WASHINGTON, D.C., Aug. 9 -- The International Finance Corporation (IFC) has released a Discussion Paper on Dividend Policy and Behavior in Emerging Markets -- To Pay or Not to Pay (IFC Discussion Paper No. 26 by Jack D. Glen et. al. of IFC's Economics Department).
The report considers dividend policy in Chile, India, Jamaica, Mexico, Philippines, Thailand, Turkey, and Zimbabwe from both the investor and the corporate perspective. It concludes that dividend policy in these markets is often very different from the norms that have been accepted in industrial countries. For example, emerging market corporations place more emphasis on dividend payout ratios than on the level of dividends paid, making dividend payments more volatile than in industrial countries.
In 1994, the fraction of earnings paid as dividends to investors in developing countries was, on average, two-thirds of that paid to investors in developed countries. This difference reflects the importance of internally generated financing in developing countries as well as a willingness on the part of investors in these countries to forego current dividend payouts in anticipation of higher future earnings growth.
The report also examines environmental factors that are important in the dividend decision, including legal and regulatory issues, tax rates, accounting systems, and the effects of inflation. Government policies may act as protectors of minority shareholders and creditors and impose constraints on dividend payouts.
"As emerging markets develop and open to international capital, dividend policy is becoming more important," according to Mr. Guy Pfeffermann, Director of IFC's Economics Department. "Managers of emerging market companies are more concerned about their dividend policy now than they were in the past."
IFC is a member of the World Bank Group and is the leading multilateral source of equity and loan finance for private sector projects in developing countries.
