An evident prescience of determinants of dividend policy of Indian real estate companies

Abstract

Purpose This paper aims to make an attempt to identify the determinants of dividend policy by analyzing 125 real estate companies, which are selected on the basis of consistent dividend distribution throughout the study period. Most of these companies either listed with Bombay Stock Exchange or National Stock Exchange. Design/methodology/approach This paper applies three alternative methods to verify and validate the results obtained from each other method, namely, fully modified ordinary least square (FMOLS), dynamic ordinary least square and generalized method of moments (GMM). Data collected of the selected companies’ post-recession period i.e. 2009-2017. The selected companies have age either 5 years old or more when data are retrieved from the above-mentioned sources. Due to much volatility in the recession period in the real estate firms at the global level, no data have been taken of the firms before March 2009. Moreover, for arriving at good analysis and an adequate number of observations for the study more recent data have been taken. Findings Empirical findings of this research paper depict that firm previous dividend, firm risk and liquidity are strong predictors of future dividend payout ratios (DPRs). The results indicate that firm risk as measured through price-earnings ratio (PE ratio) has a positive association with a DPR of selected real estate firms. Lagged DPR used in the GMM test as an exogenous variable is showing positive significant association with DPR. Firm’s growth is found significant in FMOLS and GMM techniques. On the other firm’s size is found significant according to cointegration techniques. Practical implications The present study shall be useful to different stakeholders of real estate companies. Various significant determinants as identified can be used by management for designing optimum dividend policy and providing maximum benefits to existing shareholders. Similarly existing and prospective shareholders may predict the future payment of dividend and accordingly they may take investment decisions in these firms, as the future fund’s requirement of a firm depends upon dividend payment and retention ratio. Originality/value As per the authors’ knowledge, there is no single study carried in the post-recession period to predict determinants of dividend policy of real estate sector using three alternatives of methods to verify and validate the results obtained from each other method. The study is carried out after exploring determinant from a diverse range of period of studies (oldest one to latest one).

Determinants of Dividend Policy of Real Estate, Property, and Building Construction Companies Listed in IDX with Unbalanced Panel Data Approach

“…Well-planned dividend rate determination should be based on optimal targets (Sari, 2017). In this context, previous year's dividend positively affects dividend rate in the current year (Sharma & Bakshi, 2019).…”

“…In this study, agency cost was measured based on free cash flow which allows cash to be distributed to shareholders and creditors after substituted by total investment on fixed assets, new products, and working capital to fund ongoing operational activities. Agency cost negatively affects dividend policy on free cash flow where agency cost is incurred (Arfan & Maywindlan, 2013;Sharma & Bakshi, 2019;Singla & Samanta, 2018).…”

“…Risk, which is interpreted as the uncertainty of returns in investment activities implicitly shows that the price to earnings ratio describes the projected risk of investment in the future, and it is a parameter of company risk variable. (Delikartika & Ferry, 2017;Sharma & Bakshi, 2019). Sharma & Bakshi (2019) describes company profitability as the ability of a company to generate profits, from which net profit is determined to set the dividend rate.…”

“…(Delikartika & Ferry, 2017;Sharma & Bakshi, 2019). Sharma & Bakshi (2019) describes company profitability as the ability of a company to generate profits, from which net profit is determined to set the dividend rate. Profitability has a positive effect on dividend policy (Alzomaia & Al-Khadhiri, 2013).…”

“…Profitability, life cycle, and size of the firm have a positive effect on dividend policy, while cash flow shows a significant negative relationship, indicating the presence of agency problems. Sharma & Bakshi (2019) identified the determinants of corporate dividend policy, involving 125 real estate and property companies in India as samples for 2009 -2017 period with the co-integration regression. This research identified some determinants of dividend policy namely the previous year's dividend, agency cost, firm risk, profitability, company size, financial leverage, liquidity, company growth, growth opportunity, and company age.…”