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The Ownership and Industry Effects of Corporate Dividend Policy in India, 1961-2007
Abstract
The cross-sectional trends in dividends are investigated at an aggregate level of ownership (i.e. closely/largely held and regulated firms), and at disaggregate level across 20 industries to examine how Indian Private Corporate Sector appropriated its profits over 1961-2007 periods. Alternatively it is examined whether internal funds are a significant source of finance and the dynamics of relation between dividends relative to earnings across type of companies and industries. Indian corporate sector pays relatively more equity dividends than preference dividends. Other things being equal, the probability of paying cash dividends decreases with share holder concentration and the regulated companies pay relatively larger dividends. Dividend payouts for all type of firms decline, and such tendency is more pronounced after liberalization periods indicating a greater choice of internal financing through retained earnings. The analysis of inter-corporate and inter-industry variations reveals that dividends interplays differently with exogenous factors.
... Among the above conjectures, the empirical evidence is supportive of the second one. Th e study by Kamat (2009) shows that during the low growth period of 1996-2000, when stock market prices were rela- tively down, the equity dividend payout ratio and preference dividend payout ratio for private and public limited companies were margin- ally lower compared to the period 2001-7. So, in the low growth period, the proportion of retained profi t in total profi t was marginally higher, whereas in the high growth period of 2001-7, the proportion of retained profi t in total profi t was marginally lower. ...
... But changes in the capital structure do not support this explanation. Manoj Kamat (2009), using RBI data, demonstrates that both the equity dividend payout ratio and preference dividend payout ratio declined in the post-reform period (1991-5, or the high- growth period; 1996-2000, or the low-growth period; and 2001-7, high-growth period), compared to the period 1986-90 for both pri- vate-and public-owned companies. So, despite the development of the stock market, the share of retained profi t has actually increased in the post-reform period. ...
... The two most common forms of risk mitigation i.e. insurance and hedging does not addressed the under investment problem, corporate earnings retention by means of dividend policy provided a firm with an important means of risk mitigation. Kamat (2008) investigated the trends in dividends across 20 industries to know how the private corporate sector of India appropriated its profits over period from 1961 to 2007. He also examined whether internal funds were a significant source of finance and the dynamics of relation between dividends relative to earnings across type of companies and industries. ...
In this paper an attempt has been made to identify the important determinants of retained earnings in profitable steel companies in steel sector of India and which have impact on the retention of earnings of steel companies under study. Multiple linear regression is used to identify the determinants of retained earnings for a period of sixteen years. Also the importance of retained earnings as a source of finance for steel sector companies is also studied in the paper.
... The two most common forms of risk mitigation i.e. insurance and hedging does not addressed the under investment problem, corporate earnings retention by means of dividend policy provided a firm with an important means of risk mitigation. Kamat (2008) investigated the trends in dividends across 20 industries to know how the private corporate sector of India appropriated its profits over period from 1961 to 2007. He also examined whether internal funds were a significant source of finance and the dynamics of relation between dividends relative to earnings across type of companies and industries. ...
In this paper an attempt has been made to identify the important determinants of retained earnings in profitable steel companies in steel sector of India and which have impact on the retention of earnings of steel companies under study. Multiple linear regression is used to identify the determinants of retained earnings for a period of sixteen years. Also the importance of retained earnings as a source of finance for steel sector companies is also studied in the paper.
... The data were used from the Amman stock exchanges between 1989-2000 and the result suggests that the portion of stocks Held by insiders and the state significantly affected the amount of dividend paid. Size, age, and profitability of the firm seem to be determined factor of corporate dividend policy in Jordan.Kamat (2008)investigated " The Ownership And IndustryIndia, " 1961India, "-2007The cross-sectional trends in dividends are investigated at an aggregate level of ownership (i.e. closely/largely held and regulated firms), and at disaggregate level across 20 industries to examine how Indian Private Corporate Sector appropriated its profits over 1961-20 ...
... The data were used from the Amman stock exchanges between 1989-2000 and the result suggests that the portion of stocks Held by insiders and the state significantly affected the amount of dividend paid. Size, age, and profitability of the firm seem to be determined factor of corporate dividend policy in Jordan.Kamat (2008)investigated " The Ownership And IndustryIndia, " 1961India, "-2007The cross-sectional trends in dividends are investigated at an aggregate level of ownership (i.e. closely/largely held and regulated firms), and at disaggregate level across 20 industries to examine how Indian Private Corporate Sector appropriated its profits over 1961-20 ...
This paper intended to examine the determinants of dividend policy (DP) of FMCG sector in India. FMCG companies included in CNX FMCG the sectoral index for NSE are 15. Only 12 companies have been taken for the study. The period of study has been considered for 10 years i.e. from 2003-04 to 2012-13. Here, various factors affecting DP such as dividend payout ratio (DPR), debt equity ratio (DER), earnings (ERN), corporate tax (CT), earnings per share (EPS) and firm size (FS) are considered for analysis. The empirical evidence from the study reveals that DPR, DER, ERN, CT has significant impact on EPS and also good predictors of dividend payout in FMCG sector. Ordinary least square models (OLS) are used to estimate the impact of DER, DPR, ERN, FS, EPS and on the DP. The DP of overall FMCG sector is strongly influenced by DPR, DER, EPS, and CT, which reveals that the DP of FMCG sector is significantly influenced by the selected financial variables during the period of the study. The regression analysis shows that ERN, DER, and CT have significant impact on DP and DPR.
This paper explicitly recognizes the potential differences in dividend policy between regulated and unregulated firms and focuses on agency-cost and monitoring explanations for the relevance of dividends. The purpose of this paper is to examine the role of insiders in determining dividend policy for unregulated firms, utilities, and financial-services firms. Since utilities, and to some extent, financial-services firms, have regulators who serve as the low-cost informants to market participants, insiders play a reduced role in determining dividend policy compared to unregulated firms. A regression model is developed that addresses whether the role of regulators and insiders are substitutes or complements for utilities and financial-services firms. The regression results reveal fundamental differences in the relationship between insider holdings and dividend policy for unregulated firms and utilities, but suggest that the regulatory environment enhances -- rather than mitigates -- the importance of the insiders" role for utilities. For financial-services firms, the results do not support the hypothesis that increased equity risk through fixed-rate deposit insurance enhances the role of insiders when determining dividend policy.
In this paper we analyze the leverage and dividend choices than 6,700 industrial corporations over a 30-year period. Our empirical analysis is designed to provide a basis for assessing the relative importance of the various factors - taxes, contracting costs (particularly, the financial distress costs and the "free cash flow" benefits of debt), and signaling effects - in explaining corporate financial behavior. Such findings can than be used to guide corporate managers in thinking about trade-offs among different leverage and dividend choices.
The paper describes the main characteristics of ownership structure of the Turkish companies listed on the Istanbul Stock Exchange. We present information on the pyrimidal and complex ownership structures within business groups, on the main owner classes, and on changes in large shareholdings. Ownership is highly concentrated in Turkey, families being the dominant shareholders. Changes in large shareholdings do not suggest the existence of an active market for share stakes. We also show that concentrated ownership and pyramidal structures have a negative effect on performance as reflected in lower return on assets, market to book ratios and dividend payments. We conclude by discussing some important problems introduced or fostered by the presence of this type of ownership structure.
This paper outlines and tests two agency models of dividends. According to the "outcome model," dividends are paid because minority shareholders pressure corporate insiders to disgorge cash. According to the "substitute model," insiders interested in issuing equity in the future pay dividends to establish a reputation for decent treatment of minority shareholders. The first model predicts that stronger minority shareholder rights should be associated with higher dividend payouts; the second model predicts the opposite. Tests on a cross section of 4,000 companies from 33 countries with different levels of minority shareholder rights support the outcome agency model of dividends. Copyright The American Finance Association 2000.
This paper reviews the theory and evidence on the process by which corporations raise debt and equity capital and the associated effects on security prices. Findings from related transactions are used to test hypotheses about the stock price patterns accompanying announcements of security offerings. Various contractual alternatives employed in security issues are examined; for example, rights or underwritten offers, negotiated or competitive bid, best efforts or firm commitment contracts, and shelf or traditional registration. Finally, incentives for underpricing new issues are analyzed.
This paper surveys capital structure theories based on agency costs, asymmetric information, product/input market interactions, and corporate control considerations (but excluding tax-based theories). For each type of model, a brief overview of the papers surveyed and their relation to each other is provided. The central papers are described in some detail, and their results are summarized and followed by a discussion of related extensions. Each section concludes with a summary of the main implications of the models surveyed in the section. Finally, these results are collected and compared to the available evidence. Suggestions for future research are provided. Copyright 1991 by American Finance Association.
Agency theory posits that the dividend mechanism provides an incentive for managers to reduce the costs associated with the principal/agent relationship. Distributing resources in the form of cash dividends forces managers to seek outside capital, thus causing them to reduce agency costs as they subject themselves to the scrutiny of the capital marketplace. Under this scenario the optimum level of dividend payout is that which minimizes the agency cost structure relative to the cost of raising needed funds. A test of this theory employing time-series cross-sectional analysis and more direct measures of the agency cost structure shows that these tenets of agency theory may be valid. Managers do appear to adjust the dividend payout in response to the agency cost/transaction cost structure, both through time as well as across firms. Copyright 1995 by MIT Press.
This paper uncovers an increasing proportion of quoted UK companies omitting cash dividends. Using a large panel of quoted UK firms, we estimate panel data probit models for the incidence of dividend omissions and cuts as functions of financial characteristics including cash flow, leverage, investment opportunities, investment and company size. These variables account for most of the increase in omission since 1995. There is relatively little evidence to link this to the major tax reform of 1997 that abolished tax refunds on dividend income payable to tax-exempt institutions. Significant persistence effects indicate companies are slow to adjust their balance sheets through their dividend. Copyright 2003 Blackwell Publishing Ltd.
Determinants of Dividend Policy: Regulated v/s Unregulated Firms
- A K Saxena
Saxena, A. K., (1999), “Determinants of Dividend Policy: Regulated v/s Unregulated Firms”, Financial Management Association Conference
Market Rationality and Dividend Announcements: Two Agency-Cost Explanations of Dividends
- F H Easterbrook
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- S Richardson
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- C J Lee
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- R J Zeckhauser
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