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Dividend policy and business groups: Evidence from Indian firms

Author

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  • Manos, Ronny
  • Murinde, Victor
  • Green, Christopher J.

Abstract

We invoke theories of dividend policy and the market failure theory of business groups to investigate the impact of group affiliation on the dividend payment decision (to pay or not to pay?) and payout level decision (how much to pay?). We use a large sample of quoted, non-financial, independent and group-affiliated Indian firms. While we find that the payout ratios of group-affiliated firms are higher than those of independent firms, there is no clear evidence to support the view that this is due to the level of diversification or group size. Overall, we find that although they mitigate market imperfections, business groups remain vulnerable to information problems in the dividend payment decision and the payout level decision.

Suggested Citation

  • Manos, Ronny & Murinde, Victor & Green, Christopher J., 2012. "Dividend policy and business groups: Evidence from Indian firms," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 42-56.
    • Handle: RePEc:eee:reveco:v:21:y:2012:i:1:p:42-56
    DOI: 10.1016/j.iref.2011.05.002
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    3. Pantelis Longinidis & Panagiotis Symeonidis, 2013. "Corporate Dividend Policy Determinants: Intelligent Versus A Traditional Approach," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 20(2), pages 111-139, April.
    4. Erkan, Asligul & Fainshmidt, Stav & Judge, William Q., 2016. "Variance decomposition of the country, industry, firm, and firm-year effects on dividend policy," International Business Review, Elsevier, vol. 25(6), pages 1309-1320.
    5. Nishant B. Labhane & Jitendra Mahakud, 2018. "Dividend Smoothing and Business Groups: Evidence from Indian Companies," Global Business Review, International Management Institute, vol. 19(3), pages 690-706, June.
    6. Bradford, William & Chen, Chao & Zhu, Song, 2013. "Cash dividend policy, corporate pyramids, and ownership structure: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 445-464.
    7. Zeeshan Ahmed & Qasim Saleem & Abdul Qadir Bhatti & Bilal Ahmed, 2020. "Corporate Leverage Transmission under Information Asymmetry: Evidence from Non-financial Firms of Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 10(4), pages 176-184.
    8. Rosy Locorotondo & Nico Dewaelheyns & Cynthia Hulle, 2015. "Affiliates’ Bank Debt Policy: Does Parent Firm Nationality Matter?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 42(5-6), pages 747-776, June.
    9. Chang, Wen-Ching & Lin, Huey-Yeh & Koo, Meihua, 2017. "The effect of diversification on auditor selection in business groups: A case from Taiwan," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 422-436.
    10. Chada, Swechha & Saravanan, Palanisamy & Varadharajan, Gopal, 2024. "Socioemotional wealth and cash flow sensitivity of cash: Evidence from India," The North American Journal of Economics and Finance, Elsevier, vol. 69(PA).
    11. Liu, Chunyan & Uchida, Konari & Yang, Yufeng, 2014. "Controlling shareholder, split-share structure reform and cash dividend payments in China," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 339-357.
    12. Duc Nam Phung & Anil V. Mishra, 2016. "Corporation Diversification and Firm Performance: Evidence from Vietnamese Listed Firms," Australian Economic Papers, Wiley Blackwell, vol. 55(4), pages 386-408, December.
    13. Prasanna Krishna & Ramanathan Geeta & Arora Bharat, 2017. "Family Ownership, Earnings Informativeness, and Role of Audit Committees: An Empirical Investigation in India," Review of Economics & Finance, Better Advances Press, Canada, vol. 9, pages 57-70, August.
    14. Bashir Zahid & Rafique Zulqurnain Zeeshan & Toor Kashif Naseer, 2022. "How do dynamic financing decisions explain the behavior of dividend payout policies?: An Empirical Study of Listed Pakistani Manufacturing Firms," Financial Internet Quarterly (formerly e-Finanse), Sciendo, vol. 18(1), pages 1-15, March.
    15. Martina Sopta Mihaela Mikić Tin Horvatinović, 2019. "Dividend Policies and Business Groups: the Case of Croatia," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 22(SCI), pages 25-36, March.
    16. Mahdi Salehi & Mohammad Sadegh Adibian & Zakiyeh Sadatifar & Ehsan Khansalar, 2021. "The relationship between corporate governance characteristics and agency costs," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 39(1), pages 199-220.
    17. Cueto, Diego C., 2013. "Substitutability and complementarity of corporate governance mechanisms in Latin America," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 310-325.

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    More about this item

    Keywords

    Dividend policy; Business groups; India;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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