Dividend Policy Behaviour in the Indian Capital Market: A Study of BSE-30 Companies

SanjayJ. Bhayani

doi:10.65301/dias.2008.4.2.371

Articles 8th Edition of DTR Oct 2007 – Mar 2008

DOI 10.65301/dias.2008.4.2.371

Dividend Policy Behaviour in the Indian Capital Market: A Study of BSE-30 Companies

Authors

SA

SanjayJ. Bhayani

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169 Downloads

Published 2007-04-30

Pages 30-39

Abstract

The numerous published theoretical and empericial papers and kept dividend policy in its prominent status in the corporate
finance literature. Much o f the empirical research has been
applied on com panies listed on advanced stock markets.
Employing the multivariate regression analysis, this paper
examines the dividend policy behaviour o f companies listed on
the Bombay Stock Exchange (BSE - 30) with Linter's m odel o f
dividend. Based on the time period 1996-97 to 2004-05, it is
concluded, that BSE - 30 Indian companies follow stable cash
dividend policies. Moreover, the results indicate that the earning
capacity o f the com panies is most influencing factor in
determin ing dividend policies o f the sam ple firms. The result o f
, study clearly indicate that current year's dividend rate is positively correlated to dividend payout ratio , earning per share and years profit and previous years dividend rate.

Keywords

Dividend Policy, Indian Capital Market, Linter Model.

References

Ambrish, R., John, K. and Williams, J. (1987), “Efficient Signaling with Dividends and Investments”, Journal of Finance, 42(2), June, pp. 343–343.
Baker, H.K., Powell, G.E. and Veit, E.T. (2002), “Revising the Dividend Puzzle: Do All the Pieces Now Fit?”, Review of Financial Economics Press.
Benartzi, S., Michaely, R. and Thaler, R. (1997), “Do Changes in Dividends Signal the Future or the Past?”, Journal of Finance, Vol. 52, July, pp. 1007–1034.
Bhat, R. and Pandey, I.M. (1994), “Dividend Decision: A Study of Managers’ Perceptions”, Decision, Vol. 21, Nos. 1 & 2, January–June, pp. 67–86.
Bhattacharya, S. (1979), “Imperfect Information, Dividend Policy, and the ‘Bird in the Hand’ Fallacy”, Bell Journal of Economics, Vol. 10, Spring, pp. 259–270.
Brealey, R.A. (1994), “Does Dividend Policy Matter?”, in Stern, J.M. and Chew, D.H. (eds.), Revolution in Corporate Finance, 2nd ed., Blackwell Publishers Inc., Cambridge, Massachusetts.
Black, F. (1976), “The Dividend Puzzle”, Journal of Portfolio Management, Vol. 2, No. 2, Winter, pp. 5–8.
Constas, M. (1995), Essays on the Relationship between Stock Prices, Dividends and Accounting Earnings, D.A.I., Vol. 56, No. 1, Delhi: Tata McGraw-Hill Publishing Company Ltd., p. 575.
Dakshinamurthy, D. and Narasimha Rao (1978), “Speed Adjustment (Dividend) Model: Some Empirical Evidence from Indian Chemical Industry (1960–73)”, The Chartered Accountant, December, pp. 457–460.
Damodaran, A. (1999), Applied Corporate Finance, John Wiley & Sons Inc., New York.
DeAngelo, H. and DeAngelo, L. (2000), “Controlling Stockholders and the Disciplinary Role of Corporate Payout Policy: A Study of the Mirror Company”, Journal of Financial Economics, 56(2), pp. 153–207.
DeAngelo, H., DeAngelo, L. and Skinner, D.J. (1992), “Dividends and Losses”, Journal of Finance, Vol. 47, No. 5, December, pp. 1837–1863.
Dillon, W.R. and Goldstein, M. (1984), Multivariate Analysis: Method and Applications, John Wiley & Sons, London.
Fama, E. and Babiak, H. (1968), “Dividend Policy: An Empirical Analysis”, American Statistical Association Journal, December, p. 1161.
Fama, E.F. and French, K.R. (2001), “Disappearing Dividends: Changing Firm Characteristics or Lower Propensity to Pay?”, Journal of Applied Corporate Finance, Vol. 14, No. 1, Spring, pp. 67–79.
George, R. and Kumudha, A. (2005), “A Study on Dividend Policy of Hindustan Construction Co. Ltd. with Special Reference to Lintner Model”, Synergy, Vol. 4, No. 1, pp. 86–96.
Glen, J.D., Karmokolias, Y., Miller, R.R. and Shah, S. (1995), “Dividend Policy and Behavior in Emerging Markets”, Discussion Paper, International Finance Corporation.
Glen, J.D., Karmokolias, Y., Miller, R.R. and Shah, S. (1995), “Dividend Policy and Behavior in Emerging Markets: To Pay or Not to Pay?”, Discussion Paper No. 26, International Finance Corporation, Washington, DC.
Gupta, N.C. and Sharma, G.L. (1991), “Dividend Behaviour in Tea Industry in India: A Case Study of Selected Firms”, ASCI Journal of Management, Vol. 20, No. 4, pp. 274–283.
John, K. and Williams, J. (1985), “Dividends, Dilution and Taxes: A Signaling Equilibrium”, Journal of Finance, Vol. 40, No. 4, pp. 1053–1070.
Kevin, S. (1992), “Dividend Policy: An Analysis of Some Determinants”, Finance India, Vol. VI, No. 2, June, pp. 253–259.
Lee, H.W. and Ryan, P.A. (2002), “Dividends and Earnings Revisited: Cause or Effect?”, American Business Review, January, Vol. 20, No. 1, pp. 117–122.
Lintner, J. (1956), “Distribution of Incomes of Corporations among Dividends, Retained Earnings and Taxes”, American Economic Review, Vol. 46, No. 2, May, pp. 97–113.
Mahapatra, R.P. and Sahu, P.K.A. (1993), “A Note on Determinants of Corporate Dividend Behaviour in India – An Econometric Analysis”, Decision, Vol. 20, No. 1, January–March, pp. 1–22.
Miller, M. and Rock, K. (1985), “Dividend Policy under Asymmetric Information”, Journal of Finance, Vol. 40, No. 4, pp. 1031–1051.
Mishra, C. and Narender, V. (1996), “Dividend Policies of SOEs in India – An Analysis”, Finance India, Vol. X, No. 3, September, pp. 633–645.
Miller, M.H. and Modigliani, F. (1961), “Dividend Policy, Growth and the Valuation of Shares”, Journal of Business, Vol. 34, No. 4, October, pp. 411–433.
Mohanty, P. (1999), “Dividend and Bonus Policies of the Indian Companies”, Vikalpa, Vol. 24, No. 4, October–December, pp. 35–42.
Narasimhan, M.S. and Asha, C. (1997), “Implications of Dividend Tax on Corporate Financial Policies”, The ICFAI Journal of Applied Finance, Vol. 3, No. 2, July, pp. 11–28.
Narasimhan, M.S. and Vijayalakshmi, S. (2002), “Impact of Agency Cost on Leverage and Dividend Policies”, The ICFAI Journal of Applied Finance, Vol. 8, No. 2, March, pp. 16–25.
Ghasan, O. (2004), “Dividend Policy Behaviour in the Jordanian Capital Market”, International Journal of Business, Vol. 9(3), pp. 287–299.
Oza, H. (2004), “Dividend Decision: A Managerial Approach – A Survey of Selected Enterprises”, Executive Company Secretary, November, pp. 40–45.
Reddy, Y. (2004), “Dividend Policy of Indian Corporate Firms: An Analysis of Trends and Determinants”, NSE India Research Paper.
Rozeff, M.S. (1982), “Growth, Beta and Agency Costs as Determinants of Dividend Payout Ratios”, Journal of Financial Research, 5(3), pp. 249–259.
Shleifer, A. and Vishny, R.W. (1986), “Large Shareholders and Corporate Control”, Journal of Political Economy, 94(3), pp. 461–488.
Smith, C.W. Jr. (1977), “Alternative Methods for Raising Capital: Rights versus Underwritten Offerings”, Journal of Financial Economics, 5, pp. 273–307.
Sur, D. (2005), “Dividend Payout Trends in the Post-Liberalisation Era: A Case Study of Colgate Palmolive (India) Ltd.”, The Management Accountant, March, pp. 201–206.

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SanjayJ. Bhayani . (2007). Dividend Policy Behaviour in the Indian Capital Market: A Study of BSE-30 Companies. DIAS Technology Review, 4(2), 30-39.

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[1] Ambrish, R., John, K. and Williams, J. (1987), “Efficient Signaling with Dividends and Investments”, Journal of Finance, 42(2), June, pp. 343–343.

[2] Baker, H.K., Powell, G.E. and Veit, E.T. (2002), “Revising the Dividend Puzzle: Do All the Pieces Now Fit?”, Review of Financial Economics Press.

[3] Benartzi, S., Michaely, R. and Thaler, R. (1997), “Do Changes in Dividends Signal the Future or the Past?”, Journal of Finance, Vol. 52, July, pp. 1007–1034.

[4] Bhat, R. and Pandey, I.M. (1994), “Dividend Decision: A Study of Managers’ Perceptions”, Decision, Vol. 21, Nos. 1 & 2, January–June, pp. 67–86.

[5] Bhattacharya, S. (1979), “Imperfect Information, Dividend Policy, and the ‘Bird in the Hand’ Fallacy”, Bell Journal of Economics, Vol. 10, Spring, pp. 259–270.

[6] Brealey, R.A. (1994), “Does Dividend Policy Matter?”, in Stern, J.M. and Chew, D.H. (eds.), Revolution in Corporate Finance, 2nd ed., Blackwell Publishers Inc., Cambridge, Massachusetts.

[7] Black, F. (1976), “The Dividend Puzzle”, Journal of Portfolio Management, Vol. 2, No. 2, Winter, pp. 5–8.

[8] Constas, M. (1995), Essays on the Relationship between Stock Prices, Dividends and Accounting Earnings, D.A.I., Vol. 56, No. 1, Delhi: Tata McGraw-Hill Publishing Company Ltd., p. 575.

[9] Dakshinamurthy, D. and Narasimha Rao (1978), “Speed Adjustment (Dividend) Model: Some Empirical Evidence from Indian Chemical Industry (1960–73)”, The Chartered Accountant, December, pp. 457–460.

[10] Damodaran, A. (1999), Applied Corporate Finance, John Wiley & Sons Inc., New York.

[11] DeAngelo, H. and DeAngelo, L. (2000), “Controlling Stockholders and the Disciplinary Role of Corporate Payout Policy: A Study of the Mirror Company”, Journal of Financial Economics, 56(2), pp. 153–207.

[12] DeAngelo, H., DeAngelo, L. and Skinner, D.J. (1992), “Dividends and Losses”, Journal of Finance, Vol. 47, No. 5, December, pp. 1837–1863.

[13] Dillon, W.R. and Goldstein, M. (1984), Multivariate Analysis: Method and Applications, John Wiley & Sons, London.

[14] Fama, E. and Babiak, H. (1968), “Dividend Policy: An Empirical Analysis”, American Statistical Association Journal, December, p. 1161.

[15] Fama, E.F. and French, K.R. (2001), “Disappearing Dividends: Changing Firm Characteristics or Lower Propensity to Pay?”, Journal of Applied Corporate Finance, Vol. 14, No. 1, Spring, pp. 67–79.

[16] George, R. and Kumudha, A. (2005), “A Study on Dividend Policy of Hindustan Construction Co. Ltd. with Special Reference to Lintner Model”, Synergy, Vol. 4, No. 1, pp. 86–96.

[17] Glen, J.D., Karmokolias, Y., Miller, R.R. and Shah, S. (1995), “Dividend Policy and Behavior in Emerging Markets”, Discussion Paper, International Finance Corporation.

[18] Glen, J.D., Karmokolias, Y., Miller, R.R. and Shah, S. (1995), “Dividend Policy and Behavior in Emerging Markets: To Pay or Not to Pay?”, Discussion Paper No. 26, International Finance Corporation, Washington, DC.

[19] Gupta, N.C. and Sharma, G.L. (1991), “Dividend Behaviour in Tea Industry in India: A Case Study of Selected Firms”, ASCI Journal of Management, Vol. 20, No. 4, pp. 274–283.

[20] John, K. and Williams, J. (1985), “Dividends, Dilution and Taxes: A Signaling Equilibrium”, Journal of Finance, Vol. 40, No. 4, pp. 1053–1070.

[21] Kevin, S. (1992), “Dividend Policy: An Analysis of Some Determinants”, Finance India, Vol. VI, No. 2, June, pp. 253–259.

[22] Lee, H.W. and Ryan, P.A. (2002), “Dividends and Earnings Revisited: Cause or Effect?”, American Business Review, January, Vol. 20, No. 1, pp. 117–122.

[23] Lintner, J. (1956), “Distribution of Incomes of Corporations among Dividends, Retained Earnings and Taxes”, American Economic Review, Vol. 46, No. 2, May, pp. 97–113.

[24] Mahapatra, R.P. and Sahu, P.K.A. (1993), “A Note on Determinants of Corporate Dividend Behaviour in India – An Econometric Analysis”, Decision, Vol. 20, No. 1, January–March, pp. 1–22.

[25] Miller, M. and Rock, K. (1985), “Dividend Policy under Asymmetric Information”, Journal of Finance, Vol. 40, No. 4, pp. 1031–1051.

[26] Mishra, C. and Narender, V. (1996), “Dividend Policies of SOEs in India – An Analysis”, Finance India, Vol. X, No. 3, September, pp. 633–645.

[27] Miller, M.H. and Modigliani, F. (1961), “Dividend Policy, Growth and the Valuation of Shares”, Journal of Business, Vol. 34, No. 4, October, pp. 411–433.

[28] Mohanty, P. (1999), “Dividend and Bonus Policies of the Indian Companies”, Vikalpa, Vol. 24, No. 4, October–December, pp. 35–42.

[29] Narasimhan, M.S. and Asha, C. (1997), “Implications of Dividend Tax on Corporate Financial Policies”, The ICFAI Journal of Applied Finance, Vol. 3, No. 2, July, pp. 11–28.

[30] Narasimhan, M.S. and Vijayalakshmi, S. (2002), “Impact of Agency Cost on Leverage and Dividend Policies”, The ICFAI Journal of Applied Finance, Vol. 8, No. 2, March, pp. 16–25.

[31] Ghasan, O. (2004), “Dividend Policy Behaviour in the Jordanian Capital Market”, International Journal of Business, Vol. 9(3), pp. 287–299.

[32] Oza, H. (2004), “Dividend Decision: A Managerial Approach – A Survey of Selected Enterprises”, Executive Company Secretary, November, pp. 40–45.

[33] Reddy, Y. (2004), “Dividend Policy of Indian Corporate Firms: An Analysis of Trends and Determinants”, NSE India Research Paper.

[34] Rozeff, M.S. (1982), “Growth, Beta and Agency Costs as Determinants of Dividend Payout Ratios”, Journal of Financial Research, 5(3), pp. 249–259.

[35] Shleifer, A. and Vishny, R.W. (1986), “Large Shareholders and Corporate Control”, Journal of Political Economy, 94(3), pp. 461–488.

[36] Smith, C.W. Jr. (1977), “Alternative Methods for Raising Capital: Rights versus Underwritten Offerings”, Journal of Financial Economics, 5, pp. 273–307.

[37] Sur, D. (2005), “Dividend Payout Trends in the Post-Liberalisation Era: A Case Study of Colgate Palmolive (India) Ltd.”, The Management Accountant, March, pp. 201–206.