Industry versus firm effects on dividend policy: Evidence from privately held SMEs

Dividend policy in privately held firms is driven by factors that change from year to year (for example, size, profitability), by characteristics that are stable over longer periods (for example, ownership structure), and by industry factors. However, the relative importance of these factors remains unclear. Therefore, we investigated how different levels of analysis-dynamic year-on-year variation, stable firm-level characteristics, and industry level-contribute to privately held small- and medium-sized enterprises' (SMEs) dividend policy and how much of the variance in dividend policy can be attributed to each level. To address these questions, we used hierarchical linear modeling (HLM), a variance decomposition technique, to assess the contributions of each level to SMEs' dividend policy. Analyzing data from 64,928 Belgian SMEs between 2015 and 2022, we found that industry factors exert minimal influence, while dynamic year-on-year changes and stable firm-level characteristics account for the largest share of the variance in dividend policy.