Determinants of dividends among Indian firms—An empirical study

Abstract

The study aims to understand the determinants of dividend trends of Indian firms. The study was based on a sample of 31,234 firms representing 15 different industry sectors. Construction materials, machinery and transportation equipment sectors were the most dividend intensive sectors in India. Partial least square structural equation modeling methodology (PLS SEM) was employed to examine the determinants of the dividend intensity of Indian firms. Different schemes of path models were tested and the results show that the higher the financial leverage, the lower is the propensity to pay dividends. Firms with high intangibles are expected to have higher agency costs. High growth firms have low dividend payout policies. Dividend intensity of firms is directly related to the size of firm. Higher the R&D intensity of the firms, greater is the dividend intensity of the firms. Firms with higher agency costs tend to have higher dividend intensity. Higher agency costs lead to lower cash flows for Indian firms. Firms with higher liquidity tend to pay more dividends. Profitable firms tend to have higher dividend intensity.