Research-Thesis: An Analysis Of The Stability Of Dividend Payments In Privately Held Firms

Abstract

This research investigates dividend determinants in Belgian private firms from 2016-2024, spanning the COVID-19 pandemic and recovery period. Using panel logit regression on 1,533 enterprises from the Belfirst database, the study evaluates whether dividend smoothing, pecking order, and lifecycle theories—originally developed for public corporations—transfer meaningfully to closely held firms operating under distinct governance architectures, ownership concentrations, and market pressures. The study constructed six theoretically motivated independent variables (lagged dividend payments, return on assets, financial leverage, operating cash flow, firm age, and logarithmic firm size), achieving robust classification accuracy of 82.71% in correctly identifying dividend-paying enterprises. Lagged dividends emerge as the strongest predictor, with a 58.3 percentage-point increase in payment probability per unit, validating smoothing theory. Profitability demonstrates robust positive effects (2.94 percentage points per 1% ROA), supporting pecking order predictions that profitable firms maintain greater distribution capacity. Age correlates positively (4.18 percentage points per year), corroborating lifecycle theory that mature enterprises prioritize shareholder returns. Larger firms exhibit higher propensity due to financial flexibility and capital access, while leverage negatively affects payouts, reflecting debt constraints. These patterns persist through COVID-19 disruption and recovery, indicating resilient stability mechanisms. This research advances dividend policy scholarship by systematically demonstrating that major theoretical frameworks originally developed and validated in public corporation contexts transfer meaningfully and substantially to private firm environments, although with quantitatively distinct parameter magnitudes reflecting institutional differences. The findings demonstrate that public-firm theories apply substantially to private contexts, offering managers evidence-based guidance, investors a forecasting framework, and policymakers insights for regulation and tax design. The Belgium-only sample constrains international generalizability; future research should extend to other jurisdictions and post-2024 periods to assess whether patterns remain context-specific or exhibit universal applicability.