Dividend policies of travel and leisure firms in the UK

Abstract

Purpose This study aims to examine cash dividend practices of travel and leisure (T&L) companies listed on the London Stock Exchange (LSE). Design/methodology/approach The study uses a panel data set of 524 firm-year observations of 55 unique publicly listed UK T&L companies between 2007 and 2019. First, it uses a modified version of Lintner’s (1956) partial adjustment model for analysis regarding the target payout ratio and dividend smoothing. Second, it performs logit and Tobit models in ascertaining the association between financial characteristics and divided decisions of T&L firms. Finally, it applies the modified specification of the partial adjustment model on different sub-samples that are partitioned based on various financial factors to determine how the financial characteristics of T&L companies affect their dividend behavior. Findings The results show that UK T&L companies have long-term payout ratios and adjust their cash dividends by moving gradually to their target at a serious degree of smoothing. The findings also detect that financial characteristics of T&L firms (i.e. profitability, debt and size) have significant effects on their dividend payments decisions. In particular, more profitable and larger T&L corporations are more likely to pay cash dividends, whereas T&L companies with more debt are less likely to pay cash dividends in the UK. The results further reveal that although such financial characteristics also have important impacts on the target payout ratios and dividend smoothing levels, UK T&L companies generally adopt stable dividend policies over the period 2007-2019. Originality/value This is thought to be the first study to provide insights on dividend policy practices of UK travel and leisure corporation listed on the LSE.