Document Type : Original Article


University of Tehran


Firms have two choices about earning: paying it out as a dividend, or its reinvestment as a retained earning. In a market without any restrictions on trading, rational investors with liquidity needs can choose between dividend and selling stocks at no cost. In this article, the relationship between trading volume, considering free float as liquidity criterion, and the amount of dividend payout is investigated and the firm characteristics including size, profitability and growth opportunities are controlled.The research sample includes 145 firms thatlisted in Tehran Stock Exchange from 2005 to 2011. The result of the linear regression model shows that the investors in Tehran Stoc
k Exchange (TSE) do not consider stock turnover rate as a variable which explains the amount of dividend. Also, the relationship between size and growth opportunities with dividend has not been confirmed; but profitability has a positive significant relationship with dividend. On the other hand, investors in TSE use the profitability as a criterion to determine the dividend.


Baker, M.P., and J. Wurgler (2004). “A Catering Theory of Dividend”. Journal of Finance,
59, 1125-1165.
2. Banerjee, S., V.A. Gatchev, and P.A. Spindt (2007). “Stock Market Liquidity and Firm
Dividend Policy’. Journal of Financial and Quantitative Analysis, Vol 42, No.2, 369-398.
3. Beiner, S. (2001), “Theories and Determinants of Dividend Policy’, Journal of Corporate
Finance, June.
4. Brave, A., J.R. Graham, C.R. Harvey, and R. Michaely (2005). “Payout Policy in the 21st
Century”. Journal of Financial Economics, 77, 483-527.
5. Damodaran,Aswat(2010). “Applied Corporate Finance” (3
rd edition), John Wiley.
6. Fakhari, Hossien and Yousefalitabar, Nasibeh (2010), "Evaluating the relationship between
Dividend policy and Corporate Governance in Tehran Stock Exchange Firms", Journal of
Accounting and Auditing Reviews, 62, 69-84.
7. Fama, E.F., and K.R. French (2001). “Disappearing Dividend: Changing Firm
Characteristics or Lower Propensity to Pay?” Journal of Financial Economics, 60, 3-43.
8. Fama, E.F., and K.R. French (2002). “Testing Trade-off and Pecking Order Predictions
about Dividend and Debt”. Review of Financial Study, 15, 1-33.
9. Ghorbani, Abdollah (2008), "Evaluating the relationship between Stock Liquidity and
Dividend Policy" Management and Accounting Faculty, Shahid Beheshti University, M.A.
10.Jahankhani, ali and Ghorbani, Saeid (2005) "Identifying and explanation of determining
factors on dividend policy of Tehran Stock Exchange firms", Journal of Financial
Researches, 20, 27-48.
11.Mehrani, Kaveh (2004) "The relationship Between EPS, Dividend and Investment",
Management Faculty of University of Tehran, Ph.D Dissertation.
12.Pastor L. and R.F. Stambaugh (2003). “Liquidity Risk and Expected Stock Returns”.
Journal of Political Economy, 111, 642-685.
13.Ross,S.A.; Weserfield, R.W. and Jordan,(2010). “Fundamentals of Corporate Finance” (9
edition), McGrow-Hill.
14.Saeidi, Ali and Behnam, Keyhan (2009) "Evaluating Effective Factors on Dividend Policy
of Tehran Stock Exchange Firms", Journal of Researcher, 18, 67-71