Dividend Policy Under Inflationary Pressure: A Panel Data Analysis of Firms Before and After COVID-19

This thesis investigates the relationship between dividend policy and inflation, focusing on how firms adjust dividend distributions before and after the COVID-19 shock. Using a panel dataset of 349 firms observed from 2016 to 2025, the study examines whether inflation influences dividend per share and whether this relationship changes across different macroeconomic environments. The analysis is grounded in corporate finance theory and in the idea that dividend policy is not a mechanical outcome of accounting profits, but a strategic decision shaped by profitability, liquidity, leverage, and growth opportunities. The empirical strategy combines pooled OLS and fixed-effects regressions. The dependent variable is dividend per share, while the main explanatory variable is the inflation rate. The model also includes firm-level controls for size, turnover, profitability, cash flow generation, and leverage. This structure allows the thesis to capture both cross-sectional differences across firms and within-firm changes over time, while reducing the risk that the results are driven by unobserved, time-invariant firm characteristics. The findings show that inflation is positively associated with dividends in the pooled sample, but the relationship is stronger and statistically significant in the pre-COVID fixed-effects model, where within-firm increases in inflation are linked to higher dividend per share. In the post-COVID period, however, the direct effect of inflation becomes weaker and statistically insignificant, while operating profitability becomes the main determinant of dividend policy. This suggests that firms were less willing or less able to translate inflation into higher payouts after the pandemic, likely because of greater uncertainty, stronger cost pressures, and tighter financial constraints. Overall, the thesis concludes that dividend policy under inflationary pressure is conditional rather than automatic. Inflation matters, but its effect depends on the firm’s financial strength and the broader macroeconomic context. The evidence highlights the importance of profitability and cash flow in sustaining dividend payments and shows that nominal dividend increases do not necessarily imply higher real returns for shareholders when inflation is rising.