Journal of Management Research

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Factors Affecting the Likelihood of Paying Dividends


Affiliations
1 Department of Humanities and Social Sciences, IIT Kharagpur, 721302, West Bengal, India
     

   Subscribe/Renew Journal


This paper attempts to identify the factors affecting the likelihood of paying dividends of Indian listed firms during the period 1994-95 to 2012-13. We find that dividend paying firms are larger in size, more profitable, less levered, and more mature than the non-dividend paying firms. The logit regression results suggest that the variables such as market-to-book ratio, financial leverage, business risk and dividend distribution tax have significant negative and variables like firm's maturity, size of the firm, profitability and liquidity have significant positive impact on the likelihood of paying dividends. The results are robust across the periods for Indian firms and consistent with the pecking order, transaction, signaling and firm life cycle theories of dividend.

Keywords

Dividend payout, Logit model, Investment opportunity, Financial leverage, Business risk, JEL Classification: G35, G30.
User
Notifications

  • Abor, J. and Bokpin, G. A. (2010), Investment Opportunities, Corporate Finance, and Dividend Payout Policy: Evidence From Emerging Markets, Studies in Economics and Finance, 27(3): 180-194.

  • Aharony, J. and Swary, I. (1980), Quarterly Dividend and Earnings Announcements and Stockholders’ Returns: An Empirical Analysis, The Journal of Finance, 35(1): 1-12.

  • Aivazian, V. A., Booth, L. and Cleary, S. (2006), Dividend Smoothing and Debt Ratings, Journal of Financial and Quantitative Analysis, 41(02): 439-453.

  • Aivazian, V., Booth, L. and Cleary, S. (2003), Do Emerging Market Firms Follow Different Dividend Policies from US Firms? Journal of Financial Research, 26(3): 371-387.

  • Al-Ajmi, J. and Hussain, H. A. (2011), Corporate Dividends Decisions: Evidence from Saudi Arabia, The Journal of Risk Finance, 12(1): 41-56.

  • Alli, K. L., Khan, A. Q. and Ramirez, G. G. (1993), Determinants of Corporate Dividend Policy: A Factorial Analysis, Financial Review, 28(4): 523-547.

  • Al-Malkawi, H. N. (2007), Determinants of Corporate Dividend Policy in Jordan: an Application of the Tobit Model, Journal of Economic and Administrative Sciences, 23(2): 44-70.

  • Al-Malkawi, H. N. (2008), Factors Influencing Corporate Dividend Decision: Evidence from Jordanian Panel Data, International Journal of Business, 13(2): 177.

  • Al-Najjar, B. (2009), Dividend Behaviour and Smoothing New Evidence from Jordanian Panel Data, Studies in Economics and Finance, 26(3): 182-197.

  • Amidu, M., and Abor, J. (2006), Determinants of Dividend Payout Ratios in Ghana, The Journal of Risk Finance, 7(2), 136-145.

  • Asquith, P., and Mullins Jr, D. W. (1983), The Impact of Initiating Dividend Payments on Shareholders’ Wealth, Journal of business, 56(1): 77-96.

  • Bhattacharya, S. (1979), Imperfect Information, Dividend Policy, and “The Bird in the Hand” Fallacy, The Bell Journal of Economics, 10(1): 259-270.

  • Black, F. (1976), The Dividend Puzzle, The Journal of Portfolio Management, 2(2): 5-8.

  • Brittain, J. A. (1966), Corporate Dividend Policy, Brookings Institution.

  • Bulan, L.T., and Subramanian, N. (2009), The Firm Life Cycle Theory of Dividends, Dividends and Dividend Policy (1st Ed), John Wiley and Sons, Hoboken, NJ.

  • DeAngelo, H., and DeAngelo, L. (2006), The Irrelevance of the MM Dividend Irrelevance Theorem, Journal of Financial Economics, 79(2): 293-315.

  • DeAngelo, H., DeAngelo, L., and Skinner, D. J. (2004), Are Dividends Disappearing? Dividend Concentration and the Consolidation of Earnings, Journal of Financial Economics, 72(3): 425-456.

  • DeAngelo, H., DeAngelo, L., and Stulz, R. M. (2006), Dividend Policy and the Earned/Contributed Capital Mix: A Test of the Life-Cycle Theory, Journal of Financial Economics, 81(2): 227-254.

  • Denis, D. J., and Osobov, I. (2008), Why do Firms Pay Dividends? International Evidence on the Determinants of Dividend Policy, Journal of Financial Economics, 89(1): 62-82.

  • Easterbrook, F. H. (1984), Two Agency-Cost Explanations of Dividends, The American Economic Review, 650-659.

  • Fama, E. F., and French, K. R. (2001), Disappearing Dividends: Changing Firm Characteristics or Lower Propensity to Pay? Journal of Financial Economics, 60(1): 3-43.

  • Fatemi, A., and Bildik, R. (2012), Yes, Dividends are Disappearing: Worldwide Evidence, Journal of Banking and Finance, 36(3): 662677.

  • Fenn, G. W., and Liang, N. (2001), Corporate Payout Policy and Managerial Stock Incentives, Journal of Financial Economics, 60(1): 45-72.

  • Gaver, J. J. and Gaver, K. M. (1993), Additional Evidence on the Association between the Investment Opportunity Set and Corporate Financing, Dividend, and Compensation Policies, Journal of Accounting and Economics, 16(1): 125-160.

  • Grinstein, Y. and Michaely, R. (2005), Institutional Holdings and Payout Policy, The Journal of Finance, 60(3): 1389-1426.

  • Grullon, G. and Michaely, R. (2002), Dividends, Share Repurchases, and the Substitution Hypothesis, The Journal of Finance, 57(4): 1649-1684.

  • Grullon, G., Michaely, R. and Swaminathan, B. (2002), Are Dividend Changes a Sign of Firm Maturity? The Journal of Business, 75(3): 387-424.

  • Gujarati, D. N. (2011), Econometrics By Example (1st Ed), Palgrave Macmillan, Hampshire, UK.

  • Gujarati, D. N. (2012), Basic Econometrics (6th Ed), USA: McGraw Hill.

  • Gupta, A. and Banga, C. (2010), The Determinants of Corporate Dividend Policy, Decision, 37(2): 63-77.

  • Hamill, P. A. and Al-Shattarat, W. (2012), What Determines the Dividend Payout Ratio for Jordanian Industrial Firms? Journal of Emerging Market Finance, 11(2): 161-188.

  • Higgins, R. C. (1972), The Corporate Dividend-Saving Decision, Journal of Financial and Quantitative Analysis, 7(2): 1527-1541.

  • Higgins, R. C. (1981), Sustainable Growth Under Inflation, Financial Management, 10(1): 36-40.

  • Ho, H. (2003), Dividend Policies in Australia and Japan, International Advances in Economic Research, 9(2): 91-100.

  • Hoberg, G. and Prabhala, N. R. (2009), Disappearing Dividends, Catering, and Risk, Review of Financial Studies, 22(1): 79-116.

  • Jensen, M. C. (1986), Agency Cost of Free Cash Flow, Corporate Finance, and Takeovers, American Economic Review, 76(2): 323329.

  • Jensen, M. C. and Meckling, W. H. (1976), Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, Journal of Financial Economics, 3(4): 305-360.

  • Kalay, A. (1982), Stockholder-Bondholder Conflict and Dividend Constraints, Journal of Financial Economics, 10(2): 211-233.

  • Kamat, M. S. (2008), The Ownership and Industry Effects of Corporate Dividend Policy in India, 1961-2007, Available at SSRN 1323583.

  • Kamat, M. S. and Kamat, M. M. (2009), Determinants and the Stability of Dividends in India: Application of Dynamic Partial Adjustment Equation Using Extended Using Extended Instrumental Variable Approach, NSE Research Initiative, Project Report no, 229.

  • Kamat, M. S. and Kamat, M. M. (2013), Economic Reforms, Determinants and Stability of Dividends in a Dynamic Setting, Journal of Asia Business Studies, 7(1): 5-30.

  • Kline, R. B. (2005), Principles and Practice of Structural Equation Modeling (2ndEd), The Guilford Press, New York.

  • Kumar, J. (2006), Ownership Structure and Dividend Payout Policy in India, Corporate Governance and Dividend Payout in India, Journal of Emerging Market Finance, 5(1): 15-58.

  • Kuo, J. M., Philip, D. and Zhang, Q. (2013), What Drives the Disappearing Dividends Phenomenon? Journal of Banking and Finance, 37(9): 3499-3514.

  • La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R. (2000), Investor Protection and Corporate Governance, Journal of Financial Economics, 58(1): 3-27.

  • Lintner, J. (1956), Distribution of Incomes of Corporations among Dividends, Retained Earnings, and Taxes, The American Economic Review, 97-113.

  • Litzenberger, R. H. and Ramaswamy, K. (1979), The Effect of Personal Taxes and Dividends on Capital Asset Prices: Theory and Empirical Evidence, Journal of Financial Economics, 7(2): 163-195.

  • Mahakud, J. (2005), Shareholding Patterns and Dividend Policy: Evidence from Indian Corporate Sector, The ICFAI Journal of Applied Finance, 11(9): 40-54.

  • Miller, M. H. and Modigliani, F. (1961), Dividend Policy, Growth, and the Valuation of Shares, The Journal of Business, 34(4): 411433.

  • Mollah, S. (2011), Do Emerging Market Firms Follow Different Dividend Policies?: Empirical Investigation on the Pre-and PostReform Dividend Policy and Behaviour of Dhaka Stock Exchange Listed Firms, Studies in Economics and Finance, 28(2): 118135.

  • Mueller, D. C. (1972), A Life Cycle Theory of the Firm, The Journal of Industrial Economics, 20(3): 199-219.

  • Myers, S. C. (1984), The Capital Structure Puzzle, The Journal of Finance, 39(3): 574-592.

  • Myers, S. C. and Majluf, N. S. (1984), Corporate Financing and Investment Decisions When Firms Have Information that Investors do Not Have, Journal of Financial Economics, 13(2): 187-221.

  • Panda, J. and Lall, G.S. (1993), Internal Financing in the Corporate Sector: An Indian Experience, Anmol Publication, New Delhi.

  • Pandey, I. M. and Bhat, R. (2007), Dividend Behaviour of Indian Companies Under Monetary Policy Restrictions, Managerial Finance, 33(1): 14-25.

  • Parua, A. and Gupta, A. (2009), Dividend Histories and Determinants in Selected Indian Companies: A Study During 1993-94 to 2004-05, Australasian Accounting Business and Finance Journal, 3(4): 45A.

  • Patra, T., Poshakwale, S. and Ow-Yong, K. (2012), Determinants of Corporate Dividend Policy in Greece, Applied Financial Economics, 22(13): 1079-1087.

  • Reddy, Y. S. (2002), Dividend Policy of Indian Corporate Firms: An Analysis of Trends and Determinants, National Stock Exchange (NSE) Research Initiative Paper, (19).

  • Reddy, Y. S. and Rath, S. (2005), Disappearing Dividends in Emerging Markets?: Evidence from India, Emerging Markets Finance and Trade, 41(6): 58-82.

  • Rozeff, M. S. (1982), Growth, Beta and Agency Costs as Determinants of Dividend Payout Ratios, Journal of financial Research, 5(3): 249-259.

  • Saravanakumar, S. (2011), Determinants of Corporate Dividend Policy, Asia Pacific Business Review, 7(2): 25-36.

  • Singhania, M. (2006), Taxation and Corporate Payout Policy, Vikalpa, 31(4): 47.

  • Singhania, M. and Gupta, A. (2012), Determinants of Corporate Dividend Policy: A Tobit Model Approach, Vision: The Journal of Business Perspective, 16(3): 153-162.

  • Smith, C. W. and Warner, J. B. (1979), On financial Contracting: An Analysis of Bond Covenants, Journal of Financial Economics, 7(2): 117-161.

  • Smith, C. W. and Watts, R. L. (1992), The Investment Opportunity Set and Corporate Financing, Dividend, and Compensation Policies, Journal of Financial Economics, 32(3): 263-292.

  • Sur, D. and Majumdar, A. (2012), Dividend Policy of Indian Corporate Sector: A Study of Select Companies During the PostLiberalisation Regime, Asia-Pacific Journal of Management Research and Innovation, 8(2): 173-191.

  • Titman, S. and Wessels, R. (1988), The Determinants of Capital Structure Choice, The Journal of Finance, 43(1): 1-19.

  • Von Eije, H. and Megginson, W. L. (2008), Dividends and Share Repurchases in the European Union, Journal of Financial Economics, 89(2): 347-374.


Abstract Views: 597

PDF Views: 4




  • Factors Affecting the Likelihood of Paying Dividends

Abstract Views: 597  |  PDF Views: 4

Authors

Nishant B. Labhane
Department of Humanities and Social Sciences, IIT Kharagpur, 721302, West Bengal, India
Jitendra Mahakud
Department of Humanities and Social Sciences, IIT Kharagpur, 721302, West Bengal, India

Abstract


This paper attempts to identify the factors affecting the likelihood of paying dividends of Indian listed firms during the period 1994-95 to 2012-13. We find that dividend paying firms are larger in size, more profitable, less levered, and more mature than the non-dividend paying firms. The logit regression results suggest that the variables such as market-to-book ratio, financial leverage, business risk and dividend distribution tax have significant negative and variables like firm's maturity, size of the firm, profitability and liquidity have significant positive impact on the likelihood of paying dividends. The results are robust across the periods for Indian firms and consistent with the pecking order, transaction, signaling and firm life cycle theories of dividend.

Keywords


Dividend payout, Logit model, Investment opportunity, Financial leverage, Business risk, JEL Classification: G35, G30.

References