Economic reforms, determinants and stability of dividends in a dynamic setting

Abstract

Purpose -This study aims to find whether the Indian private corporate sector follow stable cash dividend policies, whether dividends smoothen earnings, estimate the implicit target dividend ratio, and examine the determinants along with speed of adjustment of dividends towards a long run target ratio.Design/methodology/approach -The study uses the instrumental variable (IV) approach for dynamic panel data for 1971-2010 periods controlling for economic reforms. The GMM-in-levels model, GMM-in-first-differences and GMM-in-systems are alternatively estimated to include other lag structures.Findings -In the post-reform period lower dividends are consistent with rapid growth in the economic environment and the tendency to smoothen dividends has considerably decreased over time. The estimated model suggests dividends substitute for less opportunity for internal growth and increased general likening to relatively retain their earnings and finance their growth, unlike the past.Research limitations/implications -Limitation to capture substitution, ownership and self selection effects stems up from data as the Annual Studies RBI does not include such variables, does not capture qualitative data and disallows identification of the firm.Practical implications -The paper documents long run trends and inter-temporal dividend patterns controlling economic reforms for a relatively larger number of public limited firms nearing four decades for an emerging economy. Originality/value -This is a first attempt to take a holistic view of dividend using rich set of unexplored dynamic panel data on Indian firms controlling for reforms using contemporary econometric models and analyzes issues relating determinants, smoothening and stability of the corporate dividend structure.

Sectoral Analysis of Factors Influencing Dividend Policy: Case of an Emerging Financial Market

“…The sector-wise panel regression in Appendix A reveals a strong positive relation between the tangibility of assets (TANG) and the dividend policy for firms from the AGRO, MINING, ENGG, TEXTILE, CONSGDS, CONSTR, and LOGIS sectors. This implies that the companies in these sectors tend to pay dividends if they have higher TANG, in line with past studies e.g., (Aivazian et al 2003a;DeAngelo et al 2004;Denis and Osobov 2008;Subhash Kamat and Kamat 2013). However, TANG has an inverse relation with dividend policy for firms of the BANKING-sector.…”

“…Reddy and Rath (2005) have reported that more profitable companies, having lesser opportunities to invest with a larger size, are likely to distribute dividends in India. Subhash Kamat and Kamat (2013) have reported that for Indian companies, the tangibility of assets, size, and earnings are significant for determining payout policies. The results are consistent with (Fama and French 2001;DeAngelo et al 2004;Denis and Osobov 2008).…”

Corporate governance impact on dividend policy of NIFTY-500 indexed Indian pharmaceutical companies (2014–2019)

“…Profitability (either measured using ROE or return on assets) has been found to be positively associated with dividends (Abor and Bokpin, 2010; Aivazian et al , 2003; Al-Najjar and Kilincarslan, 2017; Amidu and Abor, 2006; Baker et al , 2007; Baker et al , 2013; Benito and Young, 2003; Bhat and Pandey, 1994; Bhattacharya, 1979; Goergen et al , 2005; DeAngelo et al , 2004; Denis and Osobov, 2008; Easterbrook, 1984; Fama and French, 2001; Ferris et al , 2006; Ho, 2003; Jensen et al , 1992; Li and Lie, 2006; Mahapatra and Sahu, 1993; Mishra and Narender, 1996; Mitton, 2004; Mohamed et al , 2012; Reddy and Rath, 2005; Renneboog and Trojanowski, 2007; Subhash Kamat and Kamat, 2013; von Eije and Megginson, 2008; Yarram, 2015; Yusof and Ismail, 2016). The findings for both the static and dynamic panel data models show that profitability (ROE) less the COE, referred to as ER (used to measure shareholder value), is positively associated with dividends.…”