Does the Pecking Order Hypothesis Explain the Dividend Payout Ratios of Firms in the UK?
Author InfoAbimbola Adedeji (Bristol Business School, University of the West of England) Abstract This study tests the pecking order hypothesis on data of 224 firms in the UK over the period 1993-96 inclusive. Evidence observed supports the prediction of the hypothesis that there is a negative interaction between the long term value of dividend payout ratio and investment. The evidence also indicates that financial leverage has a positive interaction with dividend payout ratio but no significant interaction with investment. While investment has a significant positive influence on financial leverage, financial leverage does not have a significant influence on investment. It is also observed that irrecoverable advance corporation tax (ACT) has a positive, albeit weak, influence on dividend payout ratio and that overseas profit has a negative influence on the ratio. The results of the study agree with the previous evidence with regard to the influence of dividend payout ratio on investmen
