Dividend Policy Among Publicly Listed Firms in Barbados

Abstract

This paper adds to the sparse literature on corporate management practices in the Caribbean by undertaking an in-depth study of dividend policy among publicly listed firms in Barbados. The paper utilizes an analysis of historical data on dividend payments, a questionnaire survey and structured interviews with financial managers in Barbados. The paper finds that unlike their developed country counterparts, financial managers in Barbados retain a strong commitment to paying dividends as opposed to share repurchases as a means of providing cash for investors. The historical data and survey responses suggest that firms in Barbados are reluctant to omit or cut dividends and appear to pursue stable dividend policies. In particular, financial managers in Barbados seem to take a “Bird in the hand” view of dividends. Also, financial managers in Barbados appear to target the dividend per share as the variable to be managed as opposed to the dividend payout ratio, suggested in the academic literature. The author contends that the attachment to dividends as a means of returning cash to shareholders and the high level of dividend stability are largely due to the closely held nature of firms in Barbados, which in turn leads to thin trading and an almost exclusive reliance on dividends as a means of generating cash from equity investments. While this may be beneficial to large shareholders, it has potentially negative consequences for minority shareholders and the stock market microstructure in Barbados.