Dividend and Bonus Policies of Indian Companies: An Analysis

Abstract

This article presents the findings of a study of dividend paying behaviour of more than 200 Indian companies over 15 years. It attempts to examine whether the companies offering bonus issue have been able to generate greater returns for their shareholders than those that have not offered any bonus issue but have maintained a steadily increasing dividend rate. It is found that most of the companies either maintained the dividend rate after the bonus issue at the pre-bonus level or decreased it (but not proportionately) thereby increasing the dividend payments to the shareholder. In fact, a few companies increased the dividend rate after a bonus issue. It is found that, during 1982-91, the bonus issuing companies yielded greater returns to their shareholders than those that did not make any bonus issue but maintained a steadily increasing dividend rate. This phenome - non got reversed during 1992-96. The declining tendency of the MNCs to issue bonus shares is found to be one of the reasons for such behaviour.