Determinants of Dividend Payout-Level Decision in India: An Application of Tobit Model

Abstract

This research article investigates the determinants of the dividend payout-level decision of 703 National Stock Exchange (NSE) listed sample firms in India during the period from 1994–95 to 2017–18. Also, considering the different phases of liberalisation in India a sub-period wise analysis is carried out. The censored or Tobit regression analysis is utilised in order to examine the determinants of dividend payout-level decision (i.e. how much amount of dividend a firm distributes out of its total profits to the equity shareholders?). From the trend analysis the study finds that the dividend payout ratio (DivPayout) as well as the dividend yield (DivYield) show a volatile trend during the entire study period. Also, the number of dividend paying firms have declined by 20.36% during the study period but this decline is not consistent rather it depicts a volatile trend throughout the study period. The censored or Tobit regression analysis results indicate that the larger, mature firms and firms with high free cash flow have higher dividend payout-level on the other hand, the firms facing high business risk and the high dividend distribution tax imposed by the government tend the firms to have lower dividend payout-level. Overall, the findings of the study are in line with the agency, signalling and firm life-cycle theories of the dividend policy.

Keywords: Dividends, Dividend Policy, Dividend Policy Theory, Dividend Payout-Level Decision, Tobit Regression Model

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