and rising markets far overshadow the disparities.

Keywords: Capital Structure, Dividend Policy, US, China, Russia, UK and Australia

BACKGROUND
Firms may employ external or internal sources to finance their business operations and investments. External
sources are represented by stock or new borrowings, whereas internal sources are represented by depreciation and
retained earnings. Hence, the financing decision entails the assessment of two options namely: capital structure and
dividend policy. Capital structure is the proportion of external funds to be borrowed as well as the proportion of the
funds to be increased internally inside a firm in the new equities in order to fund the overall business operation of
the firm. Likewise, dividend policy denotes the part of retained earnings that is to be paid out as dividends and
ploughed back15 as investment for further business operations. This kind of financing, retained earnings, can be
cheaper in many situations. However the individual income tax status of the investors must be borne in mind. The
studies have shown that capital structure and dividend policy could be impacted by various determinants like
financial distress, taxes and particularly regulation with respect to financial organizations. There are dependably
significant company level factors, which generally lengthen and have a provable influence on the selection of capital
structure and dividend policies in the firms. The current review compares the determinants of capital structure and
dividend policy with respect to several nations across the globe.

LITERATURE REVIEW
1. Critical analysis of determinants:

Capital structure assessment is a most significant element in any firm that is working towards attaining profitability.
Similarly, dividend policy has magnetized the interest of investigators in the corporate finance because of its
sensitive nature due to the significance of stakeholders’ desires and then need to satisfy these expectations in order
to decrease the conflict among the company shareholders. For this reason, a suitable care as well as attention wants
to be provided while identifying the capital structure and dividend policy decisions.

Capital Structure:

Huang and Song (2002)1 examined the capital structure determinants of 1200 companies in China during the time
period 1994 to 2000. From his results, it has been concluded that non-debt tax shields, fixed assets and firm size
have significant and positive relationship with leverage and negative relationship with profitability. As in other
nations, leverage in Chinese companies rises with fixed assets and firm size and reduces with non-debt tax shields,
managerial shareholdings, growth opportunity, correlates with companies and profitability. Researchers have also
determined that organizational ownership or state ownership has no considerable influence on the capital structure as
well as Chinese listed firms assume influence in long term debt financing. Apart from various kinds those in other
nations, Chinese listed companies were inclined to have much lesser long term debt. Chen (2004)2 analyzed the
capital structure determinants of 88 public listed firms in China during 1995 to 2000. From his findings, it has been
found that growth opportunities, firm size, profitability and tangibility were significantly related with long-term
leverage. The findings have reflected the transitional behavior of corporate atmosphere in China. They have also
suggested that a few of the insights from the recent capital structure finance theory were applicable for describing
capital structure in the emerged economies was also applicable in China.

Ramakrishnan (2012)3 studied about the considerable impact of capital structure determinants during 1996 to 2007
with respect to Malaysian companies. Researcher has noticed that non-tax debt shield, risk, tangibility and size have
positive impact on the firms’ capital structure.

A study by Simona (2015)4 was helpful not only in creating decisions regarding capital structure, but also to view
what other factors affect the financial performance of developing nations. Capital structure is considered as a
significant factor for firm’s management with high impact on the financial performance. The findings have revealed
that for market measures capital structure has positive impact, but for financial performance that measured by
accounting measures leverage, it has negative impact. These results have suggested that the capability to attain debt
is viewed through market as a symbol of low risk and stability. The link among leverage as well as performance
quantified through ROE (Return on Equity), ROA (Return on Assets) and MBR (Monthly Business Review) was
non-linear, which signifies that an optimal capital structure may be established to increase the organizations’
profitability.

Pandey and Singh (2015)5 critically reviewed the major determinants of capital structure. The determinants of
capital structure have been examined in two systems include: at sector level and at economy level. The researchers
have concluded by providing the significant determinants of capital structure that being established through various
analyses: business risk, corporate tax rate, debt serving capacity, price of debt, dividend payout ratio, firm size, firm
age, growth opportunities, liquidity, profitability, non-debt tax shields, uniqueness and tangibility. Iqbal et al (2012) 6
critically examined the various theories of capital structure. The ‘irrelevance model’ is performing under the
suggestion of faultless capital markets and that diverge from three most significant capital structure theories. The
following are the four significant theories:

i. Trade-off theory: It is said to be trading-off firm’s benefits with equity and cost of debt. Under this
theory, the company attempts to determine ‘optimal’ capital structure in order to attain a best mixture
of equity and debt.
ii. Market Timing theory: This theory is the issuance of shares. It declares that firms concerns new shares
in marketplace when they consider that market cost of share is overrated as well as company
repurchase its shares that is called as ‘treasury stock’, when the company recognize that market cost of
share is underrated.
iii. Pecking Order theory: This theory states that companies take on a policy called ‘financial hierarchy’ in
order to reduce the indiscretion of information among outside stockholders and firm’s managers.
iv. Agency Cost theory: Agency cost has high significance since it is linked to equity and cost of debt, in
present economic world.

Jabbouri, Satt and Farooq (2014)7 determined the relationship among dividend policy and cost of debt in MENA
region. Here, a sample of 242 listed companies were selected from MENA region during 2004 to 2008, the
researchers have reported negative relationship among dividend policy and cost of debt. The overall findings have
stayed robust even after managing for different company-oriented features. The major reason for this negative
correlation was that dividend policy performs as an alternate for corporate governance systems in the raising
markets.

Author and Year Countrie Meta-analysis Data on Impact Determinants Findings

 s Capital Structure
Brigham and US Data gathered from i. Positive association Findings have shown that
Ehrhardt (2001)33 companies relating to ten between tangible broad variations in capital
foremost sectors assets and total debt structure presented among
(telecommunication, ratio. firms and between
banking, textiles, ii. Between individual individual companies
automobiles and so on) companies, inside within those industries.
companies and those
firms, there is a
broad variation in
capital structure.
Chen (2004) China A total of 88 publicly- Impact determinants like growth The results have
listed companies in China opportunities, firm size, suggested that some
were chosen. profitability and tangibility have insights from the recent
positive and significant impact on financial theories of
long-term leverage capital structure were
pertinent for describing
capital structure in the
emerged economies was
also applicable in China.
i. Habim Russia A sample of 18876 firms i. Leverage has Findings have confirmed
ana were selected among six positive impact on that capital structure
(2016) countries (Middle East, systematic risk impacts the firms’
Africa, Eastern Europe, ii. Leverage has financial performance.
Asia, China and Russia) negative impact on
returns.

i. Industry mean Results suggested that

A total of 48 non-financial leverage and firm Non-debt tax shields,
companies in Russia were size were positively profitability and stock
selected related. market conditions
ii. Ilyukhi ii. Growth (negatively related) were
n opportunities were less significant.
(2017) negatively related.
Michaelas, UK Employed current financial Determinants like profitability, The findings have
Chittenden and panel data Size, age, growth and upcoming indicated that industry
Poutziouris (1999) growth opportunities, stock and time related effects
turnover, operating risk, asset influence the
structure, and net debtors have an development structure of
influence on both short and long debt increased by SMEs.
term debt levels in SMEs.
Kythreotis et al Australi Totally 187 Australian Total debt ratio has negative Findings have shown that
(2018) a firms were chosen impact and long term debt ratio there are notable
has positive impact. variations with respect to
the determinants
influencing the capital
structure in Australia.
Temimi, Zeitun and GCC A total of 1317 firms listed Capital structure determinants Overall findings have
Mimouni (2016) on Malaysia, Thailand and such as growth opportunities, confirmed that taxes have
6 GCC countries were profitability, tangibility, liquidity significant impact on
chosen and include 663 and GDP growth have a corporate capital
companies from Malaysia, considerable impact on corporate structure.
400 from Thailand, Qatar – leverage.
13, Saudi Arabia – 65,
Kuwait – 56, UAE – 34,
 Oman – 71 and Bahrain –
15 firms. Data were
gathered from the World
Bank, IMF (International
Financial Statistics) and
the Bloomberg database.
Iatridis and MENA A sample contains firms
Zaghmour (2013) region that belonging to the major
(Turkey stock indices of Turkey
and and Morocco that is for
Morocco Turkey, ISE National 100
) index; and for Morocco,
MASI index. This research
has employed 135 Turkish
firms and 83 Moroccan
firms for investigation.
Determinants like profitability, Overall findings for both
asset tangibility and leverage nations have suggested
have negative impact on Turkish that firm performance was
and Moroccan firms. Contrasting negatively related to
to Moroccan companies, Turkish leverage and positively
companies have revealed a linked to efficient
positive correlation among corporate governance, as
leverage and growth. indicated by the
occurrence of foreign or
organizational investors or
independent board
directors’ monitoring of
managerial activities.

Table 1: Comparison on impacts of capital structure determinant in different nations

1.1 Dividend Policy:

Yahya and Ghazali (2017)8studied the efficiency of dividend policy and board governance as alignment mechanisms
for enhancing CEO compensation and firm performance. Hand gathered information regarding 219 non-financial
listed companies in PSX (Pakistan Stock Exchange) was attained during 2012 to 2016. Empirical findings have
suggested that CEO compensation has positive impact on market performance and operating performance. The proof
has also offered partial support to the perspectives of agency, which optimal board size and board independence,
was positively related, whereas CEO duality has negatively moderated the relation among CEO compensation and
operating performance. Though, not any of these systems are shown to be efficient in aligning and supporting
market performance to CEO compensation. Actually, dividend policy has negative moderated impact on the relation
among CEO compensation and company performance i.e. both market and operating performance. Hence, in
contrast to the agency theory’s proposal, dividend policy can’t be used as an alternate control mechanism in the lack
of strong capital structure mechanisms.

Simshauser and Catt (2011)9told that dividends must be sticky in order to outfit the companies’ clientele and
franking credits must be shared as quickly as possible to provide their time value. Some decisions done by
companies acquire more reliable yearly attention through Board directors than dividend policy. Financial economists
have concentrated on deriving optimal dividend policy, for 60 years. Dividend policy of company finds out the rate
in which yearly profits are shared to stakeholders as unique from that, and it will be preserved for reinvestment.
Dividend policy identification is considered as a prime decision of Board Directors. In this research finding, it has
been suggested that the present dividend policy of regulated utilities and merchant in Australia is approximately 80
percent and 60 percent of earnings. Franking credits are shared to stakeholders as they appear with sticky payout
ratios. These dividend policies may be explained as tax optimizing, clientele friendly and from the perspectives of
capital structure, it is historically suitable. Problem that found in the minds of researchers was cyclical interfaces
among the investment megacycle, the structural reliance of Australia on the foreign capital, enduring worldwide
risks to dividend payout ratios and capital market liquidity extending at same rate as earnings.

Islam et al (2017)10critically analyzed the dividend policy determinants. The determinants are as follows:

i. Count of working years or Age of company in particular firm;

ii. Type or nature of company or region of work;
iii. Lack for extra financial needs or capital;
iv. Scope of profit distribution or share distribution ratio;
v. Trade cycles or business cycles or economy cycle;
 vi. Variations in political stability or government policies;
vii. Rates of taxes or taxation policy or slab rates;
viii. Profit margin or trends of profits;
ix. Liquidity position or cash balance or quantity of cash; and
x. Future scope or future requirements.

Pan (2015)11examined the dividend policy with respect to Chinese capital market. Additionally, this research has
explored the factors that considerably influence the dividend policy in the Chinese listed companies. The influences
of dividend policies are mystifying. In an effective marketplace, corporate policy like dividend decision has no
influence on the company values unless, it modifies the expected returns or total cash flows of companies. Hence,
pure accounting transforms, like stock dividends, must have no considerable influence on the stock costs because
stakeholders don’t really receive any actual cash returns. Though, empirical analysis has shown that stock costs react
considerably when companies create stock dividend statements. Guo (2013) 12attempted to confirm empirical proof
regarding the thesis of dividend payout policy with special concentration on its communication with capital
structure, successive earnings growth and stock market irregular return in the Chinese listed firms. This report has
supplied an empirical study of the effect of decisive controlling stakeholders, including their control rights and
types, about the cash dividend payout declaration, by using a model of 1200 Chinese listed companies. The findings
of this analysis have given sound support for perspective in which cash dividend policy was linked to the capital
structure in Chinese marketplace. Additionally, the results have also shown that companies with different kinds of
decisive controlling stakeholders reveal deviation in the magnitude and likelihood of cash dividend payouts. A cash
payout policy was sensitive to the characteristics of company like profitability, financial leverage and firm size.

Atia (2016)13targeted to explore the dividend payout ratio determinants in the UK. The author has explored the
theoretical relations with respect to significant dividend theories like transaction and agency costs, residual,
signaling and life cycle theories. Sample contains non-financial companies of UK during 1991 to 2014. This
concentrates on 1340 companies such as both listed as well as de-listed firms, by the intention of neglecting
survivorship bias. The period of analysis have the 2008 to 2009 international financial crisis. Hence, analyzing the
influence of resultant shocks to the delivery of demand, credit and firm risks rely on the dividend payout ratios of
companies, over certain time period, gives additional contribution to the review on dividend policy of UK. The
findings have robustly revealed that more profitable and large sized companies have greater dividend payout ratios,
appropriate to transaction cost theory. Additionally, the hypothesis of free cash flow seems to state the UK listed
firms’ dividend policy. Overall findings have revealed that UK companies, which belong to technology and
industrial sectors place their dividend payout ratios depends on the suppleness hypothesis.

Countries Meta-analysis Data on Impact Determinants Findings

Author and Dividend Policy
Year
Akhtar (n, d) US Gather data on Provided that dividend payout Results found that Australia is
government post ratios have turned out to be an far superior than US in various
security from Public increasing problem in the past facets of financial markets.
Support Measures in decades, particularly in US.
the United States
Thanatawee China A sample of 4045 i. Scale of dividend Findings suggested that
(2014) Chinese listed firms payouts has companies with greater
was selected, especially positive impact on ownership by means of
in Shanghai region. ownership through biggest stakeholder,
biggest government ownership and
stakeholder, ownership concentration are
government more feasible to pay
ownership and dividends.
ownership
concentration.
ii. But, there was a
negative
association with
ownership by
 organizations and
foreign investors
Gurianov Russia A sample of 11 Russian There have been more complex The findings revealed that
(2015) Listed firms were relationship amid shares price shareholders related with
selected and dividend payments; the earnings acquiring from
relationship were not direct as it kindness are the keystone of
considers reducing of dividends upcoming dividend policy.
flow, but interceded through
variations of dividend payments
coefficient as well as course
profitability from necessary
values.
Atia (2016) UK Here, 1340 companies The influence of resultant shocks The results have strongly
such as both listed as to the delivery of demand, credit shown that more profitable
well as de-listed firms and firm risks depends on the companies have greater
have chosen dividend payout ratios of dividend payout ratios.
industries, over period of time, UK companies that go behind
which gives extra contribution to technology and industrial
the analysis on dividend policy sectors place their dividend
of UK. payout ratios as their first
priority.
Akhtar (n, d) Australia Sample of macro and i. Impact These results have remained
micro levels for 5918 determinants such unaffected irrespective of
MCs and 6038 DCs as taxation, legal managing of time and
were chosen across five and financial company effects of the
countries like Australia, systems have organization.
UK, US, Malaysia and negative impact on
Japan dividend payment
and capital
structure.
ii. Impact factors like
Profitability,
diversification,
risk, collateral asset
values, financial
slack, firm specific
risk and size were
the very important
variables in
describing the
variation in cash
dividend payout
ratios among
Australian
Multinational and
Domestic
Corporations.
Jabbouri, Satt MENA The sample contains Here, cost of debt was The findings have remained
and Farooq region 242 listed companies at negatively related with dividend robust even after management
(2014) stock exchanges of 8 policy of selected firms. of different company-oriented
MENA nations (Jordan, features.
Egypt, Bahrain,
Morocco, Jordan, UAE,
 Kuwait, Saudi Arabia
and Qatar.

Table 2: Comparison on impacts of dividend policy determinant in different nations

2. Meta-analysis:

This section presents meta-analysis on capital structure and dividend policy in five different regions such as US,
China, Russia, UK, GCC, MENA region and Australia. Though, the last 60 years of analysis have obtained a rush of
empirical review on the capital structure determinants, several researchers in this main discipline of the corporate
finance wind up that overall image is relatively combined. In the financial analysis, it is extremely controversial
concern that whether dividend policy is significant decision or residual decision, not influencing the performance of
company at all. In this research, investigation is made through Meta-analysis that includes gathering results from
prior analyses and then provides mixed results of all analyses together in a quantitative manner. By performing
Meta-analytical approaches, this research contributes to analyze existing study on both the determinants of capital
structure and dividend policy in various ways.

Meta-analysis on capital structure of different regions like US, China, Russia, UK, GCC, MENA region and
Australia:

Hang et al (2017)14performed a Meta-analysis of capital structure determinants and aggregated the combined
empirical proof of seven most generally explored corporate capital structure determinants. Here, the researchers
have applied ‘Meta-regression analyses’ that practiced on a dataset of 3890 reported outcomes, gathered manually
from 100 major analyses covering company examinations from 57 nations during last 65 years. Findings have
shown that tangible assets with positive impact, profitability with negative impact and market-to-book ratio with
negative impact are considered as important corporate debt level determinants. Overall, these results have
highlighted the necessary to relate existing statistically important findings in the field and as an alternate that offer
independent studies for the scientific advancement, in future.

Kumar, Colombage and Rao (2017)15examined the status of analyses about the determinants of capital structure
during last 40 years. This article has emphasized the significant gaps in the review on capital structure determinants.
The status of analysis was estimated through analyzing the region, firm size, economic growth levels, and data
gathering techniques, data analysis methods and theoretical patterns of capital structure. The analysis was relied on
167 articles published from 1972 to 2013 in different peer reviewed journals. Relationship of capital structure
determinants was examined by using Meta-analysis. Major results have shown a raise of attention in study on capital
structure determinants of companies positioned in budding markets. Though, it has been noticed that these areas are
under-examined still that gives more extent for this study both survey and empirical based analyses. This review has
emphasized the most significant capital structure determinants and their associations with leverage. This research
has also shown the authority of pecking order theory in describing firms’ capital structure both statistically and
theoretically.

Manos (2001)16aimed to include empirical proof to the corporate finance review through looking at two major
financing problems, including firms’ capital structure and payout policies decisions, with respect to rising markets.
Dividend theories have linked the impact of dividend on the value to taxes, transaction costs, signaling, agency
conflicts and risk. The major empirical analyses of the dividend policy mystery have concentrate on the tax
hypothesis, agency analyses and signaling hypothesis. Inconclusive findings were acquired with regard to variables
estimating organizational ownership as well as financial risk, whereas the findings on the size proxy were
controversial. These clearly need additional examination, possibly permitting the dividend resolution as well as
ownership structure models to be concurrently identified. Certainly, it was logical to consider that these resolutions
were mutually dependent.

Essen et al (2014)17performed a Meta-analysis to determine the family control effects on company strategy and
performance in the context of US publicly listed companies. From the results, the researchers have found that
performance of US publicly listed family companies were dropped dramatically after the first generation and
revealed that this negative performance discrepancy was because of more conservative models of strategic decision-
making acted out through successor generations.

Habimana (2016)18explored relation among financial performance and capital structure. The study was conducted on
a huge cross-sectional data set of companies that operating in Middle East, Africa, Eastern Europe, Asia, China and
Russia. By using OLS (Ordinary Least Squares) technique, the results have provided proof that capital structure
issues for the companies’ financial performance. Leverage was significantly and negatively linked to returns; and
positively linked to the systematic risk. All over, the results have supported the inert trade-off theory of the capital
structure.

Ilyukhin (2017)19aimed to find out the factors of capital structure in Russian listed companies. A sample of 48 non-
financial companies (publicly traded) were chosen and analyzed during 2009 to 2015. Here, random effects
technique is used measurements, whereas OLS technique is used to estimate the company influence on capital
structure. It has been found that industry mean leverage and firm size (positively related); and growth opportunities
(negatively related) in the context of Russian firms. Non-debt tax shields, profitability and stock market conditions
(negatively related) were less significant.

Temimi, Zeitun and Mimouni (2016)20 explored whether tax status of a nation has any impact on corporate capital
structure in GCC (Gulf Corporation Council) region that is typified through a distinct fiscal atmosphere, gives a
natural lab for analysis. This natural atmosphere permits to analyze the influence of taxes on company leverage as
the huge analysis didn’t attain an accord on the task of roles in company capital structure. Researchers have found
that taxes have direct as well as indirect influences on leverage. The appearance of taxes intensifies the influence of
GDP growth and tangibility on leverage, whereas it weakens the influence of liquidity and profitability. The
correlation among companies leverage and growth opportunities, leverage and size don’t appear to be influenced
through taxes. The findings have verified that the current results of the analysis in other areas throughout the world
that taxes have considerable impact on corporate leverage.

Iatridis and Zaghmour (2013)21 examined the relationship among leverage and financial attributes of firms like asset
tangibility, firm size, growth and profitability in MENA region. This paper has concentrated on capital structure’s
market timing theory and assumed whether decision of financial structure are influenced by market conditions like
issuing debt when rate of interest is low and stock when the valuations are high. Also, this research has explored
relationship among corporate governance, company performance and leverage. The results have shown that firm
size was a significant factor for financial decision making and was positively related with leverage for both Turkey
and Morocco. Firms have negative impact on profitability, leverage and asset tangibility. Contrasting to Moroccan
companies, Turkish companies show a positive relation among leverage and growth. For both nations, the findings
have also suggested that firm performance was positively linked to efficient corporate governance, as indicated by
the occurrence of foreign or organizational investors or independent board directors’ monitoring activities of
managers and negatively linked to leverage.

Author and Year Countries Meta-analysis on Statistic Reports Impacts and Findings
Year (90s) Capital Structure
and Dividend
Policy
Huang and From1994 China Sample of 1200 Particularly, Rate of Assets, Determinants like non-
Song (2002) to 2000 Chinese listed Tobin’s Q, size, non-debt debt tax shields, fixed
companies were shields, tax, sales growth assets and firm size were
selected rate, and tangibility were positively related with
averaged values during 1994 leverage; and negative
to 2000, whereas ownership relationship with
structure as well as profitability.
management stockholding
are proxied through
organizational
 stockholdings. Total shares
detained by all top managers
and directors at the last part
of the year 1999.
Michaelas, 1990’s UK Employed current In SMEs, average short- Average long-term debt
Chittenden financial panel data term debt ratios emerge to ratios show a positive
and be rising during the time link with respect to the
Poutziouris periods of financial changes in financial
(1999)34 recession and reduce as the growth.
financial conditions in the
market progress.
Akhtar (n, d) During Australia Sample of 5918 Long term debt doesn’t These findings have
1994 to MCs and 6038 DCs reveal any statistical shown robustness to
2000 were chosen across significance with respect to different analyses of
five countries like Australian DCs dividend compassion for
Australia, UK, US, payout ratios. measurement issues or
Malaysia and Japan statistical bias. decisions.

Table 3: Comparison of two determinants like capital structure and dividend policy with different countries
based on 90s statistics reports

Meta-analysis on dividend policy of different regions like US, China, Russia, UK, GCC, MENA region and
Australia:

Wei et al (2004)22performed an analysis to find out the association between dividend payout as well as ownership
structure for Chinese listed companies. Here, 3994 surveillances of Chinese listed companies from 1995 to 2001, the
researchers have found considerably positive link among cash dividend payment and state ownership; and
considerably positive link among stock dividend payment and private ownership. Especially, the researchers have
determined that link among ownership structure and dividend payment level was non-linear. Greater the percentage
of state ownership leads to greater the rate of cash dividend. Similarly, greater the percentage of private ownership
leads to greater the rate of stock dividend. Hence, it has been concluded that the managers of Chinese firms were
probable to outfit for the choice of various stakeholders.

Thanatawee (2014)23investigated the impact of ownership structure on dividend policies of 4045 Chinese listed
firms during 2007 to 2011, especially in Shanghai region. The findings have shown that companies with greater
ownership through the biggest stakeholder, government ownership and ownership concentration are more probable
to pay dividends. Though, the possibility of paying dividends reduces when organizations hold more shares. It has
been found that magnitude of dividend payouts were positively related with ownership through biggest stakeholder,
government ownership and ownership concentration but a negative association with ownership through
organizations as well as foreign investors. In this analysis, the capital market structures were considerably varied
from US. As said by Wei, Xie and Zhang(2005) 24, China has fragile legitimate protection for the minority
stakeholders and underdeveloped marketplaces for the corporate control. Additionally, the capital structure of
companies in China was greatly concentrated (Wang, Manry and Wandler, 2011; and Bai et al., 2013) 25, 26. The
following were the contributions of this article:

i. This article has assisted to shed more focus on dividend policy of Chinese listed companies, while the
analysis on payout strategy is uninvestigated still;
ii. The proof has revealed the positive influence of government ownership on the dividend policies of
firms in China assisted to corroborate the results of previous analysis (Chen, Jian and Xu, 2009; and
Bradford, Chen and Zhu, 2013)27, 28; and
iii. This article has documented an interesting problem about corporate governance of listed companies of
China that is organizational ownership was negatively influence dividend policy of Chinese
companies, recommending that huge organizational investors impound minority stakeholders.

Akhtar (n, d)30employed a distinct dataset to estimate whether dynamics of financial structure may be captured by
the specification as well as measurement of capital structure; and dividend payout patterns for DCs (Domestic
Corporations) and MCs (Multinational Corporations) across nations with various features. Hence, this research tried
to give a comprehensive and comparative perception of dividend policy and capital structure factors at both macro
and micro levels for 5918 MCs and 6038 DCs across Australia, UK, US, Malaysia and Japan during 1995 to 2004
time period. These nations are typified by taxation, legal and financial systems that can have an influence on
dividend payment and capital structure factors. Profitability, diversification, risk, collateral asset values, financial
slack, firm specific risk and size were the important variables in describing the variation in cash dividend payout
ratios among Australian MCs and DCs. These findings have stayed uninfluenced irrespective of controlling for time
and company effects.

Kumar and Waheed (2015)31 analyzed the dividend policy determinants in GCC market relied on the sample
companies in UAE market. From the total sample of 132 listed firms, analysis of around 120 listed firms has shown
that 80 % of firms were paid dividends during 2011 to 2013. The findings have supported the theory that companies
with high development rate in income needs greater capital use as well as establish lesser dividend payout on the
basis of expensive external financing.

Jabbouri (2016)32 performed an analysis to examine the determinants of dividend policy in rising markets.
Researcher has employed 533 companies from ten MENA (Middle East and North Africa) nations among 2004 and
2013. The researcher has found that there was positive link among dividend payout and firm size. It has been
suggested that huge companies are attempting to reveal their management’s attempt to shareholders by paying great
dividends. In addition to that, researcher has provided another reason for the result i.e. high dividend payout will
reveal firm financing are based on the capital market, which exhibit a superior level of governance.

Year Countries Meta analysis on Statistic Report Impacts and Findings

Author and (last 10 Capital Structure
Year years) and Dividend
Policy
Thanatawee During China A total of 4045 i. It has been Hence, the ownership
(2014) 2007 to Chinese listed firms shown that, on structure of Chinese
2011 were selected, in average, more listed firms impact the
Shanghai region. than 56% of the dividend payout policy of
companies are the firm.
dividend
payers; and
dividends were
paid to
stakeholders is
just 16.81
percent of net
income.
ii. The biggest
stakeholders
hold above
37.11 percent
of total shares;
and the five
biggest
stakeholders
hold 50.03
percent of total
shares.
Gurianov During Russia A sample of 11 Conservative kind was best Capital structure and
(2015)35 2006 to Russian Listed firms for 70 percent of industrial dividend policy are
2010 were selected businesses and aggressive companionable to the
 kind of dividend policy was current growth of the
most favorable for 0.4 market. Considering a
percent of industrial huge amount of
organizations, alone. The stakeholder portfolio,
monetary kind of dividend who have no influence on
payment policies was the way in which the firm
optimum for 85 percent of operates, problems might
firms and 15 percent choose arise in deciding the
the payment by shares. capital structure based on
stakeholder portfolio.
Atia (2016) 1991 to UK Here, 1340 UK The statistics have indicated The results have shown
2014 firms such as both that large sized companies that more gainful
listed as well as de- have greater dividend payout companies have better
listed firms were ratios when compared to dividend payout ratios.
selected small sized companies (mean The results pertain to the
DPR with lower average transaction cost theory.
market capitalization =
0.291; mean DPR with
greater average market
capitalization = 0.332).
Utilities have the greatest
payout ratio of all the firms
(mean DPR= 0.334), pursued
by service-sector firms
(mean DPR = 0.329) and the
lowest dividend payout ratio
is noticed for companies that
belong to technology sector
with mean DPR = 0.214.
Kythreotis et 2009- Australia Totally 187 The average of Total Debt It has been concluded
al (2018)36 2015 Australian firms ratio was 0.54 for the that dynamic trade-off
were chosen Australian companies. capital structure theory is
an enhanced forecast of
Australian firms’
financial performance.
Temimi, 2003- GCC A total of 1317 The ratio of median leverage It has been concluded
Zeitun and 2013 firms listed on for complete sample is that firm’s capital
Mimouni Malaysia, Thailand around 20 % structure is significantly
(2016) and 6 GCC related to corporate
countries were leverage.
chosen and includes
663 companies from
Malaysia, 400 from
Thailand, Qatar –
13, Saudi Arabia –
65, Kuwait – 56,
UAE – 34, Oman –
71 and Bahrain – 15
firms. Data were
gathered from the
World Bank, IMF
(International
Financial Statistics)
 and the Bloomberg
database.
Iatridis and 2002- MENA A sample contains The descriptive statistics for It has been concluded
Zaghmour 2011 region firms that belonging leverage of Turkey is 13.75 that firm size is
(2013) to the major stock percent, whereas for positively related to
indices of Turkey Morocco is about 9.19 leverage in both Turkey
and Morocco that is percent. and Morocco.
for Turkey, ISE
National 100 index;
and for Morocco,
MASI index. This
research has
employed 135
Turkish firms and
83 Moroccan firms
for investigation.

Jabbouri 2004- MENA 533 listed With the help of panel data It has been concluded
(2016) 2013 region companies were analysis, this research has that companies’ credit
selected from 10 reported that dividend policy worthiness enhanced
MENA countries was positively linked to firm leverage ratios since
like Kuwait, Oman, size, liquidity and present equity on balance sheet
Egypt, Saudi profit and negatively linked increased because of less
Arabia, Qatar, to growth, leverage, free dividend payments.
Bahrain, Morocco, cash flow and economy state.
Jordan, UAE and
Tunisia in 11 stock
markets.
Kumar and 2011- GCC A sample of 132 From 132 listed firms, The findings have
Waheed 2013 firms was chosen analysis of around 120 listed supported the theory that
(2015) i.e. 66 listed firms firms has shown that 80% of companies with high
from Abu Dhabi firms were paid cash development rate in
stock exchange and dividends. income needed greater
66 firms from Dubai capital use as well as
financial market established lesser
were selected. dividend payout on the
basis of expensive
external financing.

Table 4: Comparison of two determinants like capital structure and dividend policy with different countries
based on last 10 years statistics reports

CONCEPTUAL FRAMEWORK AND PROPOSITIONS

From the review of literature, the following conceptual model (Figure 1) could be developed with respect to the
determinants of capital structure and dividend policies for five different nations such as US, China, Russia, UK and
Australia.
Figure 1: Conceptual Framework on determinants of capital structure and dividend policies for five different
nations such as US, China, Russia, UK and Australia

The following are the propositions that might be drawn for investigating in the future from the model developed
based on the systematic review of literature:

P1: Impact of profitability on the firm’s economy level in the five different countries

P2: Impact of firm size on the firm’s economy level in the five different countries

P3: Impact of growth opportunities on the firm’s economy levelin the five different countries

P4: Impact of assets tangibility on the firm’s economy levelin the five different countries

P5:Impact of tax and non-dept tax shields on the firm’s economy levelin the five different countries

P6: Impact of taxation policieson the firm’s economy levelin the five different countries

P7: Impact of profit margin on the firm’s economy levelin the five different countries

P8: Impact of lack of financial needs on the firm’s economy levelin the five different countries

P9:Impact of government policies on the firm’s economy levelin the five different countries

DISCUSSION
It has been noted that the determinant impacting the capital structure and divided policy vary from one nation to the
other. It also varies over a period of time due to many external factors like the market conditions, regulations and
organizational operations. The major determinants of divided policies identified weretaxation policies, government
policies, lack of financial needs and profit margin. Likewise the major determinants of capital structure as identified
by this review are profitability, firm size, tangibility of assets, growth opportunities and finally tax and non-dept tax
shields.

CONCLUSION AND FUTURE SCOPE

This article has given an idea on the determinants of capital structure and dividend policy with respect to five
different nations namely US, China, Russia, UK and Australia. This paper has also reviewed how capital structure
and dividend policy varied over a period of time with respect to profitability, size of firm, growth opportunities, cost
of financial distress, tangibility, tax and non-dept tax shields. In addition to reviewing the factors, this paper has also
come up with a conceptual framework along with a set of propositions which could be hypothesized in the future by
other researchers and also tested for their correctness using primary data collection and analysis.

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