I investigate the evolution of corporate dividend policy in response to the changing operating environment induced by economic deregulation from the 1970s-1990s. Specifically, I examine the impact of deregulation on the firm's propensity to pay dividends, dividend payout ratio, the sensitivity of corporate dividend policy to current and past earnings, changes in the information content of dividends, and changes in corporate financing behavior along the deregulation process. Empirical results reveal that economic deregulation per se does not have significant impacts on firms' propensity to pay dividends. However, it seems that firms reduce dividend payout along the deregulation process and adjust their payout ratio closer to that of non-regulated firms. I also find that deregulated firms' dividend policy becomes more sensitive to past and current earnings following deregulation. In addition, deregulated firms become more active in external financing activities in the new operating environment, which subjects them to more frequent and closer monitoring of financial markets. The findings are in general consistent with predictions of the agency theory of dividends. However, the empirical results fail to provide support to hypotheses based on the information content theory and the clientele theory of dividends in the setting of economic deregulation.
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