The Influence of Financial Performance on Payout Policy: A Study of Estonian Firms

Abstract

Payout (dividend) policy has been a controversial topic for decades. Theoretical and empirical literature has listed dozens of factors that could affect firm’s payout decisions. Current paper analyses the influence of financial performance on firms’ payout decisions based on a large sample of Estonian companies and covers the financial and economic crises period of 2008-2009. The results indicate that past financial performance indicators are poor predictors of future dividends (measured both by payout ratio and the value of dividends). The connection between the dividends paid and future earnings of the firm turned out to be remarkably stronger, i.e. dividends seem to possess some predictive power.