Impact of Shareholder Activism on the Dividend Policies of the Banks in India

Abstract

Shareholder activism refers to an active engagement of investors with the investee company and to influence its policies and strategies including the dividend policies. We have tried exploring the impact of shareholder activism on the dividend policies in India's banking sector. We have conducted panel data analysis using ordinary least square (OLS) methodology to understand how the dividend policies in India are impacted by activism. We also have used controlling variables such as return on asset, capital adequacy ratio, and provision coverage ratio in the model setup. The study was conducted on data of 34 Indian banks across four years (2016 – 2019). We have created a shareholder activism index that acts as a proxy for shareholder activism. As per panel data analysis, we found no significant impact of shareholder activism on corporate dividend policies. We also have tested the model for robustness and validated our findings. We have not found papers that study the connection between dividend policies and shareholder activism in the Indian context, but our findings are in line with similar literature available globally and in other emerging countries. We have a limited sample size of 34 banks to have data available for all the variables employed in the setup. Also, as shareholder activism is at a nascent stage in India, we found limited data around it. As per our review of literature, there is no similar study conducted in India. Instead of using different corporate governance (CG) variables, we have created a shareholder index that shows the involvement of shareholders in corporate governance activities. It covers an array of CG variables.