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Dividend Behaviour of Indian Companies Under Monetary Policy Restrictions

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  • Bhat Ramesh
  • Pandey I M

Abstract

In this study we examine the dividend behaviour of Indian companies. We use GMM estimator, which is the most suitable methodology in a dynamic setting. Our results show that the Indian firms have lower target ratios and higher adjustment factors. The most significant result is that the restricted monetary policies have significant influence on the dividend behaviour of Indian firms, causing about 5-6 percent reduction in the payout ratios. The significance of macro economic policy variable suggest that monetary policy restrictions do have impact on cost of raising funds, and the information asymmetry between lenders and borrowers increases that forces companies to reduce their dividend payout.

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Paper provided by Indian Institute of Management Ahmedabad, Research and Publication Department in its series IIMA Working Papers with number WP2004-05-07.

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Handle: RePEc:iim:iimawp:wp01819

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  1. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(3), pages 461-88, June.
  2. Gertler, Mark, 1988. "Financial Structure and Aggregate Economic Activity: An Overview," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 20(3), pages 559-88, August.
  3. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  4. Pettit, R. Richardson, 1977. "Taxes, transactions costs and the clientele effect of dividends," Journal of Financial Economics, Elsevier, Elsevier, vol. 5(3), pages 419-436, December.
  5. Pruitt, Stephen W & Gitman, Lawrence J, 1991. "The Interactions between the Investment, Financing, and Dividend Decisions of Major U.S. Firms," The Financial Review, Eastern Finance Association, Eastern Finance Association, vol. 26(3), pages 409-30, August.
  6. Pandey I M, . "Corporate Dividend Policy and Behaviour: The Malaysian Evidence," IIMA Working Papers WP2001-11-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
  7. Stiglitz, Joseph E., 1992. "Capital markets and economic fluctuations in capitalist economies," European Economic Review, Elsevier, vol. 36(2-3), pages 269-306, April.
  8. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2002. "Dividend Policy inside the Firm," NBER Working Papers 8698, National Bureau of Economic Research, Inc.
  9. Bhat Ramesh & Pandey I M, . "Dividend Decision: A Study of Managers Perceptions," IIMA Working Papers WP1993-02-01_01158, Indian Institute of Management Ahmedabad, Research and Publication Department.
  10. Lasfer, M. Ameziane, 1996. "Taxes and dividends: The UK evidence," Journal of Banking & Finance, Elsevier, vol. 20(3), pages 455-472, April.
  11. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411.
  12. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 277-97, April.
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Cited by:
  1. Khamis Hamed Al-Yahyaee & Toan Pham & Terry Walter, 2010. "Dividend stability in a unique environment," Managerial Finance, Emerald Group Publishing, Emerald Group Publishing, vol. 36(10), pages 903-916, October.
  2. Mohsin, Hasan M & Ashraf, Muhammad Shahzad, 2011. "Monetary policy restriction and dividend behavior of Pakistani firms: an empirical analysis," MPRA Paper 34052, University Library of Munich, Germany, revised Oct 2011.
  3. Zubaida Batool & Attiya Yasmin Javid, 2014. "Dividend Policy and Role of Corporate Governance in Manufacturing Sector of Pakistan," PIDE-Working Papers 2014:109, Pakistan Institute of Development Economics.
  4. Darakhshan Younis & Attiya Yasmin Javid, 2014. "Market Imperfections and Dividend Policy Decisions of Manufacturing Sector of Pakistan," PIDE-Working Papers 2014:99, Pakistan Institute of Development Economics.

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