Dividend policy in India: reconciling theory and evidence

2020 ◽  
Vol 46 (11) ◽  
pp. 1437-1453
Author(s):  
Bipin Kumar Dixit ◽  
Nilesh Gupta ◽  
Suman Saurabh
Keyword(s):  
Life Cycle ◽  
Dividend Policy ◽  
Indirect Evidence ◽  
Rate Of Change ◽  
Dividend Payment ◽  
Dividend Payout ◽  
Content Type ◽  
Life Cycle Theory ◽  
The Relationship ◽  
Indian Data

PurposeThe purpose of this paper is to examine the dividend payout behavior of Indian firms and test whether the three prominent dividend policy theories (signaling, life-cycle and catering) explain the dividend policy of Indian firms.Design/methodology/approachThe authors test the three theories using the methodology based on the studies of Nissim and Ziv (2001), DeAngelo et al. (2006) and Baker and Wurgler (2004). For testing the signaling theory, the authors regress the change in earnings on the rate of change in dividends using the pooled and Fama–Macbeth regressions. The life cycle theory is tested by running a logistic regression of the dividend payment decision on two proxies of life-cycle measured by the ratio of earned to total equity. Finally, the catering theory tests the relationship between the decision to pay a dividend and the dividend premium.FindingsThe results based on a sample of Indian firms from 1992 to 2017 show that the dividend policy of Indian firms can be explained using the life-cycle theory. However, there is no evidence in support of the signaling and catering theories.Originality/valueIt provides insights into the dividend policy of Indian firms. Though there have been a few studies examining the dividend payout in India, none of the existing studies tests these theories of dividend payout. The existing research using the Indian data provides indirect evidence about the life-cycle theory. This study is the first one to test the application of these theories for Indian firms.

Dividend policy and stock price volatility of industrial products firms in Malaysia

2018 ◽  
Vol 13 (1) ◽  
pp. 203-217 ◽  
Author(s):  
Rozaimah Zainudin ◽  
Nurul Shahnaz Mahdzan ◽  
Chee Hong Yet
Keyword(s):  
Stock Price ◽  
Dividend Policy ◽  
Price Volatility ◽  
Industrial Products ◽  
Stock Price Volatility ◽  
Dividend Payout ◽  
Content Type ◽  
Crisis Period ◽  
The Impact ◽  
The Relationship

Purpose The purpose of this paper is to analyse the relationship between stock price volatility (SPV) and dividend policy of industrial products firms listed on Bursa Malaysia. Design/methodology/approach The sample comprises 166 industrial products public-listed firms covering a time span from year 2003 to 2012. Using Baskin’s framework, firm’s SPV is related to dividend payout, controlling for earnings volatility, firm size, leverage and growth of assets. Further, the impact of the global financial crisis on the relationship between SPV and the tested variables is examined. Findings Earning volatility significantly explains SPV of industrial product firms during the crisis period, while dividend payout ratio (PR) predominantly influences volatility during pre- and post-crisis sub-periods. The empirical results indicate that dividend policy is a strong predictor of SPV of industrial products firms in Malaysia, particularly during the post-crisis period. Originality/value The paper explores the firm’s SPV and dividend policy for a new set of data focussing on industrial products firms listed on the Malaysian Stock Exchange.

Corporate social responsibility and dividend policy: a strategic choice in family firms

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Muhammad Fayyaz Sheikh ◽  
Aamir Inam Bhutta ◽  
Bareera Rehman ◽  
Muhammad Bazil ◽  
Ali Hassan
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Dividend Policy ◽  
Family Firms ◽  
Family Members ◽  
Dividend Payout ◽  
Content Type ◽  
Corporate Social ◽  
Propensity To Pay ◽  
The Relationship

PurposeThe purpose of this study is to examine whether corporate social responsibility (CSR) affects dividend policy (the propensity to pay dividends as well as the dividend payout ratio) and what role family ownership plays in this regard in an emerging market.Design/methodology/approachThe study uses a sample of 1,480 observations from Pakistan for the period 2010–2016 and accounts for Hackman self-selection bias and endogeneity issues using a robust regression analysis. CSR activity is measured by CSR score developed through a content analysis of firms' annual reports.FindingsThe study finds that the greater number of CSR activities increases the propensity to pay dividends, but reduces the dividend payout in dividend-paying firms. On the other hand, in family firms, the greater number CSR activities decreases the propensity to pay dividends, but increases the dividend payout in dividend-paying firms. The findings hold for a series of robustness and sensitivity checks, for example, alternative measures, specifications and estimators.Practical implicationsA trade-off between firms' CSR activities and dividend policy needs to be the point of concern for investors, minority shareholders and policy makers. The role of the non-executive and independent directors becomes more important, especially in the family firms where family members sitting on the boards may drive CSR activities in their own interests opportunistically. The potential opportunistic behaviour of family members warrants the need for policy reform initiatives to strengthen the protection of other stakeholders' interests.Originality/valueThe study highlights that family owners' efforts to preserve their socio-emotional wealth in family firms affect the relationship between CSR activities and dividend policy. Further, the relationship between CSR and dividend policy in emerging markets is different from developed markets. This study simultaneously focuses on both the propensity to pay dividends and the amount of dividend payment and documents that the implications of CSR are different for them.

Market power and dividend policy

2015 ◽  
Vol 41 (2) ◽  
pp. 145-163 ◽  
Author(s):  
Laurence Booth ◽  
Jun Zhou
Keyword(s):  
Market Power ◽  
Dividend Policy ◽  
Product Market ◽  
Import Competition ◽  
Corporate America ◽  
Financial Policies ◽  
Dividend Payment ◽  
Content Type ◽  
The Relationship ◽  
Practical Implications

Purpose – The purpose of this paper is to investigate how and why a firm’s product market power affects its dividend policy. Design/methodology/approach – This paper uses three measures of market power? The degree of import competition, Herfindahl-Hirschman index, and Lerner Index? To examine how a firm’s product market power affects its dividend policy. Further, it proposes and tests a risk-based explanation for this impact. Findings – This paper shows that market power positively affects the dividend decision, in terms of both the probability of paying a dividend and the amount of dividend payment. It also provides evidence that the route through which market power affects the dividend decision is business risk: firms with less market power are riskier and hence less likely to pay dividends than firms with more market power. Practical implications – The results show that product market power may have played an important role in reshaping dividend policy of corporate America. Originality/value – This study documents the relevance of market power behind dividend policy and therefore adds to the knowledge on the relationship between product markets and corporate financial policies, which is an important and understudied area of corporate finance.

scholarly journals Dividend policy and corporate governance: a research note

2008 ◽  
Vol 5 (3) ◽  
pp. 220-224 ◽  
Author(s):  
Frank S. Smith ◽  
Victor Puleo ◽  
K. Michael Casey
Keyword(s):  
Corporate Governance ◽  
Dividend Policy ◽  
Research Note ◽  
Dividend Payment ◽  
Dividend Payout ◽  
Good Corporate Governance ◽  
External Funds ◽  
The Relationship

This paper explores the relationship between a firm’s dividend payment and an external perception of whether the firm exercises good corporate governance. Consistent with an agency explanation of dividend payout, we find that firms with higher corporate governance scores do pay lower dividends. The reduced cost associated with not seeking external funds as often as firms with higher dividends can be listed as a benefit for firms seeking to be known as better corporate citizens.

Determinants of dividend payout of construction companies: a panel data analysis

2019 ◽  
Vol 24 (1) ◽  
pp. 19-38 ◽  
Author(s):  
Harish Kumar Singla ◽  
Pradeepta Kumar Samanta
Keyword(s):  
Life Cycle ◽  
Cash Flow ◽  
Dividend Policy ◽  
Random Effect ◽  
Small Sample ◽  
Construction Sector ◽  
Dividend Payout ◽  
Content Type ◽  
Explanatory Variables ◽  
Construction Companies

Purpose This paper aims to examine the determinants of the dividend policy of the construction companies in India. Design/methodology/approach Data from 2011 to 2016 (six years) of 45 listed construction companies in India are collected, and a strong balanced panel is created. Dividend per share is dependent variable, and profitability, unstable earnings, institutional holding, cash flow, tangibility, liquidity, growth opportunities, age of the firm, life cycle, leverage, size of firm and taxation are explanatory variables. The panel is tested for stationarity and finally fixed and random-effect panel regression model with robust estimation option is performed. Findings The random effect model is found fit with an R2 of 62 per cent, and profitability, life cycle and size of the firm show a significant positive effect on dividend payment. Cash flow shows a negative significant relationship, indicating the presence of agency problem. Rest of the variables indicated an insignificant relationship. Research limitations/implications The study is carried out on a small sample of 45 companies with data of only six years. Further, there may be behavioral and psychological factors that drive the decision to declare dividend. Those factors have not been considered in present study. Despite considerable efforts, the author could not find more studies specific to the construction sector. Hence, the variables identified in the present study are more generic, even though a few sector-specific studies have been included. Originality/value The dividend policy determinants for the construction sector in India are investigated, and a comprehensive model based on 12 explanatory variables is tested to find the drivers of dividend payout in Indian construction companies. From the investor’s point of view, the sector has immense potential in terms of dividend as well as capital appreciation. Therefore, the study can be useful to the investors to understand the drivers of dividend payout in the construction sector. It can also be crucial for companies to create an appropriate dividend policy so as to attract and retain investors. The study contributes significantly to the existing body of knowledge by recommending the salient drivers of dividend payout in the construction sector based on a comprehensive dataset and using robust methodology.

Corporate governance and financial policies

2015 ◽  
Vol 41 (3) ◽  
pp. 267-285 ◽  
Author(s):  
Subba Reddy Yarram ◽  
Brian Dollery
Keyword(s):  
Corporate Governance ◽  
Life Cycle ◽  
Dividend Policy ◽  
Agency Cost ◽  
Positive Influence ◽  
Independent Directors ◽  
Board Independence ◽  
Dividend Payout ◽  
Content Type ◽  
Significant Positive Influence

Purpose – The purpose of this paper is to examine the influence of board structure on dividend policy of Australian corporate firms. It also considers the traditional explanations of corporate dividend choice, such as agency cost theory, signalling hypothesis, the life cycle hypothesis along with tax-based explanations of dividend policy. Design/methodology/approach – The final sample consists of 413 non-financial firms that are part of the All Ordinaries Index. The causal analysis was undertaken in three stages. In the first stage, the authors analyse the likelihood of paying dividends. And classify all firms as either dividend payers or non-payers. The authors then model this binary variable as a function of different sets of variables. In the second stage, the authors analyse the factors determining the magnitude of dividend payout by those firms that have paid a dividend. In contrast, stage three employs all firms – those which did not pay any dividend and those firms which paid a dividend. Findings – For the study period 2004-2009, this study finds that board independence has a significant positive influence on the dividend payout of Australian firms. This finding is consistent with the “outcome” model of La Porta et al. (2000). This study also finds that size has a significant positive influence on the dividend payout of Australian firms thus providing support for the agency cost view of dividend policy. Similarly, this study also finds support for the signalling hypothesis and the life cycle theory given the significant positive influence of profitability and the significant negative influence of current losses and growth opportunities on the dividend policy of Australian firms. Research limitations/implications – The findings of the study are robust with to alternative measures of variables employed and are not influenced by the global financial crisis. However, this study did not consider the possible endogenous and multiple relationships between dividends, debt, profitability, cash holdings and governance structures given the limited study period considered. Practical implications – This study finds that board independence has a significant positive influence on the dividend behaviour of Australian firms. This suggests that dividends and independent directors play complementary governance roles. While dividends provide the monitoring and disciplinary roles, independent directors act as catalysts for enhancing effective board functioning. These findings have implications for corporate governance policies and the payout policies. Originality/value – Though the governance role of dividends has long been recognized in the literature (Easterbrook, 1984; Jensen, 1986), very few studies analyse the influence of board characteristics on the decision to pay dividends in Australia. Given the distinct Australian setting where the tax imputation system allows companies to pay franked dividends to domestic investors, this study provides evidence on the interaction of corporate and dividend policies. This study finds that dividend polices are influenced by percentage franking of dividends. This study also finds that board independence has a significant positive influence on the dividend policy of Australian firms.

Does political instability influence dividend payout policy: evidence from Tunisian Stock Exchange?

2020 ◽  
Vol 15 (2) ◽  
pp. 253-267
Author(s):  
Nadia Loukil
Keyword(s):  
Dividend Policy ◽  
Stock Exchange ◽  
Emerging Market ◽  
Political Instability ◽  
Payout Policy ◽  
Equity Capital ◽  
Dividend Payment ◽  
Dividend Payout ◽  
Content Type ◽  
Ruling Party

PurposeThe purpose of this study tests whether political instability influence financial decision-making behavior of Tunisian-listed firms, in particular dividend payout policy.Design/methodology/approachThis paper uses dividend payout decisions announced over the period 2008–2015 by nonfinancial firms listed on the Tunisian Stock Exchange. A logistic regression is applied to analyze the relationship between political instability and dividend payout decision “changes. These latter are: past non-payers” dividend initiation, past payers' dividend termination, dividend payout “increasing and dividend payout” decreasing. Political instability variables used are as follows: number of changes in government head and dummy variables indicating the changes of ruling party and election year.FindingsThis study shows that government head changes are positively related to dividend initiation decisions while changes in ruling party are negatively related to termination dividend decisions except for family controlled ones. These firms are more likely to stop dividend on period of ruling party changes. Moreover, firms become unwilling to increase dividend payment on the period of political instability (changes in ruling party and government head and elections) and become willing to decrease dividend payment only when the government head changes.Practical implicationsThe empirical findings contribute to the current debate on the signaling power of dividend policy in emerging market where raising equity capital is difficult and controlling shareholders prefer reinvest benefit to pay dividends. In addition, this study has important implications for regulators and governments struggling to design policies to improve investors' confidence and boost market activity. Indeed, investors may use corporate payout as a signal for better governance.Originality/valueTo the author' best knowledge, this paper is the first to investigate and to compare the effect of three political instability sources; government head changes, changes in ruling party and elections, on dividend payout decision changes. This paper provides evidence that firms facing political unstable environment seek to achieve two goals when they make dividend policy: reducing financial distress probability and attracting minority owners.

Dividend policy and corporate valuation

2017 ◽  
Vol 43 (6) ◽  
pp. 663-678 ◽  
Author(s):  
Richard Hauser ◽  
John H. Thornton Jr
Keyword(s):  
Life Cycle ◽  
Firm Value ◽  
Dividend Policy ◽  
Stock Repurchases ◽  
Life Cycle Model ◽  
Cycle Model ◽  
Dividend Payment ◽  
Content Type ◽  
Firm’S Life Cycle ◽  
Firm Maturity

Purpose The purpose of this paper is to investigate an empirical solution to dividend policy relevance. Design/methodology/approach The paper combines measures of firm maturity in a logit regression to define a comprehensive life-cycle model of the likelihood of dividend payment. The valuation of firms that conform to the model is compared to the valuation of firms that do not fit the model. Valuation is measured by the market to book (M/B) ratio. Findings The analysis indicates that dividend policy is related to firm value. Dividend-paying firms that fit the life-cycle model have a higher median valuation than dividend-paying firms that do not fit the life-cycle model. Similarly, non-paying firms that fit the life-cycle model have a higher median valuation than non-paying firms that do not fit the life-cycle model. The results also provide evidence that the disappearing dividend phenomenon is related to shifts in valuation. Research limitations/implications This paper focuses on the payment of dividends. Stock repurchases are not considered. Practical implications The results indicate that dividend policy is related to firm value. Approximately 15 percent of sample observations have a dividend policy counter to the life-cycle model. Originality/value This paper shows that the relation between a firm’s M/B ratio and dividend policy changes over the firm’s life-cycle. It also shows that the catering motive for dividends is strongest among firms that are outliers in the life-cycle model and firms of intermediate maturity.

To pay or not to pay: what matters the most for dividend payments?

2018 ◽  
Vol 14 (2) ◽  
pp. 230-244 ◽  
Author(s):  
Ranajee Ranajee ◽  
Rajesh Pathak ◽  
Akanksha Saxena
Keyword(s):  
Financial Constraints ◽  
Negative Impact ◽  
Payout Policy ◽  
Contributing Factors ◽  
Dividend Payment ◽  
Dividend Payout ◽  
Content Type ◽  
Life Cycle Theory ◽  
Dividend Payments ◽  
Growth Prospects

Purpose The purpose of this paper is to test the stickiness of payout policy across times for Indian firms, by identifying the determinants of dividend payout (for amount of dividends as well as probability of dividends) and examine their predictive consistency through good and bad times, affiliation categories, amid controls for idiosyncratic characteristics. The authors also examine the scantly explored effects of financial constraints on firms’ dividend decisions. Design/methodology/approach The authors use various regression models, i.e. panel, Tobit and logit models; and amid control for firm-specific characteristics throughout the analysis. Findings The authors observe payout levels on average increasing with time for Indian firms. Further, group firms pay higher dividends compared to standalone firms. Firms’ leverage, profitability, non-promoters holdings, growth prospects and dividend event are apparently the important determinants of payout ratio and are mostly, but not always, consistent through times and firms’ categories, for both the amount as well as the likelihood of dividend payments. Financial constraints have an overall negative impact on dividends with significantly varying magnitude across periods of stability, crisis and recovery. Firms’ age and size are positive and significant factors for dividends level decisions in Indian firms, which is consistent with the life-cycle theory. However, inconsistent size and age effect is observed in determining the likelihood of dividend payment. Research limitations/implications This study adds to the growing literature on the changing trends and contributing factors of firms’ dividend payout policy. Originality/value This study provides evidence on predictive consistency of payout policy of firms and its determination with the change in the external economic condition.

The impact of board composition and ownership structure on dividend payout policy: evidence from Saudi Arabia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Helmi A. Boshnak
Keyword(s):  
Saudi Arabia ◽  
Ownership Structure ◽  
Dividend Policy ◽  
Payout Policy ◽  
Board Composition ◽  
Dividend Payout ◽  
Content Type ◽  
Listed Firms ◽  
Propensity To Pay ◽  
The Impact

PurposeThis study examines the impact of board composition and ownership structure variables on dividend payout policy in Saudi Arabian firms. In particular, it aims to determine the effect of board size, independence and meeting frequency, in addition to chief executive officer (CEO) duality, and state, institutional, managerial, family, and foreign ownership on both the propensity to pay dividends and dividend per share for Saudi-listed firms over the period 2016–2019.Design/methodology/approachThe paper captures dividend policy with two measures, propensity to pay dividends and dividend per share, and employs a range of regression methods (logistic, probit, ordinary least squares (OLS) and random effects regressions) along with a two-stage least squares (2SLS) model for robustness to account for heteroscedasticity, serial correlation and endogeneity issues. The data set is a large panel of 280 Saudi-listed firms over the period 2016 to 2019.FindingsThe results underline the importance of board composition and the ownership structure in explaining variations in dividend policy across Saudi firms. More specifically, there is a positive relationship between the propensity to pay dividends and board-meeting frequency, institutional ownership, firm profitability and firm age, while the degree of board independence, firm size and leverage exhibit a negative relation. Further, dividend per share is positively related to board meeting frequency, institutional ownership, foreign ownership, firm profitability and age, while it is negatively related to CEO duality, managerial ownership, and firm leverage. There is no evidence that family ownership exerts an impact on dividend payout policy in Saudi firms. The findings of this study support agency, signalling, substitute and outcome theories of dividend policy.Research limitations/implicationsThis study offers an important insight into the board characteristic and ownership structure drivers of dividend policy in the context of an emerging market. Moreover, the study has important implications for firms, managers, investors, policymakers, and regulators in Saudi Arabia.Originality/valueThis paper contributes to the existing literature by providing evidence on four board and five ownership characteristic drivers of dividend policy in Saudi Arabia as an emerging stock market, thereby improving on less comprehensive previous studies. The study recommends that investors consider board composition and ownership structure characteristics of firms as key drivers of dividend policy when making stock investment decisions to inform them about the propensity of investee firms to pay dividends and maintain a given dividend policy.

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