Abstract
Firms avail themselves of external finance to manage obligations to pay dividends, along with other commitments. Indian firms, which have significant ownership concentration, present a unique opportunity for analyzing the influence of promoter holding on financed dividend payouts. This study also analyzes the dependence of standalone firms (i.e., those that are not part of a business group) on these financed dividends along with the firms in business groups. The study asserts that firm affiliation affects the decision on the type and extent of external capital used to finance payout. Promoter holding has a positive impact on debt as well as equity-financed payouts at standalone firms; the relationship is nonlinear and a higher proportion of promoter holding has a constraining effect on such payouts, supporting the agency cost theory. The size of the firm plays a significant role in firm decisions about financed payouts. Firms with lower operating cash flows and high leverage have a higher tendency to finance their payouts.
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