Academic journal article Academy of Accounting and Financial Studies Journal

Does Executive Remuneration and Firm Life Cycle Ensure Regular Dividend Payments: A Panel Data Analysis in India

Academic journal article Academy of Accounting and Financial Studies Journal

Does Executive Remuneration and Firm Life Cycle Ensure Regular Dividend Payments: A Panel Data Analysis in India

Article excerpt


Dividend pay-out is theoretical assumption of wealth maximization strategy for shareholders due to their investment in economic resources of the company. A conflict is evident between dividend policy and retention objective, while dividend signifies an increase in Shareholders wealth, retention promises use of economic resources for future growth of firm. The need for current income or future opportunities creates ambiguity for shareholders and managers of the firm. These findings make dividend decisions a complicated domain in Finance. Dividend decisions still remain a mystery in corporate finance (Black, 1976). The debate on determinants of dividend policy can be sourced to Lintner (1956). He proposed a model-predicting dividend per share as a function of Earnings per Share, Past Dividend and Target pay-out ratio. The Lintner's Model became very popular and was in agreement by many researchers. (Fama & Babiak, 1968). However a research by Guerard, Bean & Andreas (1987) argued about significant interplay between R&D, New borrowings and Investment strategies as drivers for dividend decisions. Their studies found evidence from 140 manufacturing firms for the period from 1978-1982. Their platform was also shared in the Chinese Context by applying structural equation modelling and discovers debt financing and investment avenues creating an impact on dividend policy.

The pertinent question arises here is about the regularity of dividends for certain firms. The dividend distribution satisfies Shareholders need for current income can be well argued but why do firm pay dividends even though the surplus cash can be utilized for growth avenues. The other question arises is does managers play a significant role in dividend stability decisions. Under the above background, the objective of this research is to explore the determinants of regular dividend policy of Indian non-financial firms. The study uses a sample of firms from BSE listed companies who have been paying dividends regularly over the period from 20072016 to gain a different perspective on the topic. This research will employ Panel Data Regression to identify the significant factors of regular dividend policy. The experimental variables selected in the study are motivated from the prior empirical literature on the topic. The rest of the paper is structured as follows:

Section 2 discusses the prior literature related to Dividend Policy Determinants. Section 3 explains the data-set used in the Study, the dependent and independent variables, its measurement and methodology applied. Section 4 enumerates the main results of the research. Finally, Section 5 includes the Study summary and conclusion.


Dividend stability refers to annual dividend payments on a regular basis. The purpose of this section is to review the dividend policy literature from regular dividend policy viewpoint. The existing literature discusses about significant empirical and theoretical contribution on regular dividend payments by firms. The Lintner Partial adjustment model (1956) was considered a pioneering research in Dividend Policy for dividend smoothing. Current Income and previous dividend history were the determinants of future dividend decisions. His study finds evidence from 28 public firms in US Manufacturing Sector. The model proposes that firms follow stable dividend policy irrespective of income volatility. Thus dividends are dependent on income, but are following a regular pattern.

In 2015, Lintner's Model was introspected using panel regression for German Firms from 1988-2008. Their findings reveal that lagged dividend has no statistical significance for firms paying regular dividends. The current earnings only were found to influence dividend payments. However the Lintner model was considered a best fit for describing stable dividend pattern (Fama & Babiak, 1968; Leary & Michaely, 2011; Chemmanur et al., 2010). …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.