The Impact of the Largest Shareholder on Dividend Payout Policy: Evidence from Indian Business Groups

This study initially tries to explore the effect of the largest shareholder on dividend payout policy. Next, this study endeavors to examine whether the presence of other shareholders, especially the second-largest shareholder, makes any difference in the existing dividend payout policy through active monitoring over the largest shareholder. Using a sample of Indian business group firms for the period from 2006 to 2019 and applying the linear dynamic panel data estimation technique for 356 listed firms, this study finds that the largest shareholder and the dividend payout show a convex relationship. Applying the same estimation technique for 258 listed firms belong to the Indian business groups during the same period, our study negates the possible monitoring role of the second-largest shareholder when the both largest and second-largest shareholders belong to a promoter group. To maintain a good reputation to the minority shareholders and in order to increase the value of the firm, the largest and the second-largest shareholders as a block are willing to distribute higher dividends when they have other possible ways of rent extractions. Further, the monitoring role of the second-largest shareholder is not found in Indian business groups when the largest shareholder is the promoter and the second-largest shareholder is the non-promoter. Finally, partitioning the non-promoter sample further into institutional and non-institutional categories, our study does not provide any support to the monitoring role of the second-largest shareholder for the sample of all together 98 listed firms for the same period.