The relationship between capital structure and dividend policy: Evidence from Euronext Lisbon firms

Abstract

The capital structure and the dividend policy are widely studied in the corporate finance field, but the results are not consensual. A vast number of studies assume the exogenous relationship between the capital structure and the respective explanatory variables, been the same for the dividend policy. Recently, academics have questioned the hypothesis that the relationship between capital structure and dividend policy is endogenous, meaning that capital structure and dividend policy decisions affect each other. In this context, this paper wants to analyse the relationship between the capital structure and the dividend policy, considering a sample of Portuguese firms, and a panel data. To the best of our knowledge, this is the first study to analyse this relationship in Portugal. We conclude that the pecking order was the most adequate theory to explain the capital structure. In addition, we find no evidence to support the irrelevance hypothesis of dividends.