Corporate Payout Policy in Australia and a Test of the Life Cycle Theory

Abstract

We provide evidence on the frequency and size of corporate payouts by Australian firms, and test whether the life cycle theory explains Australian payout policies. Regular dividends remain the most popular mechanism for distributing cash to shareholders, despite a slight decline in the proportion of dividend payers since the relaxation of buy-back regulations in 1998. Off-market share buy-backs return the largest amount of cash to shareholders. Dividend paying firms are larger, more profitable, and have less growth options that non-dividend paying firms. Consistent with the life cycle theory, we observe a highly significant relation between the decision to pay regular dividends and the proportion of shareholders’ equity that is earned rather than contributed.