Comparative Study of the Development in Net Dividends and Capital Structure for the Largest, Nordic Public-traded Companies

Abstract

The aim of the thesis was to examine whether the development in net distribution policy of the largest, Nordic public-traded companies were affected by capital structure developments or other empirically based variables. To investigate this, a longitudinal study was performed in the period 2003-2022, where data comprising 172 companies was examined through capital structure theories as well as the signaling and residual theory. The motivation behind the study has been the limited investigation of the net distribution determinants and tendencies for the largest Nordic public-traded companies over time, as this has rather been conducted through an international context. The results indicate volatility in net distribution and capital structure during the period, where the average ratios have trended downwards, indicating that the Nordic companies have reduced the net distribution along with increasing dividend yields and dividend coverage ratios as well as decreased their debt ratios. Further, stock issues and share repurchase have trended higher on a percentage scale compared to dividends, showcasing an increasing preference for utilizing share repurchases as a distribution tool to shareholders, despite dividends being a signal of greater commitment and quality. It was evident that the observations from the time-fixed effects regression to a small extent coincide with existing literature, since the independent variables primarily affected the dividend yield, where the most prominent factors where capital structure ratios, the size of companies, market-to-book values, tangibility of assets as well as the free cash flow to equity. Additionally, it was confirmed that 88% of the largest, Nordic public-traded companies paid dividends, and that 77-81% determined the net distribution residually, entailing that value creating investment opportunities were exploited along with debt servicing before the net distribution to shareholders.