Do firm characteristics of concentrated ownership firms affect dividend payout beyond traditional motivations?

Abstract

Purpose This study aims to analyze the influence of firm characteristics in dividend payout in a concentrated ownership setting. Design/methodology/approach This study is probably the first to use the lasso technique for model selection and error prediction in the study of dividend payout in India. The lasso method comprises subsampling the available data set and performing reiterative regressions on those samples to generate the model with the best fit. This study incorporates four different ways of performing lasso treatment to get the best fit among them. Findings This study analyzes the influence of firm characteristics on dividend payout in the Indian context and asserts that firms with growth potential and earnings volatility do not hesitate to cut dividends. This study does not find evidence for signaling, agency cost and life cycle theories in a concentrated ownership setting. Earnings is the single most important factor to have a positive influence on dividend, while excessively leveraged firms are restrictive of dividend payout. Taxation has a prominent role in altering the way firms pay dividend. Research limitations/implications The recent changes in buyback taxation offer another opportunity to test the reactive behavior of firms. Also, given the disregard for traditional motivations, further research needs to be done to determine if dividend adjustments (on the lower side) help enhance firm value or not. Practical implications This study may help investors view dividends in a proper perspective. Firms give importance to investments over dividends and thus investors need not dwell on dividend changes if firms fulfill their growth potential. Social implications It lends perspective to investors about dividend changes and its importance. Originality/value The methodology used for analysis is absolutely original in the literature pertaining to dividend policy in the Indian context. The literature is abundant with theories advocating or opposing the eminence of dividend payout; however, this study takes a holistic view of all influential dividend determinants in literature to understand dividend payout.

How do dynamic financing decisions explain the behavior of dividend payout policies?

“…An increasing but insignificant effect of investment (opportunities) ratio was observed for dividend payout policy in the present study of the listed manufacturing firms for the timeframe 2010-20. This insignificant impact of investment (opportunities) ratio for dividend payout policy is compatible with the conclusive evidence of (Jawade, 2021;Jeon, 2021;Lee & Lee, 2021). It is highly significant and the inverse effect of the life cycle ratio was observed for the dividend payout policy for the manufacturing industry of Pakistan.…”

“…The studies related to dividends especially in the case of Pakistan conclude with some interesting discoveries. A study with a similar scope of dividend policy concluded that profitable firms tend to give dividends while the firm bearing a loss does not tend to give dividends in a similar manufacturing sector (Jawade, 2021). Accordingly, Kim et al, (2021) found that listed manufacturing firms, for setting their dividend payment, heavily depend on EPS and past DPS.…”

“…Another study defines the financing of debt in terms of financial debt as a proportion of total assets. This definition is given by (Jawade, 2021). The financing of debt is the ratio of leverage which is the percentage resulted from the division of total debt by total assets (Jeon, 2021).…”

“…The first measure for dividend policy is the Dividend to earnings ratio which is defined as dividend to after-tax earnings (Anwer et al, 2020;Kim et al, 2021;Yang et al, 2020). The second measure for dividend policy is the dividend to market capitalization ratio which is defined as annual dividend to the market capitalization of shares (Jawade, 2021;Muhammad, 2021). The third measure for dividend policy is dividend payout ratio which is defined as per share dividend as a proportion of per-share earnings (Muhammad, 2021;Yang et al, 2020).…”

Does promoters' ownership reduce the firm's financial distress? Evidence from non-financial firms listed in India

“…This study considers the extent of promoters' ownership by the proportion of equity shares held by promoters, i.e. shareholding (Mishra and Kapil, 2017; Jawade, 2021; Bhimavarapu et al. , 2022).…”