DETERMINANTS OF DIVIDEND POLICY: AN EMPIRICAL INVESTIGATION OF INDIAN COMPANIES USING PANEL DATA ESTIMATION TECHNIQUE

Abstract

The decision to pay dividends by companies is among the most researched and contentious topics in corporate finance as, according to some scholars, it has a bearing on companies' valuation. The purpose of this research is to find out important factors that act as determinants of the dividend policy of Indian companies. The study employs secondary time series data gathered from the latest data available from the CMIE (Centre for Monitoring India) Prowess database. The study has been divided into three time periods i.e. 1) 2000-01 to 2009-10, 2) 2010-11 to 2020-21, 3) 2000-01 to 2020-21, by merging the two time periods and the panel data regression technique has been applied. The results of the analysis suggest that Return on assets, Debt to equity ratio, Cash and cash equivalents & Debt to total capital ratio significantly affect dividend yield from 2000-01 to 2009-10 and from 2000-01 to 2020-21, whereas the results of the analysis from period 2010-11 to 2020-21 found Sales/Size, Return on the asset, and Debt to total equity ratio as determinants of dividend policy. These results corroborate the earlier findings that profitability, liquidity, and leverage are important factors in the decision-making of companies regarding the payment of dividends.

JEL Classification Codes: G1, G3, M2.