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Explaining dividend gap between R&D and non-R&D Indian companies in the post-reform period

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  • Lahiri, Poulomi
  • Chakraborty, Indrani

Abstract

Short-termism or market myopia hypothesis, which posits a negative trade-off between dividend payments and research and development (R&D) investments of corporate firms, forms the basis of our paper. Factors influencing the dividend gap between R&D and non-R&D companies in India are explored and a semi-parametric decomposition (developed by Dinardo, Fortin and Lemieux (DFL, 1996)) conducted on cross-section data of listed companies for the years 2001 and 2010 to investigate the issue. The results reveal that profitability and market to book ratio are the factors which have played some roles to reduce the dividend gap in 2001. However, in 2010, all the characteristics have some role to play. In other words, if the R& D companies enjoyed characteristics similar to the non-R&D ones, then dividend gap between the two groups would have been less. However, the results are found to be sensitive to the ordering of the variables in the weighting function. Refuting the short-termism theory, our findings corroborate that decisions regarding dividend payments and investment in R&D are made simultaneously, which is in agreement with the simultaneous dividend theory.

Suggested Citation

  • Lahiri, Poulomi & Chakraborty, Indrani, 2014. "Explaining dividend gap between R&D and non-R&D Indian companies in the post-reform period," Research in International Business and Finance, Elsevier, vol. 30(C), pages 268-283.
    • Handle: RePEc:eee:riibaf:v:30:y:2014:i:c:p:268-283
    DOI: 10.1016/j.ribaf.2013.09.006
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    2. Strike Mbulawa & Francis Nathan Okurut & Mogale Ntsosa & Narain Sinha, 2020. "Dynamics of Corporate Dividend Policy under Hyperinflation and Dollarization: A Quantile Regression Approach," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 13(3), pages 70-82, December.
    3. Arif Khan, Muhammad & Qin, Xuezhi & Jebran, Khalil & Ullah, Irfan, 2020. "Uncertainty and R&D investment: Does product market competition matter?," Research in International Business and Finance, Elsevier, vol. 52(C).
    4. Cordelia Omodero, 2022. "The Role Of Corporate Tax, Earnings And Debt In Determining Dividend Policy Of Firms," Business Management, D. A. Tsenov Academy of Economics, Svishtov, Bulgaria, issue 3 Year 20, pages 46-69.
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    6. Anshu Agrawal, 2021. "Impact of Elimination of Dividend Distribution Tax on Indian Corporate Firms Amid COVID Disruptions," JRFM, MDPI, vol. 14(9), pages 1-38, September.
    7. Namryoung Lee & Jaehong Lee, 2019. "R & D Intensity and Dividend Policy: Evidence from South Korea’s Biotech Firms," Sustainability, MDPI, vol. 11(18), pages 1-21, September.

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