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

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  • Geetanjali Pinto

    (SCRI, Symbiosis International (Deemed University), Pune 412 115, India
    ITM Business School Navi Mumbai, ITM Group of Institutions, Navi Mumbai 410 210, India)

  • Shailesh Rastogi

    (Symbiosis Institute of Business Management Pune, Symbiosis International (Deemed University), Pune 412 115, India)

Abstract

This study aims to determine whether a firm’s dividends are influenced by the sector to which it belongs. This paper also examines the explanatory factors for dividends across individual sectors in India. This longitudinal study uses balanced data consisting of companies listed on the National Stock Exchange (NSE) of India for 12 years—from 2006 to 2017. Pooled ordinary least squares (POLSs) and fixed effects panel models are used in our estimation. We find that size, profitability, and interest coverage ratios have a significant positive relation to dividend policy. Furthermore, business risk and debt reveal a significantly negative relation with dividends. The findings on profitability support the free cash flow hypothesis for India. However, we also found that Indian companies prefer to follow a stable dividend policy. As a result of this, even firms with higher growth opportunities and lower cash flows continue to pay dividends. We also find evidence that dividend policies vary significantly across industrial sectors in India. The results of this study can be used by financial managers and policymakers in order to make appropriate dividend decisions. They can also help investors make portfolio selection decisions based on sectoral dividend paying behavior.

Suggested Citation

  • Geetanjali Pinto & Shailesh Rastogi, 2019. "Sectoral Analysis of Factors Influencing Dividend Policy: Case of an Emerging Financial Market," JRFM, MDPI, vol. 12(3), pages 1-18, June.
    • Handle: RePEc:gam:jjrfmx:v:12:y:2019:i:3:p:110-:d:243128
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