Impact of Business Groups on Payout Policy in India

Abstract

Business groups have developed in many emerging economies (e.g., Brazil, Chile, China, India, Indonesia, South Korea, Mexico, Pakistan, Thailand, etc.) to fill in the “institutional voids” present in them. As nearly 60 per cent of the total assets in the Indian private corporate sector are owned by business groups, they strongly influence the manner in which firms function in India. Thus the nature of ownership of a firm, (whether it is a business group or not) play a critical role in determining its payout policy in India. After the financial crisis of 2008-09, firms in Indian corporate sector are hoarding large amount of cash. Dividend payments and share buybacks are manifestations of what a firm does with the extra cash in hand. Till date, there has been limited research to understand the payout policies of business groups in India. The article attempts to address the aforementioned research gap. It tries to address the question of how the excess cash in hand of managers of conglomerates gets transferred to shareholders through payouts.