Dividend Policy, Ownership Structure and Corporate Governance: An Empirical Analysis of Indian Firms

Abstract

In this article, we investigate the possible association between the firm's ownership structure and dividend policy and whether the corporate governance (CG) practices adopted by the firm have any impact on dividend policy. In India the presence of family-run firms, with concentrated ownership, is a reality and we try to understand whether such firms have any significantly different approach to dividend policy compared to non-family-run companies.The use of debt by firms in their capital structure acts as an additional monitoring mechanism and we propose to analyse whether this has any impact on dividend policy.We explore the determinants of dividend policy of Indian firms. Thus, firm characteristics which seem to have an impact on dividend policy, like profitability, liquidity, growth, income volatility, size and age are investigated. We use a panel of 51 top Indian listed firms, in terms of market capitalisation (BSE 100 and NIFTY 100), over the 5-year period from 2007–2008 to 2011–2012 for our analysis.We conclude that the CG variables, namely, board size, independent directors and the proportion of non-executive directors on the board have significant impact on the dividend policy of the firm.The proportion of cash and cash equivalent to total asset, used as a measure of firm liquidity, also has an influence on the dividend policy. Growth opportunities have a positive influence on the dividend policy of firms.