Abstract
In this study we examine the dividend behaviour of Indian companies. We use the GMM estimator, which is the most suitable methodology in a dynamic setting. Our results show that 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 the macro economic policy variable suggest that monetary policy restrictions do have an impact on the 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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