Dividend Payouts of Travel and Leisure Companies in Western Europe: An Analysis of the Determinants

This study examines the dividend payout determinants of travel and leisure companies in five Western European countries that are ranked among the world’s top ten tourist destinations, namely, France, Spain, Italy, Germany, and the United Kingdom. The study analyzes the sector and carries out a comparative analysis of six sub-sectors: gambling, hotels, airlines, recreational services, restaurants and bars, and travel and tourism. Hypotheses are developed focusing on four main theories of dividend policy, namely “pecking order”, “free cash flow”, and “life-cycle” and “trade-off” theories. Panel data random-effects Tobit estimation methodology is used during a ten year period (2005- 2015). In addition to the traditional dividend determinants, sector and country specific determinants such as leverage, asset intangibility, capital intensity and effective dividend tax rate are used. The estimation results show that company size, profitability, investment opportunities and asset intangibility are positive drivers of dividend payout, whereas the leverage ratio and capital intensity deter dividend payout. The study provides international empirical evidence for the positive relationship between investment opportunities and dividend payout. This positive relationship, which is regarded as a puzzle, is unique for companies operating in the travel and leisure sector. The empirical findings of this study can provide financial managers and investors with a clear understanding of the determinants of dividend payouts for companies in the travel and leisure sector as well as for the companies that operate in the specific sub-sectors. The identification of unique dividend determinants and the recognition of differences among the sub-sectors help investors and managers to shape their investment and financial management decisions. Keywords: dividend determinants, capital intensity, asset intangibility, investment opportunities, tax, travel and leisure.