Nexus between Foreign Shareholding and Dividend Policy of Listed Companies in South Africa

1. Introduction

Dividend policy is a crucial financial decision for companies, since it dictates how they allocate their profits between shareholders and reinvestment. In economies with open capital markets and considerable foreign investment, choices about dividends are impacted not just by internal financial factors but also by changes in ownership structures (Allen & Michaely, 2003; Black, 1976). As globalisation continues to grow and foreign investment in developing nations increases, it’s important to explore how ownership structure influences corporate financial decisions and the stability of capital markets (Nel, Wesson, & Steenkamp, 2021). South Africa provides an appropriate environment for assessing these challenges (Miller & Modigliani, 1961). The Johannesburg Stock Exchange (JSE) sees a significant amount of international investment, even as ownership is often concentrated and governance methods differ (Bhattacharya, 1979; Easterbrook, 1984; Jensen, 1986). In areas like consumer goods, where companies are tightly tied to both local markets and international commerce, foreign ownership has become a key part of how they are owned. This situation raises important questions regarding how foreign investors influence corporate financial decisions, particularly on dividend payments. These payments are important because they affect shareholder value, market confidence, and a company’s long-term financial plans (Aggarwal, Erel, Ferreira, & Matos, 2011; DeAngelo, DeAngelo, & Stulz, 2006; Ferreira & Matos, 2008). Even if foreign shareholding is a significant factor in South Africa’s economy, the connection between it and dividend practices remains unclear (Dahlquist & Robertsson, 2001).

The main question is whether international shareholders affect how companies handle their profits (Kho, Stulz, & Warnock, 2009). Specifically, do they urge companies to pay out larger dividends, keep more money for investment, or change their payment strategies compared to what local shareholders expect? (Chhibber & Majumdar, 1999; Douma, George, & Kabir, 2006). Moreover, the connection between a company’s financial health, including its profitability and operational success, and how foreign ownership affects dividend decisions is still not well understood (Nel et al., 2021). These unanswered concerns create a vacuum in our understanding, both in terms of theory and observation, which restricts our ability to fully comprehend how foreign involvement affects company financial decisions in emerging countries (Mohale, 2025; Tembo, 2024). This study therefore investigates the nexus between foreign shareholding and dividend payout policy among consumer goods firms listed on the Johannesburg stock exchange during the period 2013–2024. Specifically, the study evaluates whether financial performance mediates the relationship between foreign ownership and dividend policy. By focusing on the consumer goods sector, the study contributes to the emerging market corporate finance literature by providing recent sector, specific evidence from South Africa and clarifying whether foreign investors influence payout behaviour or indirectly through firm performance.

2. Literature review

Dividend policy is one of the most widely debated issues in corporate finance, particularly in emerging markets where institutions environment, ownership structures and governance mechanisms differ substantially from those in developed economies (O. A. Yahaya, 2025). Deciding whether to pay dividends or reinvest profits entails complicated trade-offs. These trade-offs depend on both the company’s financial situation and the desires of its shareholders (Moloi, Nharo, & Hlobo, 2021). In open countries such as South Africa, where the JSE draws significant international investment, grasping the relationship between foreign ownership and dividend policy is essential. This knowledge is vital for managers, investors, and regulators (Nel et al., 2021). The significance of this is amplified by the distinctive features of emerging markets; specifically, the lower investor protections, concentrated ownership structures, and less mature capital markets give rise to unique agency difficulties and knowledge asymmetries that are much different from those observed in industrialised nations (Buertey, Ramsawak, Dziwornu, & Lee, 2024). Because of these institutional weaknesses, dividend policy becomes a particularly important tool for governance and a way to send signals. This study synthesises existing theories and research on what affects dividend payments, the role of foreign shareholders in company financial choices, and how ownership structure affects distributions through financial performance. Modern knowledge of dividend policy has been shaped by numerous important contributions to its theoretical basis.

Agency theory suggests that paying dividends helps reduce disputes between managers and shareholders. This is because dividends decrease the amount of cash managers have to spend freely, which lowers agency costs and, in turn, increases the company’s value. This view, first suggested by Buertey et al. (2024), proposes that external scrutiny from knowledgeable investors should increase the pressure to pay dividends in companies with inadequate internal control. In emerging countries, the problem of free cash flow is particularly significant. This is because of prevalent issues like strong management control and insufficient board oversight. As a result, paying dividends becomes a critical way to handle these problems from outside the company.

Signalling theory offers a different perspective, suggesting that changes in dividends communicate reliable, private information about future earnings. Dos Santos, Viviers, and Venter (2025) showed how differences in information between company insiders and outside investors make dividend payments a useful way to communicate. The reliability of dividend signals depends greatly on the potential costs of sending incorrect signals, which might vary depending on the specific institutional setting. In their 2022 study, Ajao and Robinson (2022) proposed a life-cycle hypothesis. This theory suggests that a company’s tendency to pay dividends is related to its stage of development. Specifically, as organisations mature and have fewer profitable investment options, they are more likely to disperse excess cash. In contrast, firms focused on expansion tend to keep their earnings. Tembo and Chipeta (2024) later expanded on this hypothesis, incorporating how a company’s features change over time.

Viviers, Mans-Kemp, Janse van Vuuren, and Shiel (2023) pecking-order theory suggests that a company’s ability to pay dividends is closely linked to its profitability. This is because companies prefer to use their own funds for investments and only pay dividends when their revenues are enough to support their investment demands. These theoretical perspectives, when considered together, imply that the structure of ownership affects dividend distributions through mechanisms of governance and performance, with foreign investors possibly reshaping both the agency environment and the information asymmetry issues that impact payment choices.

Studies have shown that some factors consistently affect dividends, regardless of the country. Return on assets and return on equity, both profitability measures, have regularly been shown to be key indicators of a company’s likelihood to pay dividends. Pelcher and Bolton (2021) found that the stability and number of profits significantly explain the differences in dividend policy across U.S. companies. Sunday and Kwenda (2021) and Akpadaka, Farouk, Dang, and Fodio (2024) further studies support similar international trends, revealing that profitability is the most important factor in deciding whether to start paying dividends and how much to pay. Larger and older companies tend to start and maintain dividends more often. This suggests they have less information imbalance and better access to outside financing, as shown by N. F. Munzhelele, Wolmarans, and Hall (2021) and Naidu, Charteris, and Moores-Pitt (2022). Investment opportunity sets, often gauged by market-to-book ratios or R&D intensity, have significant inverse relationships with payments; this is because businesses experiencing substantial growth tend to favour reinvestment strategies over the distribution of funds, a result consistently observed in research conducted by Jalal, Alkoni, and Nour (2022).

The structure of a firm’s capital is also important. Specifically, the use of debt can limit the ability to pay dividends, as proven by the limits in loan covenants and the need to pay interest. This has been demonstrated in both established and emerging markets, as Kayode, Gbenga, and Ayobami (2022) have shown. Babangıda (2021) research shows that payment decisions are also affected by cash flow volatility and earnings uncertainty. Companies with more unstable financial results often choose to pay out less of their profits, which helps them stay financially flexible. These fundamental connections have been substantiated across a range of institutional settings, albeit with varying degrees of strength contingent upon the presence of legal safeguards and the stage of market evolution; this is evidenced by comparative analyses conducted by Nyeadi, Adjasi, and Akoto (2021).

Foreign shareholding adds complexity to these basic interactions, which is shown by different ways of monitoring, governance preferences, and investment goals. Institutional investors from developed markets frequently bring better monitoring methods, global governance norms, and a focus on transparency, which can lead to changes in how domestic companies operate. Sinebe (2023) research suggests that when foreign institutions buy shares, it corresponds with greater governance inside companies, more thorough disclosure practices, and superior performance in several areas. Chindengwike (2024) found that the effects are mostly driven by independent foreign institutions, whereas affiliated or passive investors have a smaller impact. While these governance changes are theoretically expected to increase payment discipline, the real-world data is more complex. F. Munzhelele, Wolmarans, and Hall (2022) study found that foreign shareholding in Swedish companies was linked to increased dividend payments, which supports the idea that agency problems are lessened. In contrast, Mensah and Bein (2023) show that foreign investors may push companies to save their revenues to fund development projects, especially when external funding is expensive. This difference shows that foreign investors prioritise dividends based on the individual investment potential of a company, rather than pursuing a consistent approach to payouts.

Further research by Falade, Nejo, and Gbemigun (2021) reveals that the reasons foreign investors have for investing are important. Strategic investors often focus on creating long-term value, whereas portfolio investors could prioritise getting quick profits. Khamidullina and Makarova (2021) showed that better governance, which can come from foreign shareholding, could lessen the need for dividend signalling. This might lead to lower payout ratios, even if the company’s financial performance improves. Kusumaningtyas (2022) found that the level of monitoring by foreign investors varies depending on the institutional framework of their home country. Specifically, investors from countries with strong governance systems tend to need stricter criteria. The combined data imply that the consequences of foreign shareholding are diverse, depending on the type of investor, the characteristics of their home country, and the quality of institutions in the host market.

Emerging markets highlight both the potential advantages and the complications of foreign shareholding. Studies of Asian markets show that international investors typically function as drivers for better governance. They share best practices and require responsibility in ways that native shareholders cannot. El Ammari and Terzi (2023) research suggests that when foreign entities hold companies in India, it leads to higher profits. This is because of superior operational methods and more efficient use of capital. Kaźmierska-Jóźwiak, Wesson, and Steenkamp (2022) also found that foreign shareholding led to better performance in Indian industry. Kanojia and Bhatia (2022) research on Thai companies demonstrates that when foreign institutions possess shares, earnings management decreases, and the quality of financial reporting increases. In Latin America, research by Subramaniam and Sakthi (2022) on Chilean businesses, together with the work of de Souza Junior, Hijazi, and da Silva (2025) on Brazilian enterprises, suggests that foreign shareholding increases both board independence and the alignment of CEO pay. In contrast, how these performance improvements are reflected in dividend policy differs depending on the specific organisation.

When shareholder protections are insufficient, foreign investors can prioritise governance improvements above immediate financial returns, which might help develop long-term value. In more developed economies, like South Africa, there might be a push for greater payouts to guarantee that cash flow rights are maintained. This institutional factor is key for understanding the Johannesburg Stock Exchange (JSE). The JSE offers comparatively strong investor protections compared to many emerging markets. However, it still faces issues, including concentrated shareholding and differences in how companies are governed. Dissanayake and Dissabandara (2021) have demonstrated that institutional gaps prevalent in developing economies generate distinct agency difficulties. Foreign investors must thus contend with these issues, which may necessitate the adoption of tactics that diverge from those often employed in their domestic markets. Henry and Yahaya (2024) believe that the success of foreign monitoring depends on the availability of related local institutions. This idea is supported by Hasan, Shafique, Das, and Shome (2022) research, which looked at many emerging economies.

The relationship between how a company performs financially and its dividend policy is a constant finding in the field of corporate finance. Mrzygłód, Nowak, Mosionek-Schweda, and Kwiatkowski (2021) research shows that managers often see dividends as a commitment, only declaring them when they are confident in steady and substantial earnings. Ananzeh, Khalifeh, Alqudah, Al-Ababneh, and Al Amosh (2025) research shows that companies tend to raise their earnings before raising dividends, which supports both signalling and life-cycle theories. The relationship implies that the impact of shareholding on dividends might, at least in part, be mediated by performance-related factors. Recent studies on how mediation works support this indirect process. Almulhim, Aljughaiman, Al Barrak, Chebbi, and Amin (2024) provide a clear model showing how foreign shareholding affects dividend payments through gains in profitability, with performance accounting for a large amount of the overall impact of shareholding. Similarly, Diab, Abdelazim, and Aly (2024) show that institutional investors’ improved governance practices affect dividends by increasing the quality of earnings. Emerging countries particularly require these mediation frameworks, as foreign investment not only enhances operational efficiency but also modifies the distribution of profits. Louziri and Oubal (2025) provide more support for the idea that the connection between performance and dividend payments depends on the quality of corporate governance. Specifically, better governance seems to strengthen the link between how well a company does and how much it pays out in dividends.

The persistence of profits is also important. Research by Butt and Chamberlain (2023), shows that the effects of temporary and permanent earnings components on dividend policy decisions are distinct. These data imply that the performance channel is a key, although complicated, mediator. Its effectiveness relies on the quality of profits, the governance structure, and the type of ownership changes.

Sector-specific variables also affect these connections. The consumer products sector, which is the focus of this study, has certain traits that could increase the consequences of foreign shareholding. These companies usually have consistent cash flows. They also see moderate growth potential compared to the IT or pharmaceutical industries. Furthermore, they function in product marketplaces where competition is fierce, and improvements in efficiency immediately boost their bottom line. These qualities correlate well with agency theory’s justifications for payment discipline, making them suitable for studying the consequences of shareholding. Khan and Kent Baker (2023) cross-country studies of consumer goods companies reveal that institutional shareholding is linked to higher payout ratios and more consistent payouts in this industry. El-Deeb and Allam (2024) research on the stability of consumer demand suggests that advances in performance resulting from foreign governance are more likely to be sustained, therefore reinforcing the connection between performance and its benefits.

On the other hand, companies that make consumer products face tremendous competition and must spend a lot on brand development. This might create a conflict between giving out profits and reinvesting in the business. Ananzeh, Al Shbail, Alshurafat, and Al Amosh (2024), have studied consumer products companies in emerging markets. Their research shows that these companies face a trade-off. Specifically, they found that payout ratios are affected by both competitive pressures and the need to engage in marketing. Consequently, the sector’s vulnerability to commodity price instability and currency value shifts, a significant concern for South African companies reliant on imports, adds complexity to the determination of dividend distributions. This is supported by the findings of Ananzeh et al. (2024), who examined emerging market firms. These industry-specific considerations imply that the consequences of foreign shareholding could be particularly strong in the consumer products sector. However, these effects also depend on the competitive environment and the overall economic situation.

In Africa, research on dividend policy is rather scant, but it’s rising quickly as capital markets develop. Research on wider African markets shows that how shareholding is concentrated, the quality of institutions, and the qualities of directors strongly impact choices about payouts. However, these effects vary depending on the industry and the historical period under investigation. Chakraborty and Maruf (2023) study explores how institutions affect African companies that are publicly traded. The study finds that the quality of governance and the shareholder structure together influence dividend payments. However, the results are ambiguous for companies in the consumer products sector. Maiyo, Cheboi, and Limo (2025) study analyses how cash flow affects dividend decisions in South African financial institutions, showing a significant connection between the two. Abdulfatah, Yahya, Agbi, and Mustapha (2022) study explores the role of foreign directors on dividend policy, showing that the makeup of the board of directors is important for deciding on payouts. P. D. O. A. Yahaya (2024) research on dividend policy in Europe, together with Amirthalingam and Rajaratnam (2022) work on developing markets, provides useful comparative benchmarks. Ain and Manping (2022) research on African markets suggests that dividend policies are more susceptible to changes in cash flow compared to developed markets. Nharo (2021) research on Nigerian businesses, together with the work of Chakkravarthy et al. (2023) on Ghanaian enterprises, highlights the relevance of shareholder structure in determining how companies in West Africa distribute their profits. Vu, Vu, and Nguyen (2021) research in East Africa also supports these trends, suggesting that institutional investors and foreign shareholding are becoming more prominent. Arhinful, Mensah, Amin, and Obeng (2024) research on the growth of African stock markets, together with Khan (2021) work on financial intermediation, gives crucial background on the institutional backdrop.

The studies mentioned above illustrate the necessity of analysing things in their unique context. At the same time, they raise issues about how performance is affected in industries outside of finance and about the distinctive characteristics of Southern African marketplaces.

In South Africa, data suggests that how profits are distributed is significantly affected by who owns the company. The unusual structure of companies listed in two places and the importance of the mining and banking sectors create special issues for corporate governance. Saini and Sharma (2024) research shows a connection between how shares are held and how dividends are paid by companies on the Johannesburg Stock Exchange (JSE). This supports the idea that governance structures have a role in these financial decisions. In contrast, the study doesn’t separate the impacts of foreign and domestic concentration, nor does it analyse how performance mediates these effects. Athari (2022) study on the Johannesburg Stock Exchange (JSE) reveals that institutional investors, both local and international, are increasingly influencing corporate governance.

The exact ways they shape dividend policies are still not well understood. South Africa offers a unique but under-researched setting for studying these mechanisms, thanks to its developed market infrastructure, the challenges of emerging market governance, and a significant presence of state-owned enterprises and Black economic empowerment shareholding. Fitriana (2022) research chronicles the progression of corporate governance on the Johannesburg Stock Exchange (JSE), revealing an increasing alignment with global norms, but with enduring domestic distinctions. Hampl and Vágnerová Linnertová (2025) studies of South African dividend policies show that these policies are influenced by both local institutional variables and the preferences of international investors. The period following 2013, characterised by considerable macroeconomic instability, alterations to the Companies Act, and modifications to exchange control regulations, provides a valuable framework for investigating the evolving impacts of foreign shareholding amidst changing circumstances. This is particularly relevant given the analyses conducted by Bahrudin, Saddam, Mustaffa, Abdullah, and Sahudin (2021), which focused on the dynamics of the South African market. Therefore, these data show that the impacts of foreign shareholding in South Africa could be uniquely shaped by the country’s combination of different institutions and its historical background.

The current research shows some strong connections, but it also highlights important gaps in our understanding of the South African consumer products market. Dividend policy is primarily influenced by a company’s profitability, its investment prospects, and its governance structure. These links are sometimes more pronounced in developing economies, where institutional frameworks are less developed. Foreign shareholding usually improves a company’s performance. This is because it leads to better management, the sharing of technology, and access to worldwide networks. However, how much performance improves depends on the type of investor, the features of their home country, and the strength of the institutions of the country where the company operates. Third, the connection between foreign shareholding and dividends is complex and depends on the specific situation. Research shows that foreign shareholding can lead to larger dividend payments, possibly because it reduces agency problems. However, it can also lead to lower dividends if the company has good development potential or if improvements in governance minimise the need for signals.

Fourth, performance probably plays a mediating role in the shareholding effect. However, direct assessments of this mediation are rare, especially in the African consumer goods industry, and the relative relevance of direct and indirect pathways is still unclear. Sector-specific variables and general economic conditions influence these linkages. Consumer goods companies offer a valuable, although often overlooked, setting for study (Aggarwal et al., 2011; Dahlquist & Robertsson, 2001). The combined evidence suggests that foreign investors in South African consumer goods companies might influence dividend payments. This influence could happen directly, through governance actions, and indirectly, by improving profitability. However, there isn’t much specific research on this, and the theoretical predictions don’t always match the observed results (Douma et al., 2006).

Considering these theoretical underpinnings and existing empirical voids, this research examines the relationship between foreign shareholding and dividend policy within consumer-goods firms traded on the Johannesburg Stock Exchange from 2013 to 2024, incorporating financial performance as a mediating factor in its modelling.

3. Research methods

4. Results and discussion

5. Conclusion

The aim of the study was to explore the foreign shareholding influences dividend payout policy between consumer goods firms listed on the JSE. Using panel data covering the period of 2013–2024, the analysis evaluated both the direct and indirect impacts to provide insight into how shareholding structure and firm profitability shape payout behaviour in this sector. The results show that although foreign shareholding is positively associated with dividend payout this relationship is not statistically significant. This indicates that within the sampled firms, foreign shareholding does not exert a direct influence on dividend policy. In contrast, financial performance exhibits a robust and significantly enhance financial performance, and therefore no evidence of a positive mediating impact is observed.

Together, these results suggest that dividend policy in the south African consumer goods sector is driven more by firm specific conditions than by variation in foreign shareholding level. Based on these finding, the study concludes that while foreign participation is a notable feature of shareholding structures in south Africa, its influence on dividend policy in this sector is limited. Profitability remains the dominant factor shaping payout behaviour, underscoring the importance of operational efficiency and earnings stability corporate distribution decisions.

Future research could expand the scope of analysis to other sectors of JSE, were the dynamics of foreign shareholding any differs. Additional mediating or moderating variables such as investment opportunities, leverage, governance mechanisms, or cash flow volatility may offer deeper insights into how foreign shareholding interacts with firm decision making. Comparative studies across African or broader emerging market economies may also help to contextualise the south African experience and assess whether similar patterns hold different institutional environments. No potential competing interest was reported by the authors. No sponsorship or funding was obtained for this research.

Ethics and consent statement

This study adhered to established institutional research ethics guidelines. Ethical approval was sought from the relevant structures within the School of Accounting, Economics and Finance, and the study was formally granted exemption from full ethics review (Original Application Number: 00021717) on 21 June 2025 by the University of KwaZulu-Natal. The exemption indicates that the research posed minimal or no risk to participants and met the criteria for exemption in accordance with institutional policies. Despite the exemption, all ethical principles were strictly observed throughout the research process. Participation was voluntary, and no identifiable personal data were collected. Where applicable, informed consent was obtained from respondents, confidentiality and anonymity were maintained, and all data were securely stored in line with institutional requirements for a minimum period of five years. No changes were made to the approved research protocol. Any potential amendments would have required prior institutional approval in accordance with the conditions of the exemption.

Questionnaires

Not applicable. This study did not employ questionnaires, as it is based entirely on secondary data obtained from publicly available financial statements of JSE-listed firms.

Participant Information Sheet

Not applicable. No human participants were involved in this study. The research utilised archival financial data from publicly accessible corporate reports; therefore, no participant information sheet was required.

Interview Guide

Not applicable. No interviews were conducted. The study adopted a quantitative ex-post facto design using panel data.

Consent Form

Not applicable. As the study did not involve human subjects or primary data collection, informed consent was not required. All data used were publicly available and non-identifiable.