Dividend policy decision is an integral part of a company’s financial decision making, as it is explicitly related to the other two major decisions—investment and financing decision. Management should develop such a dividend policy, which divides the net earnings into dividends and retained earnings in an optimum way to achieve the objective of maximizing the wealth of shareholders.
Published in Chapter:
A Diagnosis of the Determinants of Dividend Payout Policy in India: A Factor Analytical Approach
Rajesh Kumar (Indian Institute of Technology, Banaras Hindu University, India) and Pawan Kumar Jha (Banaras Hindu University, India)
Copyright: © 2014
|Pages: 10
DOI: 10.4018/978-1-4666-5154-8.ch004
Abstract
Dividend decision involves the portion of a firm's net earnings that are paid out to the shareholders, and the remaining is ploughed back in the company for its growth purpose. Despite comprehensive theoretical and empirical explanations, dividend policy and its determinants are a puzzle to be fixed in corporate finance. This chapter is an attempt to assess the dynamics and determinants of dividend-payout policy using a factor analytical tool and a multiple regression analysis as a supportive tool. The authors take into account the sample of ten automobile companies based on Market Capitalization listed on the Bombay Stock Exchange (BSE) for a period of 10 years from 2002-2003 to 2012-2013. The results of the factor analysis show that six factors, current ratio, cash flow, retained earnings per share, earnings per share, equity dividend, and corporate dividend tax, are identified as the most critical factors determining dividend payout in Indian automobile companies. However, regression results depict only three factors (i.e. cash flow, equity dividend, and corporate dividend tax) have been found statistically significant in determining dividend payout policy.