IDEAS home Printed from https://ideas.repec.org/a/ris/ambsrv/0052.html
   My bibliography  Save this article

The Role of Multiple Large Shareholders in Dividend Payouts: Evidence from India

Author

Listed:
  • Suman, Samridhi

    (Indian Institute of Technology Delhi)

  • Singh, Shveta

    (Indian Institute of Technology Delhi)

Abstract

This study examines the impact of multiple large shareholders (MLS) on a firm’s dividend payouts in a low-investor protection regime, India, where minority shareholders’ expropriation concerns are severe and firms have an incentive to build a capital market reputation. Therefore, we purport for the prevalence of the substitution hypothesis, whereby MLS cooperate in paying larger dividends to assuage expropriation concerns for reputation-building. The empirical analysis using non-financial firms with MLS listed on NIFTY 500 from 2009 to 2019 yields that both the controlling owner and MLS positively influence dividend payout intensity. Additional analyses also demonstrate that the positive effect of MLS is prominent in growing firms that undertake equity issuances and firms with lower board independence. We also find that firms make relatively lower payouts when an institutional investor is the second largest shareholder. Further, it is shown that MLS engage in greater dividend smoothing. Lastly, it is observed that dividends are more valuable for firms with higher MLS ownership. Altogether, these findings support the substitution hypothesis.

Suggested Citation

  • Suman, Samridhi & Singh, Shveta, 2022. "The Role of Multiple Large Shareholders in Dividend Payouts: Evidence from India," American Business Review, Pompea College of Business, University of New Haven, vol. 25(1), pages 120-151, May.
    • Handle: RePEc:ris:ambsrv:0052
    as

    Download full text from publisher

    File URL: https://digitalcommons.newhaven.edu/americanbusinessreview/vol25/iss1/8/
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Paul McGuinness & Kevin Lam & João Vieito, 2015. "Gender and other major board characteristics in China: Explaining corporate dividend policy and governance," Asia Pacific Journal of Management, Springer, vol. 32(4), pages 989-1038, December.
    2. Indrani Chakraborty, 2018. "Effects of Ownership Structure on Capital Structure of Indian Listed Firms: Role of Business Groups vis-à-vis Stand-Alone Firms," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(10), pages 2315-2332, August.
    3. He, Wen & Ng, Lilian & Zaiats, Nataliya & Zhang, Bohui, 2017. "Dividend policy and earnings management across countries," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 267-286.
    4. Skinner, Douglas J., 2008. "The evolving relation between earnings, dividends, and stock repurchases," Journal of Financial Economics, Elsevier, vol. 87(3), pages 582-609, March.
    5. Jayati Sarkar & Subrata Sarkar & Kaustav Sen, 2012. "A Corporate governance index for large listed companies in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2012-009, Indira Gandhi Institute of Development Research, Mumbai, India.
    6. Yasuharu Aoki, 2014. "How Does the Largest Shareholder Affect Dividends?," International Review of Finance, International Review of Finance Ltd., vol. 14(4), pages 613-645, December.
    7. Bajaj, Yukti & Kashiramka, Smita & Singh, Shveta, 2021. "Economic policy uncertainty and leverage dynamics: Evidence from an emerging economy," International Review of Financial Analysis, Elsevier, vol. 77(C).
    8. Najah Attig & Narjess Boubakri & Sadok El Ghoul & Omrane Guedhami, 2016. "The Global Financial Crisis, Family Control, and Dividend Policy," Financial Management, Financial Management Association International, vol. 45(2), pages 291-313, May.
    9. Pombo, Carlos & Taborda, Rodrigo, 2017. "Stock liquidity and second blockholder as drivers of corporate value: Evidence from Latin America," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 214-234.
    10. Flavin, Thomas & O'Connor, Thomas, 2017. "Reputation building and the lifecycle model of dividends," Pacific-Basin Finance Journal, Elsevier, vol. 46(PA), pages 177-190.
    11. Atanassov, Julian & Mandell, Aaron J., 2018. "Corporate governance and dividend policy: Evidence of tunneling from master limited partnerships," Journal of Corporate Finance, Elsevier, vol. 53(C), pages 106-132.
    12. Najah Attig & Sadok El Ghoul & Omrane Guedhami, 2009. "Do Multiple Large Shareholders Play A Corporate Governance Role? Evidence From East Asia," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 32(4), pages 395-422, December.
    13. Jeffrey Zwiebel, 1995. "Block Investment and Partial Benefits of Corporate Control," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(2), pages 161-185.
    14. Isakov, Dušan & Weisskopf, Jean-Philippe, 2015. "Pay-out policies in founding family firms," Journal of Corporate Finance, Elsevier, vol. 33(C), pages 330-344.
    15. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
    16. Ye, Dezhu & Deng, Jie & Liu, Yi & Szewczyk, Samuel H. & Chen, Xiao, 2019. "Does board gender diversity increase dividend payouts? Analysis of global evidence," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 1-26.
    17. Mitchell A. Petersen, 2009. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," The Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 435-480, January.
    18. Rafael La Porta & Florencio Lopez‐de‐Silanes & Andrei Shleifer & Robert W. Vishny, 2000. "Agency Problems and Dividend Policies around the World," Journal of Finance, American Finance Association, vol. 55(1), pages 1-33, February.
    19. Brav, Alon & Graham, John R. & Harvey, Campbell R. & Michaely, Roni, 2005. "Payout policy in the 21st century," Journal of Financial Economics, Elsevier, vol. 77(3), pages 483-527, September.
    20. Christine Adel & Mostaq M. Hussain & Ehab K.A. Mohamed & Mohamed A.K. Basuony, 2019. "Is corporate governance relevant to the quality of corporate social responsibility disclosure in large European companies?," International Journal of Accounting & Information Management, Emerald Group Publishing Limited, vol. 27(2), pages 301-332, May.
    21. Renneboog, Luc & Szilagyi, Peter G., 2020. "How relevant is dividend policy under low shareholder protection?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 64(C).
    22. Alvarez, Roberto & Jara, Mauricio & Pombo, Carlos, 2018. "Do institutional blockholders influence corporate investment? Evidence from emerging markets," Journal of Corporate Finance, Elsevier, vol. 53(C), pages 38-64.
    23. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    24. Cheng, Minying & Lin, Bingxuan & Lu, Rui & Wei, Minghai, 2020. "Non-controlling large shareholders in emerging markets: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 63(C).
    25. Ivalina Kalcheva & Karl V. Lins, 2007. "International Evidence on Cash Holdings and Expected Managerial Agency Problems," The Review of Financial Studies, Society for Financial Studies, vol. 20(4), pages 1087-1112.
    26. Mark T. Leary & Roni Michaely, 2011. "Determinants of Dividend Smoothing: Empirical Evidence," The Review of Financial Studies, Society for Financial Studies, vol. 24(10), pages 3197-3249.
    27. Chen, Jie & Leung, Woon Sau & Goergen, Marc, 2017. "The impact of board gender composition on dividend payouts," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 86-105.
    28. Armando Gomes, 2000. "Going Public without Governance: Managerial Reputation Effects," Journal of Finance, American Finance Association, vol. 55(2), pages 615-646, April.
    29. Nguyen, Pascal & Rahman, Nahid & Zhao, Ruoyun, 2013. "Ownership structure and divestiture decisions: Evidence from Australian firms," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 170-181.
    30. Chen, Fengqin & Huyghebaert, Nancy & Lin, Sen & Wang, Lihong, 2019. "Do multiple large shareholders reduce agency problems in state-controlled listed firms? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    31. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, April.
    32. Gupta, C.P. & Bedi, Prateek, 2020. "Corporate cash holdings and promoter ownership," Emerging Markets Review, Elsevier, vol. 44(C).
    33. Anuja Sethiya & M. Thenmozhi, 2020. "Impact of blockholder promoters on debt financing of Indian firms," International Journal of Corporate Governance, Inderscience Enterprises Ltd, vol. 11(1), pages 1-22.
    34. Basil Al-Najjar & Yacine Belghitar, 2014. "Do corporate governance mechanisms affect cash dividends? An empirical investigation of UK firms," International Review of Applied Economics, Taylor & Francis Journals, vol. 28(4), pages 524-538, July.
    35. Liang-wei Kuo, 2017. "Reputation as a governance mechanism? Evidence from payout policy of insider-controlled firms in Taiwan," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 44(9-10), pages 1443-1476, October.
    36. Najah Attig & Sadok El Ghoul & Omrane Guedhami & Sorin Rizeanu, 2013. "The governance role of multiple large shareholders: evidence from the valuation of cash holdings," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 17(2), pages 419-451, May.
    37. Fairchild, Richard & Guney, Yilmaz & Thanatawee, Yordying, 2014. "Corporate dividend policy in Thailand: Theory and evidence," International Review of Financial Analysis, Elsevier, vol. 31(C), pages 129-151.
    38. Jiang, Fuxiu & Cai, Xinni & Jiang, Zhan & Nofsinger, John R., 2019. "Multiple large shareholders and dividends: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    39. David S. Koo & Santhosh Ramalingegowda & Yong Yu, 2017. "The effect of financial reporting quality on corporate dividend policy," Review of Accounting Studies, Springer, vol. 22(2), pages 753-790, June.
    40. Mohammed Amidu & Joshua Abor, 2006. "Determinants of dividend payout ratios in Ghana," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 7(2), pages 136-145, March.
    41. Maury, Benjamin & Pajuste, Anete, 2005. "Multiple large shareholders and firm value," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1813-1834, July.
    42. Gonzalez, Maximiliano & Molina, Carlos A. & Pablo, Eduardo & Rosso, John W., 2017. "The effect of ownership concentration and composition on dividends: Evidence from Latin America," Emerging Markets Review, Elsevier, vol. 30(C), pages 1-18.
    43. Julia Sawicki, 2009. "Corporate governance and dividend policy in Southeast Asia pre- and post-crisis," The European Journal of Finance, Taylor & Francis Journals, vol. 15(2), pages 211-230.
    44. Ole-Kristian Hope & Han Wu & Wuyang Zhao, 2017. "Blockholder exit threats in the presence of private benefits of control," Review of Accounting Studies, Springer, vol. 22(2), pages 873-902, June.
    45. Masulis, Ronald W. & Zhang, Emma Jincheng, 2019. "How valuable are independent directors? Evidence from external distractions," Journal of Financial Economics, Elsevier, vol. 132(3), pages 226-256.
    46. Thomas Flavin & Abhinav Goyal & Thomas O'Connor, 2021. "Corporate governance, life cycle, and payout precommitment: An emerging market study," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 44(1), pages 179-209, April.
    47. Samuel Jebaraj Benjamin & Shaista Wasiuzzaman & Helen Mokhtarinia & Niloufar Rezaie Nejad, 2016. "Family ownership and dividend payout in Malaysia," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 12(3), pages 314-334, June.
    48. Michael S. Rozeff, 1982. "Growth, Beta And Agency Costs As Determinants Of Dividend Payout Ratios," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 5(3), pages 249-259, September.
    49. Balasubramanian, Bala N. & Ramaswamy, Anand, 2013. "Ownership Trends in Corporate India 2001-2011: Evidence and Implications," IIMA Working Papers WP2013-10-03, Indian Institute of Management Ahmedabad, Research and Publication Department.
    50. DeAngelo, Harry & DeAngelo, Linda & Stulz, Rene M., 2006. "Dividend policy and the earned/contributed capital mix: a test of the life-cycle theory," Journal of Financial Economics, Elsevier, vol. 81(2), pages 227-254, August.
    51. Brockman, Paul & Tresl, Jiri & Unlu, Emre, 2014. "The impact of insider trading laws on dividend payout policy," Journal of Corporate Finance, Elsevier, vol. 29(C), pages 263-287.
    52. Charlie X Cai & David Hillier & Jun Wang, 2016. "The Cost of Multiple Large Shareholders," Financial Management, Financial Management Association International, vol. 45(2), pages 401-430, May.
    53. Chauhan, Yogesh & Pathak, Rajesh & Kumar, Satish, 2018. "Do bank-appointed directors affect corporate cash holding?," International Review of Economics & Finance, Elsevier, vol. 53(C), pages 39-56.
    54. Ekta Selarka, 2018. "Corporate Governance Practices in India," Working Papers 2018-173, Madras School of Economics,Chennai,India.
    55. Gugler, Klaus & Yurtoglu, B. Burcin, 2003. "Corporate governance and dividend pay-out policy in Germany," European Economic Review, Elsevier, vol. 47(4), pages 731-758, August.
    56. Nicos Koussis & Michalis Makrominas, 2019. "What factors determine dividend smoothing by US and EU banks?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 46(7-8), pages 1030-1059, July.
    57. Jiang, Fuxiu & Cai, Wenjing & Wang, Xue & Zhu, Bing, 2018. "Multiple large shareholders and corporate investment: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 66-83.
    58. Hussein Abedi Shamsabadi & Byung-Seong Min & Richard Chung, 2016. "Corporate governance and dividend strategy: lessons from Australia," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 12(5), pages 583-610, October.
    59. Basu, Nilanjan & Paeglis, Imants & Toffanin, Melissa, 2017. "Reading between the blocks," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 294-317.
    60. Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-659, September.
    61. Monika Dahiya & Shveta Singh, 2020. "The linkage between CSR and cost of equity: an Indian perspective," Sustainability Accounting, Management and Policy Journal, Emerald Group Publishing Limited, vol. 12(3), pages 499-521, July.
    62. Larry H. P. Lang & Mara Faccio & Leslie Young, 2001. "Dividends and Expropriation," American Economic Review, American Economic Association, vol. 91(1), pages 54-78, March.
    63. Jiang, Fuxiu & Ma, Yunbiao & Wang, Xue, 2020. "Multiple blockholders and earnings management," Journal of Corporate Finance, Elsevier, vol. 64(C).
    64. Cao, Feng & Peng, Songlan (Stella) & Ye, Kangtao, 2019. "Multiple large shareholders and corporate social responsibility reporting," Emerging Markets Review, Elsevier, vol. 38(C), pages 287-309.
    65. O’Connor, Matthew & Rafferty, Matthew, 2012. "Corporate Governance and Innovation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 47(2), pages 397-413, April.
    66. Kali, Raja & Sarkar, Jayati, 2011. "Diversification and tunneling: Evidence from Indian business groups," Journal of Comparative Economics, Elsevier, vol. 39(3), pages 349-367, September.
    67. Bin Chang & Shantanu Dutta & Samir Saadi & PengCheng Zhu, 2018. "Corporate Governance And Dividend Payout Policy: Beyond Country‐Level Governance," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 41(4), pages 445-484, December.
    68. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
    69. Gupta, Juhi & Kashiramka, Smita, 2020. "Financial stability of banks in India: Does liquidity creation matter?," Pacific-Basin Finance Journal, Elsevier, vol. 64(C).
    70. Javakhadze, David & Ferris, Stephen P. & Sen, Nilanjan, 2014. "An international analysis of dividend smoothing," Journal of Corporate Finance, Elsevier, vol. 29(C), pages 200-220.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jiang, Fuxiu & Cai, Xinni & Jiang, Zhan & Nofsinger, John R., 2019. "Multiple large shareholders and dividends: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    2. Ernest Gyapong & Ammad Ahmed & Collins G Ntim & Muhammad Nadeem, 2021. "Board gender diversity and dividend policy in Australian listed firms: the effect of ownership concentration," Asia Pacific Journal of Management, Springer, vol. 38(2), pages 603-643, June.
    3. Bian, Wenlong & Ren, Yan & Zhang, Hao, 2022. "Do multiple large shareholders matter in financial firms? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    4. Yasuharu Aoki, 2014. "How Does the Largest Shareholder Affect Dividends?," International Review of Finance, International Review of Finance Ltd., vol. 14(4), pages 613-645, December.
    5. Jiang, Fuxiu & Shen, Yanyan & Wang, Xue, 2024. "Multiple large shareholders and analyst activities," Pacific-Basin Finance Journal, Elsevier, vol. 86(C).
    6. Renneboog, Luc & Szilagyi, Peter G., 2020. "How relevant is dividend policy under low shareholder protection?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 64(C).
    7. Tahir, Muhammad & Ibrahim, Haslindar & Zulkafli, Abdul Hadi & Mushtaq, Muhammad, 2020. "Corruption, national culture, law and dividend repatriation policy," Journal of Multinational Financial Management, Elsevier, vol. 57.
    8. Qurat Ul Ain & Xianghui Yuan & Hafiz Mustansar Javaid & Jinkai Zhao & Li Xiang, 2021. "Board Gender Diversity and Dividend Policy in Chinese Listed Firms," SAGE Open, , vol. 11(1), pages 21582440219, February.
    9. Hui Liang James & Hongxia Wang, 2021. "Independent director tenure and dividends," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(5-6), pages 1057-1091, May.
    10. Attig, Najah & El Ghoul, Sadok & Guedhami, Omrane & Zheng, Xiaolan, 2021. "Dividends and economic policy uncertainty: International evidence," Journal of Corporate Finance, Elsevier, vol. 66(C).
    11. Yang, Bao & Chou, Hsin-I. & Zhao, Jing, 2020. "Innovation or dividend payout: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 68(C), pages 180-203.
    12. Richard Herron, 2022. "Payout policy and the interaction of firm-level and country-level governance," Review of Quantitative Finance and Accounting, Springer, vol. 58(1), pages 1-39, January.
    13. Kambar Farooq & Muhammad Azeem & Chin Man Chui & Jun (Tony) Ruan, 2023. "Board Connections and Dividend Policy," Abacus, Accounting Foundation, University of Sydney, vol. 59(4), pages 983-1040, December.
    14. Ouyang, Puman & Zhong, Ligang, 2023. "Asset redeployability and dividend payout policy," The Quarterly Review of Economics and Finance, Elsevier, vol. 90(C), pages 91-105.
    15. Chen, Fengqin & Huyghebaert, Nancy & Lin, Sen & Wang, Lihong, 2019. "Do multiple large shareholders reduce agency problems in state-controlled listed firms? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    16. Duygun, Meryem & Guney, Yilmaz & Moin, Abdul, 2018. "Dividend policy of Indonesian listed firms: The role of families and the state," Economic Modelling, Elsevier, vol. 75(C), pages 336-354.
    17. Fairchild, Richard & Guney, Yilmaz & Thanatawee, Yordying, 2014. "Corporate dividend policy in Thailand: Theory and evidence," International Review of Financial Analysis, Elsevier, vol. 31(C), pages 129-151.
    18. Isakov, Dusan & Weisskopf, Jean-Philippe, 2013. "Do not wake sleeping dogs: Pay-out policies in founding family firms," FSES Working Papers 443, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    19. Tao, Qizhi & Wei, K.C. John & Xiang, Xueman & Yi, Biao, 2022. "Board directors' foreign experience and firm dividend payouts," Journal of Corporate Finance, Elsevier, vol. 75(C).
    20. Hussein Abedi Shamsabadi & Byung-Seong Min & Richard Chung, 2016. "Corporate governance and dividend strategy: lessons from Australia," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 12(5), pages 583-610, October.

    More about this item

    Keywords

    Multiple Large Shareholders; Dividends; Reputation-Building; Concentrated Ownership;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:ambsrv:0052. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Amber Montano (email available below). General contact details of provider: https://edirc.repec.org/data/cbnhaus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.