Study of Aggregate Dividends, Aggregate Earnings among Indian Companies: A Case of Emerging Market

Abstract

This study examines the behavior of aggregate dividends and earnings for 781 sample firms listed on the National Stock Exchange (NSE) in Indian capital market for a period from 1995 to 2013. Although the number of dividend paying firms decreased, the aggregate dividends have increased manifold over the last two decades. Further, we notice a significant variation in the level of aggregate dividends and earnings between the standalone and business group affiliated firms. This implies the relevance of corporate relationship of firms in explaining their dividend behavior. We find evidence for dividend and earnings concentration for entire sample firms and within a sample of Indian firms identifiable with organizational forms reflecting these corporate relationships, with fewer firms paying most dividends. The dividend paying firms exhibit two groups between which one group, with small number of firms having high earnings contributes major proportion of total earnings collectively and influences the aggregate dividend supply. Our analysis exhibits strong correlation between a firm’s earnings and its dividend payout, where, the firms with high level of earnings are more likely to pay dividends while the firms suffering from losses are most likely to cut or omit the dividends. Finally, we do not find any evidence in support of reduced propensity to pay dividends in Indian capital market unlike the declining propensity to pay in global trends. JEL classification: G35; G30