Impact of Peer Pressure on Dividend Policy: Evidence from Food & Allied and Power & Fuel Sectors in Bangladesh
DOI:
https://doi.org/10.32890/ijbf2024.19.2.2Keywords:
Peer effects, dividend policy, payout policy, dividend payout ratio, corporate financeAbstract
Firms’ decisions are not independent of their peers. This study aims to assess the impact of peer pressure on firms’ dividend policy. In a sample of 29 firms from 2014–2020, this study employed a fixed effect regression model and revealed that Bangladeshi firms adjusted their dividend policy in response to their peers. Firms adjust the dividend payout ratio (DPR) by 5.6 percent as a response to their peers. Social learning theory, reputation-based model of peer influence, persuasion bias and rivalry-based theory of mimicking explain how peer influence affects a firm’s dividend policy. The findings of positive peer effects on dividend policy are robust to an alternative proxy of dividend policy – dividend yield. Therefore, the study implied that managers’ decisions regarding the dividend policy are not independent of their peer firms. Investors can adjust their expectations of a firm’s dividend policy based on the overall dividend policy in the industry.
References
Abu, S. T. (2012). Determinants of dividend payout policy: Evidence from Bangladesh. International Journal of Economic Practices and Theories, 2(3), 119–126. https://ideas.repec.org/a/aes/ ijeptp/v2y2012i3p119-126.html
Adhikari, B. K., & Agrawal, A. (2018). Peer influence on payout policies. Journal of Corporate Finance, 48, 615–637. https://doi.org/10.1016/j.jcorpfin.2017.12.010
Ahmad, N. G., Barros, V., & Sarmento, J. M. (2018). The determinants of dividend policy in Euronext 100. Corporate Ownership and Control, 15(4), 8–17. https://doi.org/10.22495/cocv15i4art1
Alam, M. Z., & Hossain, M. E. (2012). Dividend policy: A comparative study of UK and Bangladesh based companies. IOSR Journal of Business and Management, 1(1), 57–67. https://doi.org/10.9790/487x-0115767
Allen, F., & Michaely, R. (2003). Payout policy. Handbook of the Economics of Finance, 337–429. https://doi.org/10.1016/ s1574-0102(03)01011-2
Andersen, J. L., & Davidsen, K. (2018). Peer influence on dividend policy [Unpublished master’s thesis]. Copenhagen Business School.
Baker, H. K., & Powell, G. E. (2000). Determinants of corporate dividend policy: A survey of NYSE firms. Financial Practice and Education, 10, 29–40. https://www.researchgate.net/ publication/236860977_Determinants_of_Corporate_ Dividend_Policy_A_Survey_of_NYSE_Firms
Banerjee, A. V. (1992). A simple model of herd behavior. The Quarterly Journal of Economics, 107(3), 797–817. https://doi.org/10.2307/2118364
Bikhchandani, S., Hirshleifer, D., & Welch, I. (1992). A theory of fads, fashion, custom, and cultural change as informational cascades. Journal of Political Economy, 100(5), 992–1026. https://doi.org/10.1086/261849
Black, F. (1976). The dividend puzzle. The Journal of Portfolio Management, 2(2),5–8.https://doi.org/10.3905/ jpm.1976.408558
Brealey, R. A., & Myers, S. C. (2005). Principles of corporate finance (8th ed.). McGraw-Hill Irwin, London.
Charles, C., von Meyerinck, F., & Schmid, M. (2018). Peer pressure in corporate earnings management. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3975224
DeMarzo, P. M., Vayanos, D., & Zwiebel, J. (2003). Persuasion bias, social influence, and unidimensional opinions. The Quarterly Journal of Economics, 118(3), 909–968. https://doi.org/10.1162/00335530360698469
Frank, M. Z., & Goyal, V. K. (2009). Capital structure decisions: Which factors are reliably important? Financial Management, 38(1), 1–37. https://doi.org/10.1111/j.1755-053x.2009.01026.x
Gill, A., Biger, N., & Tibrewala, R. (2010). Determinants of dividend payout ratios: Evidence from United States. The Open Business Journal, 3, 8–14. https://doi.org/10.2174/18749151010030100
Gordon, M. J. (1963). Optimal investment and financing policy. The Journal of Finance, 18(2), 264–272. https://doi.org/10.1111/j.1540-6261.1963.tb00722.x
Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2–3), 187–243. https://doi.org/10.1016/s0304-405x (01)00044-7
Grennan, J. (2019). Dividend payments as a response to peer influence. Journal of Financial Economics, 131(3), 549–570. https://doi.org/10.1016/j.jfineco.2018.01.012
Gujarati, D. N., & Porter, D. C. (2010). Basic econometrics. McGraw-Hill.
Hosain, M. Z. (2016). Determinants of the dividend payout policy: A study on listed private commercial banks of Dhaka Stock Exchange Limited in Bangladesh. IOSR Journal of Economics and Finance (IOSR-JEF), 7(5), 1–10. https://doi.org/10.9790/5933-0705040110
Issa, A. (2015). The determinants of dividend policy: Evidence from Malaysian firms. Research Journal of Finance and Accounting, 6(18), 69–87. https://papers.ssrn.com/sol3/papers. cfm?abstract_id=2770541
Jabbouri, I. (2016). Determinants of corporate dividend policy in emerging markets: Evidence from Mena Stock Markets. Research in International Business and Finance, 37, 283–298. https://doi.org/10.1016/j.ribaf.2016.01.018
Janet, A. O., Kabiru, A., Joshua, A., & Adewale, T. (2021). Determinants of dividend policy of manufacturing firms in Nigeria. African Economic Research Consortium, Working Paper Series-CF005. https://publication.aercafricalibrary. org/server/api/core/bitstreams/4b93de7a-118b-4132-8927-2fea1ebbaeb7/content
Kaustia, M., & Rantala, V. (2015). Social learning and corporate peer effects. Journal of Financial Economics, 117(3), 653–669. https://doi.org/10.1016/j.jfineco.2015.06.006
Kaźmierska-Jóźwiak, B. (2015). Determinants of dividend policy: Evidence from Polish listed companies. Procedia Economics and Finance, 23, 473–477. https://doi.org/10.1016/s2212-5671(15)00490-6
Labhane, N. B., & Mahakud, J. (2016). Determinants of dividend policy of Indian companies. Paradigm, 20(1), 36–55. https://doi.org/10.1177/0971890716637698
Leary, M. T., & Roberts, M. R. (2014). Do peer firms affect corporate financial policy? The Journal of Finance, 69(1), 139–178. https://doi.org/10.1111/jofi.12094
Lee, K. F. (2020). Peer effects on firm dividend policies in Taiwan. Journal of Finance and Economics, 28(3), 113-144. https://www.airitilibrary.com/Publication/alDetailedMesh?doc id=10222898-202009-202009250004-202009250004-113-144
Lieberman, M. B., & Asaba, S. (2006). Why do firms imitate each other? Academy of Management Review, 31(2), 366–385. https://doi.org/10.5465/amr.2006.20208686
Lin, Y., Mao, Y., & Wang, Z. (2017). Institutional ownership, peer pressure, and voluntary disclosures. The Accounting Review, 93(4), 283–308. https://doi.org/10.2308/accr-51945
MacKay, P., & Phillips, G. M. (2005). How does industry affect firm financial structure? Review of Financial Studies, 18(4), 1433–1466. https://doi.org/10.1093/rfs/hhi032
Malik, M., Al Mamun, M., & katakwargandhi, A. (2018). Peer pressure, CSR spending, and long-term financial performance. Asia-Pacific Journal of Accounting & Economics, 26(3), 241–260. https://doi.org/10.1080/16081625.2018.1493933
Mehta, A. (2012). An empirical analysis of determinants of dividend policy - Evidence from the UAE companies. Global Review of Accounting and Finance, 3(1), 18–31.
Published
Issue
Section
How to Cite
Research impact
Harvested 2026-09-24Counts differ between services because each indexes a different body of literature. None of them is the whole picture.
