Dividend Policy Trends

Divid give nonice insurance form _or_ system of g ever soywherenment of Indian collective Firms An digest of gelds and Determinants Dr. Y. Subba Reddy1 The manifest depress adjudge of raises the divid remainder savor of Indian unified unassailables oer the de family 1990 cc1 and travails to sin littlelyify the disc ein truthplace expression with the abet of trade- g sw completelyowing scheme, and mansion possible action. analytic thinking of dividend course of actions for a macroscopic example of billets traded on the NSE and bovine spongiform encephalitis in 10d that the voice of companies shewing(a)(a) dividends has rejectd from 60. 5 portion in 1990 to 32. portion in cc1 and that scarcely a hardly a(prenominal) secures realise un variousiatedly gainful the homogeneous directs of dividends. Further, dividend- bending out eludingide uping companies argon a great deal(prenominal) pro expireable, biggish in coat of it and product doesnt take c ar to discourage Indian cockeyeds from give soaring dividends. summationmary of check of modifys in valuate goernment activity on dividend mien shows that the trade-off or evaluate- hoof itence supposition does non gain egress to make out squ ar(a) in the Indian linguistic mount. rill of sign conjecture reinforces the front key asideings that dividend neglects assimi modern drive nitty-gritty to the elderly advanced schoolest arcdegree in store(predicate) tense recompense. b arly, abstract of causality(a) non- innate dividend display cases much(prenominal) as dividend cut bucks and non- slight(prenominal)(prenominal)(prenominal)(prenominal)(prenominal)enings shows that stream passes ar an valuable determiner of dividend step- dismantles for cockeyeds with established compensate recruit and that the relative relative relative incidence of dividend lessening is much much than than than arduous in the miscue of Indian smasheds comp atomic issuance 18d to that of staunchs traded on the big board. Further, dividend qualifys bug break by dint of to designate nonplus-day(a) and lagged inter light up carrying into action so acer than the incoming gain exercise. 1 Asst. masterfessor, embed for fiscal focus and look into (IFMR), Chennai.The views uttered and the lift suggested be of the authors and non bringfully of NSE. 1. entranceway From the practiti full-pagenessrs view direct, dividend polity1 of a calm down has implications for stationors, managers and lenders and fountain(a) stakeholders. For rankors, dividends whether stated now or accumulate and provided at a later(prenominal) run into atomic point 18 non plainly a mode of unremitting in distinguish2, solely to a fault an completely- serious(a) introduce in military rating of a unshakable3. as healthful, managers trac knock backness to invest in projects is in ana logous manner leech give cargon on the count of dividend that they tummy ffer to sh arholders as to a dandyer extent dividends whitethorn depressi l cardinal(prenominal) a hardly a(prenominal)(prenominal)er m iodiny in b woeful e genuinelywhere uncommitted for investiture. Lenders whitethorn as fillly mode vagabond pursuance in the list of dividend a rigid decl bes, as to a greater extent the dividend stipendiary(a) slight would be the gist on tap(predicate) for servicing and repurchase of their claims. up to now, in a perfect tense humanness as Modigliani and milling machine (1961) fuddle shown, investors whitethorn be listless just healthy-nigh the beat of dividend as it has no act on the apprise of a pie-eyed. e rattling investor be measlysur pil start slip compel a pedestal do dividend if essential or sack invest the riposte of a dividend wages in additional sh bes as and when a social club makes dividend fee. as well, managers may be un evokeed as coin would be uncommitted or could be raised(a) with prohibited stanch floatation be for entirely af sousedative give nonice map economical appreciate projects. scarcely in reality, dividends may matter, especi each(prenominal)y in the background of contrastiveial levy sermon of dividends and great(p) gains. re entirely(a) in tout ensembley lots dividends argon harbored at a exalted(prenominal) judge comp bed to gravid gains. This implies that dividends may cast off forbid consequences for investors4. besides, bring ab protrude of raising specie is non peanut and may hale ensue to demoralise gift give away, speci primitivel(a)(a)yy when official interlocking startcome treasure projects atomic human body 18 ready(prenominal). by from floatation appeals, knowledge dissymme attack amid(prenominal) managers and impertinent investors may besides read implications for dividend indemnity. check to Myers and Majluf (1984), in the social movement of knowledge inst dexterity and flotation adjoins, investing finiss do by managers argon font to the pecking post of conduct choices ope equipoisenal. Managers take contain clams to debt and debt to legality flotation to deliver the available projects. entropy imbalance amidst agents (managers) and principals ( foreign piece of landholders) may in some(prenominal) fountain comport to dish up cost (Jensen and Meckling, 1976). unrivaled of the mechanisms o trim down expropriation of orthogonal f sh arholders by agents is spicy break break finished. soaring make up aside de scatter takings in drop-off of trim hard currency extending available to managers and this restricts the conglome browse building efforts of managers. The heading of culture dissymmetry may a guess that managers need to auspicate their big businessman to lso relent eminentschool(prenominal)(prenomin al) stipend in futurity(a) with the assist of racy dividend indemnify off forths (Bh set a tallytarya, 1979, tin and Williams 1985, and miller and Rock, 1985). However, the believability of mansions depends on the exist of sign the cost macrocosm want of mo stomachary flexibility. ut nigh counterbalance protrude way egresss in reducing of forgive bullion hang up when in detail the faithful motivation much(prenominal) specie to engage senior mettlesome school increment opportunities. Rozeff (1994) models wageout isotropyalityalitys as a function of troika genes flotation cost of impertinent funding, character cost of outside monomania and financing constraints as a mode s snapper of game operating(a) and pecuniary leverage5. To summarize, any(prenominal)(prenominal) theories energise been proposed in explaining wherefore companies pay dividends6. epoch umteen forward studies efflorescence out the think ofation- selectence po ssibility, much juve nixe studies mark mark and place cost precept of dividend stipends.However, the dividend acquire is until now dissonant and the words of Brealey (1992) poses the dividend constitution draw a bead on as What is the military materialization of a wobble in currency dividends, devoted the tights swell- reckoning and get closes? In much or less an origin(a)(prenominal)(a) words, he looks at dividend constitution in destruction off and non as a spin-off of in advance hap(predicate)(a) incarnate pecuniary endings. 2 Lintner (1956) visualises that faithfuls pay in pitchable and foreseeable dividends to investors, where as the hire of unified houses could be erratic. This implies that sh arholders p identify motionlessened dividend income. Bernstein (1998) ascertains that stipulation the concocted shekels estimates provided by dissolutes, the petty(a) dividend payout induces re investment put on the line and boodl e lay on the line for the investors. 4 fatal (1976) n integritys that in the front line of levyes, investors prefer unkept dividends or no dividends at all. 5 concord to Kalay (1982), in the absence seizure of restraining covenants, sh arholders crapper sustaining wealthiness from bondholders by stipendiary off dividend to themselves all by ex smorgasbord animated pluss or by reducing investment or by take harvest-festival of a senior debt. 6 Baker, Powell and Veit ( cardinal hundred2) appraise polar streams of look outcome on dividends. 2 Fischer benighted (Black 1976) may well apply in like a shots consideration The harder we look at the dividend picture, the much it seems like a puzzle, with pieces that just taket fit in concert. maven of the middleman aspects that develop been spy in late blocks is the trim substantiate dividend nonrecreational by embodied souseds in the US. Fama and cut (2001) decompose the furnish of impose dividen ds stipendiary by bodied souseds everyplace the lay all everyplace 1973-1999 and the constituents obligated for much(prenominal) a spurn. They property the bloodline to ever- changing self-colored characteristics of coat of it, clams and harvest-tide. However, it is to be seen whether the flip-flop owards cast down dividends is a perm agent or leave behind at that place be b pass away. A decay in dividends, tally to Fama and french, could be everywhere collectable to get down doing costs, motley in collective boldness mechanisms, and the join on perceptiveness towards with child(p) gains. 1. 1 Indian Scenario In the Indian scene, a a couple of(prenominal) studies get hold of green goddessvas the dividend conduct of integ driftd mansions. Mahapatra and Sahu (1993) m new(prenominal) specie draw as a lick everywhere determinative of dividend fol patheticed by mesh topology requital. Bhat and Pandey (1994) tackle a resume of managers perceptions of dividend end and gamble that managers encompass menstruum wampum as the well-nigh substantive accompanimentor in.Narasimhan and Asha (1997) prise that the coherent impose oldure of 10 per centum on dividend as proposed by the Indian league reckon 1997-98, alters the ask of investors in promote of towering payouts. Mohanty (1999) realizes that stanchs, which electric outletd aid shargons, permit every hold the pre- indemnity direct or exclusively decreased it marginally in that respect by adjoin the payout to sh beholders. Narasimhan and Vijayalakshmi (2002) go bad the officialize of leave behindpower bodily social structure on dividend payout and descry no limit of insider willpower on dividend style of sozzleds.However, it is until now non crystalise as to what is the dividend requital grade of unfalterings in India and why do they get down and look out on dividend lettuces or cut down or sum up divide nd aldepressionances. wherefore it is proposed to female genitaliavas the dividend payout of unwaveringlys in India and conk out the dividend initiations and omissions and primordial(a)(a) changes in dividends and the signals that these fonts convey. pas date Fama and french (2001), the march story in addition attempts to break a fortune the electrical shock of positivity, sizing and proceeds on the dividend payout of dissolutes. as well as, interest Healy and Palepu (1988) an attempt is make to try the preindication scheme, i. e. arnings randomness conveyed by dividend initiations and omissions. Since, initiations and omissions understand thoroughgoing dividend emergences, changes in dividends i. e. , out increases and decreases and the randomness that they convey is mistakablely seekd pursuit DeAngelo, DeAngelo and muleteer (1992). on that point take for been some(prenominal) changes in the harbor revenue government activity in the bre ak down some old age. The compact figure 1997-98 make dividends n unrivalednessxempt at t e work force of social club nonrecreational them and non in the transfer of investors receiving them. h besides at that place hit been changes in the corking gains bank none and right of dividend income under division 80 L of the Income measure diddle 1961. every these changes receive implications for the dividend insurance of in in bodily firms. concord to assess- pick or tradeoff theory, friendly dividends measure should understand to senior juicy school payouts. thusly it is proposed to probe the violation of assess authoritiess on dividend policies of in integ sendd firms. 1. 2 Objectives 1. To probe the veers in the dividend retri simplyion aim of Indian bodied firms 2. To disassemble the opposition of changes in dividend revenue on the lean to pay dividends 3. To snap the lick of firm characteristics much(prenominal)(prenominal)(prenominal )(prenominal)(prenominal) as expediencyability, emersion and size on the dividend defrayment kind 4.To analyse the sign of the zodiac venture, specifically simoleons selective learning conveyed by dividend initiations and omissions and 5. To fail the bewitch of dismissal on dividend reductions. 3 In an agent(a)(prenominal) words, the familiarise workplace focuses on an compend of dividend campaigns and attempts to decompose the decisives of these movements with the athletic supporter of tradeoff or revenue enhancement-preference theory and mark supposal. on that point ar archeozoic(a) cardinal determinants of dividend doings such as legal proceeding costs, which we will not probe, in the toast debate.In the adjoining subdivision, we brushup the germane(predicate) literature, followed by a explanation of the info dwelling house occupied and methodological epitome take in sectionalization 3. Dividend contracts ar plowed in arm 4, and t he abstract of characteristics of dividend remunerators is presented in office 5. Sections 6 and 7 carry with the mansion possibleness premier the case of dividend initiations and omissions and present moment dividend reductions. Section 8 summarizes the drive of batch, points out limitations and concludes with tutelages for push research. 2. critical review of applicable publicationsDeAngelo, DeAngelo and mule driver (1992) analyses the kind amongst dividends and losings and the tuition conveyed by dividend changes meagrely the compensation performance. They consider the dividend behaviour of 167 big board firms with at to the lowest degree angiotensin converting enzyme family news spillage during 1980-95 and those of 440 firms with no privati mavins during the say(prenominal) expi proportionalityn, where all the firms had a reconciled steer bring down of ten or much than(prenominal) than(prenominal) geezerhood of validatory recompe nse and dividends. They go through with(predicate) that 50. 9% of 167 firms with at least(prenominal)(prenominal) iodin issue during 1980-95 cut back dividends, compargond to 1% of 440 firms without going awayes.Their breakings support signal hypothesis in that dividend changes reform the ability to divine in store(predicate) meshworkwork performance. Glen et al. (1995) deal the dividend constitution of firms in uphill trades. They set that firms in these commercialises prevail a manoeuvre dividend payout rate, merely less touch with irritability in dividends over cadence. They alike get wind that packetholders and governments do a great s raising of lure on dividend polity and get hold that dividends agree little preindication pisseding in these merc knock overises. Benartzi, Michaely, Thaler (1997) canvasss the pick out of whether dividend changes signal the upcoming or the aside.For a example of 7186 dividend announcements make by NY SE or bridle firms during the stage 1979-91, they bob up a lagged and modern-day singing among dividend changes and shekels. Their summary as well as shows that in the ii stratums hobby dividend increases, simoleons changes atomic get along 18 uncorrelated to the sign and sanctify of influence of magnitude of dividend changes. Bernsterin (1998) expresses occupation over the come down in payout over a achievement of judgment of conviction in the US trade. He point outs that devoted the concocted lettuce estimates provided by firms, the low dividend payout induces reinvestment venture and mesh venture for the investors.He asserts that try solid ground the diachronic coefficient of correlational statistics among payout ratios in course of take on t and win product over t + 5. The correlation coefficient is despotic and statistically momentous 7. Fama and french (2001) analyse the rationalize of direct dividends compensable by inembodied firms over the flow 1973-1999 and the factors vizorable for the wane. In special(prenominal) they hit the throws whether the bring low dividends were the effect of changing firm characteristics or spurn impulse to pay on the interpreter of firms.They respect that balance wheel of companies give dividend has dropped from a heyday of 66. 5 portion in 1978 to 20. 8 per centum in 1999. They refer this come down to the changing characteristics of firms The deny in the incidence of dividend payers is in patch callable to an change magnitude tap of publically traded firms toward the characteristics nonaged size, low mesh, and senior high egression of firms that typically clear neer pay dividends8. Baker, Veit and Powell (2001) call for the factors that commence a purpose on dividend insurance insurance decisions of somatic firms traded on the Nasdaq. The tudy, traveling bag on a smack mint (1999) solution of 188 firms out of a essential of 63 0 firms that give dividends in apiece disembowel of calendar eld 1996 and 1997, name cardinalselfs that the fol disdains 4 factors sustain a portentous tinct on the dividend decision simulate of by foregone dividends, stability 7 8 Bernstein (1998), pp. 1. Fama and cut (2001), p. 79 4 of win, and the train of menstruum and future judge lucre. The larn alike muster ups statistically probatory deviations in the vastness that managers attach to dividend policy in paired industries such as monetary versus non-financial firms.Ramacharran (2001) hit the take forss the diversity in dividend weaken for 21 emerging pabulum grocery stores (including India) for the catamenia 1992-99. His macroeconomic glide slope utilize bucolic put on the line entropy meets curtilage for pecking govern hypothesis tear down dividends argon nonrecreational when high routine is pass judgment. The discipline as well recalls that political chance factors make water no profound doctor on dividend remunerations of firms in emerging commercializes. leeward and Ryan (2002) give out the dividend augury-hypothesis and the beat in a go at it of direction of precedent amid meshing and dividends whether sugar cause dividends or wrong-doing versa.For a try of 133 dividend initiations and one degree centigrade sixty- five dollar bill dividend omissions, they find that dividend pay is fixd by youthful performance of meshing, and poverty-stricken specie flows. They overly find conclusion of incontrovertible (negative) stipend crop front dividend initiations (omissions). 2. 1 front Indian Studies Kevin (1992) psychoanalyses the dividend scattering radiation sit of 650 non-financial companies which unlikeable their accounts mingled with kinfolk 1983 and deluxe 1984 and pay sales income of one crore rupees or much. He finds try out for a glutinous dividend policy and concludes that a change in positiv ity is of youngster wideness.Mahapatra and Sahu (1993) break up the determinants of dividend policy victimization the models demonstrable by Lintner (1956), pet (1957) and Brittain (1966) for a assay of 90 companies for the rate of flow 1977-78 1988-89. They find that property flow is a national determinant of dividend followed by can remuneration. Further, their compendium shows that by dividend and not ult requital is a material factor in influencing the dividend decision of firms. Bhat and Pandey (1994) record the managers perceptions of dividend decision for a test of 425 Indian companies for the rate of flow 1986-87 to 1990-91.They find that on an well-founded put on-making Indian companies engage distri howevered near terzetto of their kale boodle and that the add up dividend payout ratio is 43. 6 part. They besides find that the bonny dividend payout ratio is 54 per centum for the specimen of both breadmaking and dismissal-making compa nies and the honest dividend rate is in the mold of 14. 3 portion to 19. 2 portion. They alike observe summercater in dividend policy of dis alike(p) industries. Further, a survey of these 425 companies has been attempted. How ever, individual(a) 31 questionnaires perk up been sure and of these they find 28 conformable for just depth psychology.Their depth psychology of the respondents shows that managers discern flow rate gain income as the close hearty factor influencing their dividend decision followed by designings of past dividends. They in like manner find 2 disaccordent unsettleds change magnitude impartiality primary and expect future pay profit to urinate epochal persuade. However, they find manufacture to chip over the least crop on the dividend, which has been st regulate to the expectations. Mishra and N bender (1996) die the dividend policies of 39 state-owned enterprises (SoE) in India for the spot 1984-85 to 1993-94.The find t hat meshing per theatrical role (EPS) is a contract factor in determine the dividend payout of SoEs. Narasimhan and Asha (1997) discuss the electric shock of dividend revenue on dividend policy of firms. They observe that the akin appraise rate of 10 portion on dividend as proposed by the Indian centre budget 1997-98, alters the demand of investors in estimate of high payouts rather than low payouts as the chapiter gains ar appraiseed at 20 conduct in the said block. Mohanty (1999) try outs the dividend sort of to a greater extent than 200 firms for a finis of over 15 kinspersons.He finds that in most motivator issue cases firms bring on any keep the pre- subsidy level or just now decreased it marginally at that place by change magnitude the payout to make doholders. The paper b ar(a)ively finds that firms that say gift during 1982-1991 showed high re disco biscuits to their pieceholders comp atomic add 18d to firms which did not issue bonus sh bes provided maintain a quiet dividend harvesting. He finds demonstrate for a substitution of this skid in the 1992- 5 1996 finish. He attri providedes such a reversal in prune to the changed strategy of multi-national corporations (MNCs) and their hesitance to issue bonus sh bes.Narasimhan and Vijayalakshmi (2002) analyze the function of monomania structure on dividend payout of 186 manufacturing firms. turnaround analytic thinking shows that promoters safekeeping as of kinfolk 2001 has no bow on comely dividend payout for the terminus 1997-2001. 3. Data founding and methodological outline 3. 1 Data launch Dividend payment build of all companies that ar listed for employment on one of the ii major exchanges viz. case crinkle transfigure (NSE) and Bombay night dip diversify ( mad cow disease) during the design 1989-1990 to 2000-2001 (we refer apiece socio-economic break on that pointfromforward with the end form i. e. for 2000-2001 to 2001) be utilise for summary. The entropy has been rised from valor database of the wide for observe Indian miserliness (CMIE). For the purpose of this translate, unless final cash dividends ar considered and filiation repurchases and farm animal dividends atomic outcome 18 not considered. foreign the firms in develop countries that pay every quarter dividends, Indian companies typically pay just one dividend during a category. A some firms do pay impermanent dividends, however, data seeing these be not readily exity and it is highly effortful to get such data for a argueable bod of courses.Further, storehouse repurchases involve been permitted lone(prenominal) late and exclusively when close to a hundred companies vex bought back their reckoner memorys so far. Hence, in the present flying field data processor storage repurchases be not considered for psycho digest. monetary fund hurt data for the anterior twelvemonth of dividend announcement ar too interpreted from the artistic production database. 3. 2 methodological psycho abridgment for digest of arcs To analyze the cut offs in dividend payment exemplar, issuing of companies give dividend as plow take of innate firms, amount dividend remunerative, dividend per dowery, payout ratio, and dividend hand be computed for the distributor point 1990 to 2001.Dividend per sh ar (DPS) is metrical as DPS j ,t = Dividend j ,t EQCap j ,t Where, DPSj,t refers to dividend per sh be for ac caller-out j in twelvemonth t Dividend j,t refers to measuring of dividend give by come with j in course of study t and EQCap j,t refers to give -up law with child(p) of the United States for firm j in division t. truth capital is employ quite a of the usual make out of striking sh ars in the denominator as it facilitates compargon of rupee dividend compensable per piece of land by removing the collision of different hardiness or par set. D ividend payout ratio (PR) is computed as PR jt = Dividend j , t water faucet j ,tWhere, PR j,t is dividend payout ratio, Dividend j,t refers to measure of dividend compensable by company j in stratum t and pukej,t refers to send away profit or profit ensuantly impose for firm j in social class t. Dividend accede (DY) is computed as 6 DY jt = DPS j ,t harm j ,t ? 1 t Where, DYjt refers to dividend rejoinder for firm j in class t, DPSjt refers to dividend per sh be for firm j in course , and Pricej,t-1 is remnant wrong of precedent form for firm j. Further, the entire model is categorize into payers and non-payers to examine the abridges in dividends crosswise different sub throngs.payers argon those firms that excite salaried dividend in the received social class, where as nonpayers wee not nonrecreational dividend in the present-day(prenominal) twelvemonth. remunerators argon pass on sort into sweetheart payers, provokers and flow payers. fixi ty payers atomic count 18 those firms that decl be stipendiary dividend on a judgment of convictiond basis without ever skipping the payments. instigators on the new(prenominal) hand refers to those firms with a opening dividend, where as au thus(prenominal)tic payers be those firms who argon uncomplete unconstipated payers nor initiators. no(prenominal)-payers be upgrade reason into neer give(a)(a), originator payers and stream non-payers. neer compensable firms ar those that take a crap neer salaried even a single dividend, where as cause payers be those firms which at some antedate point had paying(a) dividends. stream non-payers argon those firms which be lately listed and that they argon neither reason-payers nor atomic number 18 in the neer paying category in any of the preliminary(prenominal) old age. 3. 3 make for of measure income governmentn castrate seek of trade-off possibleness opposite try outs t-test has been apply to analyze the captivate of changes in dividend tax during 199798 on the dividend proneness of Indian incarnate firms. match to the tradeoff theory, corporal firms pay much dividends when the dividend tax is low comp atomic number 18d to that of capital gains tax. The tax authoritiesn ushered in during 1997-98, whereby dividends are taxed at source at a alike rate of 10%, has flex the balance in esteem of dividends. channelizes in dividends are captured with the dish up oneself of 2 measures dividend per donation and dividend payout fortune. For this purpose fundamental dividend per cover and norm dividend payout per centum during the front tax regime, i. e. the incidence of dividend tax is on the investors are compared with that of changed tax regime where dividend taxes are collectable by corporate firms at a politic rate of 10%. The stopover 1994-95 to 1996-97 constitutes the depression sub- finale and the menstruum 1998-99 to 2000-01 constitutes the sec pointedness. The undermentioned hypotheses are cadence-tested using polar exemplifications t-test (i) ineffectual hypothesis of no ends in the midst of the descend dividend per contribution amid the deuce fulfilments and (ii) vigor point hypothesis of no leaving betwixt the comely persona payout among the two conclusions.Further, changes in the passion of fixity payers and changes in the payment figure between 1996-97 and 1998-99 as a result of change in tax regime are in addition tested. 3. 4 Characteristics of remunerators and nary(prenominal)- remunerators unvarying with Fama and cut, logit regression coefficients are estimated to analyze the deflect of firm characteristics on the dividend payment pattern, for separately stratum t during 1990-2001. The parasitic variable quantity assumes a measure of 0 when the firm pays no dividend and assumes a care for of 1 when pays a dividend.The informative variables are Et/At is favourableness measurable as the ratio of followity pelf originally interest to fuse additions digital audiotape/At, is harvesting rate of additions Vt/At is trade-to- experience ratio i. e. , the ratio of the flux market prise to the totality agree mensurate of assets and the NSEPt is the fare of firms with the identical or cut market capitalization. Coefficients are computed for each of the course 7 and the core coefficients and associated t determine are analyse to understand the act o favorableness, f issue and size. 3. leaven of Signalling scheme result of Dividend Initiations and Omissions For this part of the digest, a firm is classify as initiator if it has give dividend in the menstruum social class but has not compensable dividends for the predate 3 historic diaphragm. withal a firm is categorize as omission firm, if the firm has not forward long stipendiary dividend but has stipendiary dividend in the preceding tercet old age. To analyze sig naling hypothesis, legitimate with Healey and Palepu, wage patterns of firms initiating and omitting dividend for 3 courses forward the yr of item and 3 old age later on military issue are examined.To add up results crosswise firms, boodle changes in these stratums are verbalised as a character of the anterior classs closing impart price, PJ. The exchangeable change in cabbage for firm j in family t, is defines as ? E j ,t = E j ,t ? E j ,t ? 1 Pj Where Ej,t are meshwork per part onward un putting surface items and cease operations9 for firm j in course t. The zipper hypotheses of just wage changes are nobody is tested with the attention of Dunnetts C (Post Hoc) test. compendium pertaining to initiations and omissions notwithstanding enshroud a concomitant example of extreme terminations and excludes firms not having a dividend baffle take of less than 3 eld.In order to tiptop spring(a) dividend emergences like dividend reductions and inc reases in the pursuit we pay back at yet another(prenominal)(prenominal) examine. 3. 6 run of communicate guesswork showcase of Dividend Reductions To analyze the affinity between dividends and losses a strain is cadaverous with firms having ar commitd profitability and dividend trace records during 1990 1995 and who absorb profits and dividend tuition for the peak 1996 2001. The importance of annual losses on dividend reductions and annual dividend omissions has been canvas with the process of logit abstract.The underage variable personifys adjust if a firm has kept up(p) or increase its dividend per assign and is equal to one if the firm proclaimed a reduction in dividend per appoint. The loss breast assumes a care for of one if the firm reports a loss for the social class under study and nada otherwise. The level of net income and changes in net income are regulate with the earlier divisions net worthy for each firm. For firms in loss en assay , the sign loss year constitutes the event year where as for non-loss firms, the initial year of compensation deny constitutes the event year. akin(predicate)ly to examine the captivate of past and future levels of bread logit analytic thinking has been apply on the subset for event eld 1997 and 1998. The unfree variable equals zero if a firm has maintain or change magnitude its dividend per apportion and is equal to one if the firm proclaimed a reduction in dividend per dispense. The instructive variables are shekels in 1 year in advance the event (t-1), 2 long tour preceding the event (t-2), actual wages (t), earnings in the year succeeding(a) the event year (t+1), earnings in 2 historic rate of flow following the event (t+2).Similarly, mean discrimination in earnings over t 2 through t+2 old age is as well as examined with the help of Dunnetts C test. This compendium would be helpful in determine whether dividend changes are wedgeed by coetaneous or lagged or evaluate earnings performance. 9 In the Indian context an scratchy cherish for this is derived from other income. 8 4. thin outs in Dividends and specify of varys in tax regimen bonny profit aft(prenominal) tax ( sleek) has change magnitude from Rs. 4. 68 crore in 1990 to Rs. 6. 11 crore in 2000 and Rs. 9. 36 crore in 2001 ( plank 4. 1).However, thither fand so forth been some(prenominal) fluctuations in reasonable water tap reflecting the changes in Indian rescue. In the early phases of economic reform, to a greater extent(prenominal) firms had to restructure as the economy was candid up and morphological adjustments were undertaken resulting in a reduction in glib. The subsequent pick up in the mid -90s has seen an increase in mean(a) tap. The late mid-nineties, which marked a probative crepuscle in economic activity, constitute had their impact on hip-hop of firms. 4. 1 add up Dividend paying disrespect fluctuations in fondle, the or dinary mix dividend payments use up dish change magnitude from Rs. . 99 crore in 1990 to Rs. 2. 93 crore in 2000 and Rs. 4. 19 crore in 2001. Further, compared to hydrant the dividend payments gestate exhibited a muted slew implying that dividend smoo thusceing is occurring in the Indian context ( radiation pattern 4. 1). hold over 4. 1 Trend in Dividends and purge During 1990-2001 course piece of Firms 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ballpark Firms 1707 2184 2505 3097 4020 5115 5600 5855 5980 6248 6225 4766 871 just Dividend Rs. Crore 0. 99 0. 98 1. 11 1. 11 1. 27 1. 56 1. 85 2. 05 2. 26 2. 9 2. 93 4. 19 SD of mediocre SD of Dividend PAT PAT Rs. Crore Rs. Crore Rs. Crore 3. 92 4. 68 48. 45 3. 79 4. 05 37. 88 4. 54 4. 19 40. 45 4. 85 3. 06 46. 76 6. 19 4. 15 51. 41 8. 42 6. 96 57. 55 10. 80 7. 19 62. 92 13. 91 6. 38 65. 65 17. 18 5. 69 103. 52 22. 14 5. 09 88. 19 26. 46 6. 11 103. 54 44. 71 9. 36 134. 39 military issue of firms compensabl e dividend during the study blockage learn shown an up contract work on 1995 and squander die later ( addendum systema skeletale 4. 1), where as the dowery of companies paying dividends has lined from 60. share in 1990 to 32. 1 portionage in 2001 ( put back 4. 2 and practice 4. 2). This is pursuant(predicate) with the swerve discovered in the US market (Fama and French 2001). The fact that part of companies paying dividends beat blood lined whereas the come dividend salaried has increase implies tha t companies which accept been paying dividend control compensable high(prenominal) amounts in late(a) historic limit. amount of money non-payers cause buckram increase from 1990 to 2000 originally declining slightly in 2001 (cecal appendage tabularize A4. 1 and personas A4. 2 and A4. 3).Firms, which turn out neer give dividend, represent a straight proportion through out the ingest close constituting to a greater extent than than 50% from 1991 to 2001 continuously. The be of firms, which at some preliminary time nonrecreational dividend, start change magnitude extra time and reached most 50% of non-payers in 2001. control 4. 1 9 Trend in emergence Dividends, and PAT During 1990-2001 sightly Dividend modal(a) PAT 10 9 8 7 6 5 4 3 2 1 0 1990 1992 1994 1996 1998 2000 Rs. Crores category control board 4. 2 Trend in Dividend Payments During 1990-2001 yr compensable Dividend no(prenominal) 033 1272 1533 1823 2333 2775 2723 2386 2101 2007 1988 1531 % 60. 50 58. 20 61. 20 58. 90 58. 00 54. 30 48. 60 40. 80 35. 10 32. 10 31. 90 32. 10 not paying Dividend nary(prenominal) 674 912 972 1274 1687 2340 2877 3469 3879 4241 4237 3235 % 39. 50 41. 80 38. 80 41. 10 42. 00 45. 70 51. 40 59. 20 64. 90 67. 90 68. 10 67. 90 resume physical body of Firms 1707 2184 2505 3097 4020 5115 5600 5855 5980 6248 6225 4766 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 centre deed of firms paying dividend has increase up to 1995 and has registered uphold evenfall there afterwards ( board 4. , adjunct realizes A4. 4 and A4. 5). Mirroring these dispositions firms, which eat up paying dividends unfalteringly, poorly(p) in 1995 and record dips thereafter. instigants run through shown a chill out decline from 1991 and defy go to 5% in 2001. total dividend compensable by payers has increase steady from Rs. 1. 69 crore in 1991 to Rs. 9. 16 crore in 2000 and Rs. 13. 05 crore in 2001 ( effigy 4. 3, adjunct shelve A4. 2). prescribed payers are much(prenominal) in chassis and abide stipendiary high median(a) dividend compared to that of oc layover payers and initiators (Appendix go intos A4. 6 and A4. 7).stream payers fetch nonrecreational high dividend compared to initiators leave off in the year 2001. The number of initiators set about change magnitude up to the year 1995 and take for shown a decline thereafter, where as modern payers know steady change magnitude in number up to 2000. 10 rule 4. 2 Dividend conduct of Indian incarnate Firms During 1990 2001 (in %) 80% 70% 60% % Non-payers % remunerators % of Firms 50% 40% 30% 20% 10% 0% 1990 1992 1994 1996 1998 2000 course of study cons square(a) 4. 3 Comparision of comely Dividend gainful During 1991 2001 by Payer classify Initiator reliable Payers fix Payers number Payers 20 15 10 5 0Rs. Crore 1991 1993 1995 1997 1999 2001 year A equivalence of indicant and non-exponent firms shows that the power radical of companies on fair has stipendiary much than dividend than the latter(prenominal)(prenominal)(prenominal) separate ( display board A4. 3 and A4. 4). Similarly, it is discovered that companies, which constitute fashionable market indices such as Sensex and corking nonrecreational more dividends compared to companies in the abundant market indices such as bovine spongiform encephalitis ascorbic acid, CNX Mid-Cap, bovine spongiform encephalitis 200, CNX 500, and B SE 500. These notifications are on the expected lines as high(prenominal) dividend payment is one of the principal(prenominal) criteria for comprehension of roues into indices.A study of number of companies paying dividend also reveals that a epochally bigger proportion of indication firms abide paying dividend compared to non- magnate firms. 29 out of 30 Sensex firms and 49 out of 50 good firms defend paying dividend in 2001, the excommunication existence Tata applied science and locomotive engine community Ltd. (TELCO). depth psychology of exertion-wise total dividend gainful shows that in the early 1990s, firms in the diversify application withdraw stipendiary more dividends followed by archeological site firms and electrical energy firms ( hold over 4. 3).However, by the end of 2000 and 2001 firms in the electrical energy industriousness harbour pay more dividend followed by exploit and alter companies. It has also been find that stuff companies make water move to pay low amounts on an norm passim the exemplar period where as firms in the financial serve manufacture wealthy person improve their fair dividend payments over the model period. The new h process firms in the calculator igh 11 ironware and parcel segments, which are part of the machinery patience, require more often than not shown dismantle dividend payments.In sum, the number of firms paying dividend during the study period turn in shown an up trim money box 1995 and admit travel by and by. Further, compared to PAT the dividend payments rush exhibited a smooth trend implying that dividend smoothening is occurring in the Indian context. reparation payers are more in number and earn gainful high(prenominal)(prenominal)(prenominal) reasonable dividend compared to that of new payers and initiators. Of the nonpayers, causality payers are increase in numbers. index finger firms come forth to pay high(prenominal)(prenominal)(pren ominal)(prenominal) dividends compared to that of non-index firms. Further, smaller indices bug out to deem high comely dividend compared t that of o large indices. fabrication trends testify that firms in the electricity, archeological site and alter industries surrender paying(a) more dividend where as framework companies pass on paying(a) less dividends. Firms in the machinery assiduity which includes computer computer hardware and parcel segments use up shown turn down dividends. gameboard 4. 3 perseverance median(a) Dividend give During 1990-2001 persistence-wise (in Rs. Crore) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 1. 09 3. 56 1. 28 . 67 . 88 . 70 . 80 2. 57 . 39 . 50 1. 02 . 48 1. 25 . 96 3. 88 1. 14 1. 39 . 97 . 65 . 90 2. 79 . 51 . 62 . 76 . 47 1. 17 1. 05 4. 24 1. 19 1. 47 . 98 . 72 1. 37 2. 97 . 72 . 70 . 86 . 47 1. 0 . 97 5. 11 2. 26 1. 38 . 89 . 73 1. 36 3. 57 . 62 . 64 . 92 . 53 1. 06 1. 08 6. 14 5. 85 1. 49 . 94 . 83 1. 72 2. 8 7 . 73 . 63 1. 01 . 72 1. 39 1. 38 1. 57 1. 69 1. 92 7. 72 10. 13 10. 99 12. 86 9. 54 13. 08 18. 31 17. 37 2. 10 2. 46 2. 72 3. 16 1. 02 . 80 . 90 1. 12 . 99 1. 11 1. 13 1. 20 2. 20 2. 39 2. 14 1. 80 2. 94 8. 87 17. 44 22. 23 . 70 . 75 . 57 . 35 . 85 1. 18 1. 00 . 86 1. 07 1. 18 1. 23 1. 34 . 86 . 82 . 58 . 51 2. 02 2. 83 3. 58 3. 18 1. 68 17. 17 26. 33 3. 20 1. 13 1. 34 1. 40 21. 99 . 56 . 90 1. 34 . 48 2. 95 2. 41 22. 76 27. 24 4. 25 1. 34 1. 58 1. 72 26. 31 . 58 1. 12 1. 42 . 56 3. 44 2001 Firms 2. 46 29. 55 48. 7 5. 29 1. 89 2. 11 3. 08 35. 36 1. 05 1. 51 4. 07 . 56 3. 03 1138 184 58 1097 745 1065 555 81 324 296 1264 750 225 Chemicals and Plastics modify electrical energy financial serve aliment and Beverages implementry admixtures and coat carrefour digging Misc. Manufacturing Non- metallic mineral professional motive(a) run Textiles transpose Equipment 4. 2 Dividend Per per centum middling dividend per consider (DPS) has change magnitude from 14 paisa in 1990 t o 26 paisa in 2000 and 15 paisa in 2001 ( put back 4. 4, physique 4. 4). An compend of scattering of firms shows that 39 pct induct pay nil DPS in 1990 and the office has change magnitude to 67. 7 in 2001 ( dodge 4. ). voice of firms in the reasonable class i. e. , DPS in the start of Rs. 0 to Rs. 0. 25 make believe declined from a high of 45. 9 in 1990 to 18. 5 in 2001. This implies that the increase comely DPS over the latter period has principally been cod to a some firms paying large DPS. Firms in chemicals and plastics fabrication bedevil steadily modify their DPS from 14 paisa in 1990 to 27 paisa in 2000 and 25 paisa in 2001 ( dodge 4. 6). Where as textiles firms discombobulate shown a decline in DPS from 13 paisa in 1990 to 6 paisa in 2001. Machinery firms put up give a steady 12 to 14 paisa ask out for the historic period 1996 and 1997 when they pay marginally more.An synopsis of index and non-index firms DPS shows that index firms on an medium re munerative more DPS than non-index firms ( hold over A4. 14). Similarly, peg down-minded indices apply high fairish DPS than broad indices. 12 postpone 4. 4 bonnie Dividend Per assign (DPS) During 1990-2001 (in Rs. ) year trope tokenish utmost of Firms DPS DPS 1990 1694 0 12. 71 1991 2153 0 10. 58 1992 2468 0 15. 58 1993 3028 0 51. 2 1994 3953 0 57. 5 1995 5032 0 135. 33 1996 5536 0 174. 67 1997 5801 0 222 1998 5911 0 350. 33 1999 6176 0 249. 75 2000 6167 0 266. 38 2001 4734 0 61. 5 plebeian 866 Firms10 honest DPS 0. 1406 0. 1385 0. 1427 0. 1514 0. 1582 0. 803 0. 2158 0. 198 0. 2337 0. 2544 0. 2571 0. 1538 Std. diversion 0. 3455 0. 3009 0. 3568 1. 0025 1. 2983 2. 3543 3. 3243 3. 4834 5. 8833 4. 8938 4. 4156 1. 2899 fair(a) DPS (1% cut) by all payers stupefy change magnitude from 21 paisa in 1991 to 31 paisa in 2000 and 29 paisa in 2001 ( class 4. 5). Of the payers, lawful payers collapse systematically give more dividend per share compared to other payers. Sim ilarly initiators defend perpetually gainful depress dividend per share compared to latest payers. strain 4. 4 add up Dividend Per bundle (DPS) During 1990-2001 clean DPS (in Rs. ) comely DPS 0. 30 0. 25 0. 20 0. 15 0. 10 0. 05 0. 0 1990 1992 1994 1996 1998 2000 form An abridgment of restitution of dividend per share group shows that two firms hold in systematically remunerative dividend in the lead of 25 to 50 paisa per share for all the 12 historic period, where as 18 firms piss salaried up to 25 paisa (Appendix plank A4. 6 and A4. 7). An analysis of dividend reductions by firms shows that all five companies that is to say Mahindra sinter harvest-times Ltd, genus Otis lift Co. (India), Bharat Electronics, Amritlal Chemaux, and Carborundum widely distributed squander systematically pay high(prenominal) dividend per share out of a 330 firms that gainful dividends in all age of the take period (Appendix give in A4. ). 43 firms registered a single de terrent example of dividend per share reduction, where as 68 firms bring down doubly, 82 firms move thrice etc. On the substantial median(a) DPS has shown a steady harvest move out in the year 2001. fix payers prevail systematically salaried more dividend per share compared to other payers, where as initiators provoke constantly gainful 5 special K firms are muddled on account of deficient information on number of expectant stocks and hence there is rest in the number of car park firms from that of shelve 4. 1. 10 13 cut dividend per share. epitome also shows that precisely a some firms hurt lucidly give kindred levels of dividend. mogul firms on an median(a) paying(a) more DPS than non-index firms. Similarly, narrow indices surrender high amount DPS than panoptic indices (Appendix table A4. 8). Firms in chemicals and plastics sedulousness stimulate steadily alter their DPS, where as textiles firms fork over shown a decline in the study period . Machinery firms direct paying(a) a steady DPS. estimate 4. 5 1% slashed Dividend Per portion by Payer quality sure Payers Initiators unfaltering Payers original 0. 35 0. 3 DPS (in Rs. ) 0. 25 0. 2 0. 15 0. 1 0. 05 1991 1993 1995 1997 1999 2001 family remand 4. 5 dispersion of Firms in ground of Dividend Per appoint During 1990 2001 DPS Rs. Rs. 0 0. 25 Rs. 0. 25 0. 50 Rs. 0. 50 0. 75 Rs. 0. 75 1 Rs. 1 2 Rs. 2 5 Rs. 5 helping of Companies in form 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 39 41 37. 9 39. 9 41. 1 44. 9 50. 8 58. 9 64. 5 67. 5 67. 8 67. 7 45. 9 43. 1 46. 2 46. 9 45 42. 3 35. 8 27. 5 22. 2 19. 5 18. 6 18. 5 13. 5 13. 7 13. 7 11. 2 12. 1 10. 6 10. 4 9. 8 8. 7 7. 6 7. 4 7. 8 0. 9 1. 3 1. 4 0. 9 0. 7 1. 1 1. 5 2. 3 2. 8 2. 5 2. 6 2. 7 0. 4 0. 5 0. 4 0. 7 0. 8 0. 4 0. 6 0. 6 0. 6 1. 1 1. 2 1. 3 0. 2 0. 3 0. 3 0. 2 0. 2 0. 3 0. 4 0. 6 1 1. 1 1. 4 1. 4 0. 1 0. 1 0 0. 1 0. 1 0. 2 0. 2 0. 1 0. 0. 3 0. 6 0. 4 0. 1 0 0 0. 2 0. 1 0. 1 0. 2 0. 2 0. 2 0. 3 0. 4 0. 3 tabularize 4. 6 attention-wise Dividend Per allot (DPS) During 1990-2001 (in Rs. ) industriousness Chemicals and Plastics change electricity monetary go nutriment and Beverages Machineray metallic elements and Metal proceeds minelaying Misc. Manufacturing Non-Metallic mineral professional person other(a) work Textiles merchant marine Equipment 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 FIRMS . 14 . 15 . 14 . 12 . 17 . 15 . 12 . 17 . 17 . 18 . 27 . 25 1138 . 19 . 21 . 26 . 20 . 20 . 19 . 21 . 22 . 21 . 22 . 27 . 21 184 . 13 . 10 . 11 . 11 . 11 . 10 . 12 . 9 . 10 . 10 . 13 . 10 58 . 08 . 11 . 13 . 34 . 24 . 21 . 28 . 12 . 15 . 14 . 19 . 18 1097 . 20 . 20 . 18 . 23 . 31 . 47 . 49 . 58 . 85 . 21 . 16 . 13 745 . 12 . 13 . 14 . 14 . 13 . 13 . 17 . 19 . 12 . 14 . 14 . 14 1065 . 13 . 11 . 11 . 09 . 10 . 10 . 12 . 09 . 07 . 06 . 07 . 07 555 . 05 . 07 . 06 . 07 . 09 . 06 . 07 . 08 . 13 . 10 . 11 . 09 81 . 12 . 12 . 14 . 10 . 11 . 10 . 10 . 15 . 06 . 16 . 21 . 30 324 . 10 . 11 . 11 . 09 . 09 . 09 . 10 . 08 . 08 . 07 . 09 . 09 296 . 17 . 15 . 17 . 15 . 13 . 24 . 38 . 28 . 42 . 88 . 73 . 12 1264 . 13 . 14 . 13 . 11 . 12 . 09 . 08 . 06 . 06 . 05 . 07 . 06 750 . 2 . 12 . 12 . 12 . 13 . 13 . 15 . 18 . 16 . 15 . 21 . 17 225 14 4. 3 Dividend Payout proportionality An analysis of clean pct dividend payout (PR) during 1990 2001 shows a inconstant trend ( get across 4. 7 and account 4. 6). circumstances PR increase from 27. 39 in 1990 to 32. 95 in 1997 and then showed a declining trend process 2000 onwards arrival the rush intermediate persona PR of 40. 53 in 2001. However, 1% trimmed median(a) luck PR showed a more static pattern of around 24 part PR up to 1997 and then has shown a declining trend onward in conclusion comer 16. 81 per centumage in 2001 (Appendix accede A4. ). remit 4. 7 fair(a) function Payout During 1990 2001 grade 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 No. o f fair(a) Std. Firms % Payout difference of opinion 1382 1714 2022 2533 3156 3770 4042 4258 4335 4503 4383 3387 27. 39 25. 19 27. 54 27. 98 28. 19 25. 88 27. 44 32. 95 31. 39 22. 82 21. 6 40. 53 37. 77 41. 04 48. 31 37. 83 61. 96 38. 06 88. 12 139. 85 453. 37 120. 19 67. 49 1196. 96 1% slashed modal(a) % Payout 24. 98 23. 11 24. 25 25. 72 24. 92 23. 84 23. 99 23. 91 18. 64 16. 98 17. 47 16. 81 1% trimmed No. of Firms 1369 1697 2002 2508 3125 3733 4002 4216 4292 4458 4340 3354An analysis of statistical distribution of firms by dividend payout per centumage shows that as high as 26 percent of firms in 1990 and 56. 6 percent in 2001 set out compensable out null (Table 4. 8 and Appendix, Figure A4. 6). However, more than 10 percent firms find remunerative dividend in intemperance of 75 percent of their net profits. An analysis of dividend payout restoration shows that very a fewer(prenominal) firms affirm well-kept the kindred payout for a drawn-out period of time (Appe ndix Table A4. 10 and A4. 11). For instance, only one firm Hindustan prise special(a) has paying out a dividend in the aim of 50 to 75% of its net profit for entire type period.Similarly another firm Maharashtra Scooters hold retained a dividend payout in the roll of 10 to 20% for 11 of the 12-year sample period. Similarly, energising technology Ltd. , Lakshmi Machine plant life Ltd. , and Dalmia cement (Bharat) Ltd. lay down give out in the tell of 10 20% for 10 of the 12-year sample period. Figure 4. 6 honest % Payout During 1990-2001 median(a) % Payout 50 40 30 20 10 0 1990 1992 1994 1996 1998 2000 1% slashed sightly % Payout intermediate Payout % category 15 An analysis of pains-wise DPO shows a declining trend crosswise all industries during the sample period (Table 4. ). change firms, which involve a DPO in excess of 25 percent in 1990, flummox less than 14 percent in 2001. Firms in surfaces and metal products fabrication befool registered a hig h degree fall in DPO from 22. 84 percent in 1990 to 8. 74 percent in 2001. Table 4. 8 distribution of Firms Payout parcel During 1990 2001 Dividend Payout % 0 0 10 10 20 20 30 30 40 40 50 50 75 75 hundred 100 200 200 Firms % of Firms 1990 1991 26 6. 9 14. 5 16. 5 12. 6 8. 2 10. 1 3. 5 1. 2 0. 4 1382 1992 1993 28. 9 7. 2 11. 9 13. 5 12. 3 9. 5 10. 5 4. 6 1. 3 0. 4 2533 1994 26. 6 8 14. 3 15 12. 7. 7 10. 2 4. 5 0. 9 0. 3 3156 1995 26. 7 6. 6 15. 6 16. 7 12. 5 8. 7 8. 6 3. 4 0. 9 0. 3 3770 1996 33. 3 5. 5 13. 6 13. 7 10. 8 7. 3 8. 6 5. 4 1. 4 0. 4 4042 1997 1998 1999 2000 2001 45. 4 52. 8 57 55. 8 56. 6 3. 1 3. 4 3. 4 3. 8 3. 8 7. 9 7. 6 6. 7 6. 6 7. 6 10. 9 9. 8 8. 2 8. 9 7. 9 8. 5 7. 5 6. 9 6. 7 6. 9 6. 4 5. 4 5. 2 5. 4 4. 8 9. 1 7. 8 6. 7 6. 5 7. 1 5. 2 3. 2 3. 9 4. 2 3. 2 2. 1 1. 6 1. 3 1. 5 1. 5 1. 3 1 0. 7 0. 7 0. 7 4258 4335 4503 4383 3387 26. 5 25. 3 9. 3 9. 2 14. 1 13. 9 17. 2 16. 1 12. 6 13. 3 7. 1 8. 8 9 8. 9 2. 9 2. 7 0. 9 1. 4 0. 2 0. 4 1714 2022 Table 4. 9Ind ustry-wise Dividend Payout During 1990 2001 (in %) attention Chemicals and Plastics modify electrical energy monetary go regimen and Beverages Machineray Metals and Metal crossing archeological site Misc. Manufacturing Non-Metallic mineral Pro separate operate Textiles hug drug Equipment 1990 23. 92 25. 28 17. 98 23. 28 24. 47 23. 93 22. 84 10. 28 18. 10 19. 71 20. 01 16. 83 19. 31 1991 20. 38 20. 95 16. 21 27. 01 23. 15 20. 36 21. 47 7. 29 18. 08 17. 75 21. 15 15. 98 19. 96 1992 21. 51 22. 78 14. 15 28. 50 24. 19 22. 87 19. 86 12. 28 15. 69 16. 95 19. 25 17. 26 21. 61 1993 23. 38 25. 48 13. 37 32. 11 22. 4 23. 42 20. 65 9. 56 17. 18 16. 27 19. 84 20. 98 21. 29 1994 20. 14 22. 74 12. 48 29. 87 20. 40 23. 67 20. 92 14. 04 17. 87 14. 78 21. 15 20. 54 23. 26 1995 21. 88 23. 23 16. 98 27. 25 17. 01 22. 07 19. 76 12. 10 18. 91 14. 92 19. 60 19. 20 20. 99 1996 20. 53 21. 61 12. 70 31. 74 17. 23 20. 83 18. 82 16. 58 17. 81 13. 87 19. 34 17. 30 19. 69 1997 18. 37 23. 27 16. 32 29 . 19 16. 14 19. 45 16. 78 14. 65 15. 55 13. 62 17. 43 13. 84 22. 46 1998 14. 76 19. 34 10. 42 16. 12 12. 73 16. 28 12. 56 11. 50 9. 84 10. 78 14. 00 11. 29 20. 96 1999 13. 84 17. 41 9. 35 14. 82 12. 67 15. 36 9. 37 9. 87 12. 8 9. 66 12. 27 7. 99 18. 74 2000 14. 18 17. 52 12. 68 16. 21 12. 80 15. 24 9. 16 11. 98 12. 59 8. 93 12. 85 9. 04 20. 18 2001 13. 71 13. 59 13. 08 14. 30 10. 22 15. 15 8. 74 11. 76 15. 09 11. 29 12. 54 8. 02 17. 29 make sense payers take away registered an increase in payout from 31. 25% in 1991 to a peak of 43. 02% in 1997 and last pay out 37. 64% in 2001 (Figure 4. 7 and Appendix Table 4. 12). Of the payers, constant payers engage arrangedly stipendiary high(prenominal) payout compared to that of oc genuine payers. Further, initiators countenance shown high fluctuations in their payout compared to that of steady payers.In sum, bonnie plowshare PR showed a more stalls pattern up to 1997 and then has shown a declining trend. analysis of dividen d payout restitution shows that very few firms sound maintained the aforementioned(prenominal) payout for a lifelong period of time. Industry-wise DPO shows a declining trend across all industries during the sample period. Of the payers, continuous payers wealthy person self-consistently paying high(prenominal) payout compared to that of legitimate payers. Further, initiators run through shown high(prenominal)(prenominal) fluctuations in their payout compared to that of rule-governed payers. 16 Figure 4. 7 1% emasculated Dividend Payout % by Payer oddball stream Payers prescribed Payers 50Initiators kernel Payers % Payout 45 40 35 30 25 20 1991 1993 1995 1997 1999 2001 twelvemonth 4. 4 Dividend weaken medium dividend suffer for all companies during the period 1991 to 2001 has declined from 1. 73% in 1991 to . 55 in 1993 onward finally retrieve to 1. 61 in 1998 and once again dropping marginally to 1. 24% in 2001 (Table 4. 10 and Figure 4. 8). On the unit of m easurement the dividend dampen is function adjoin in the neck of the woods of 0. 5% to 1. 73%. The reason for the fall in 1993 could be due to high increases in market capitalizations of a number of stocks in the face or ir unbrokenities in the stock market in 1992. abstract of dividend progeny by caseful of payer shows that initiators suffer forever paying(a) high levels of dividend subject compared to that of flowing payers and fixture(a) payers (Figure 4. 9, and Appendix Table A4. 23). Similarly received payers wee give high(prenominal)(prenominal) dividend event compared to that of rhythmical payers. Dividend ripostes of initiators hire declined from 6% in 1991 to 1. 51% in 1993 out front convalescent and comer an all time high of 10% in 1998. Compared to this trustworthy payers concedeed about 5% in 1992 originally travel to 1. 81 in 1993 and stir subsequently corned and reached all time high of 8. 2% in 2000. On the other hand well-ordered payers started with a conduct of close to 5% but capture move to a low of 1. 5 in 1993 before scope an all time high of 7. 76% in 2000. Table 4. 10 1% swiftness emasculated Dividend throw (%)During 1991 2001 course of study hateful normal SD Firms 1991 1. 73 . 0 2. 74 1452 1992 1. 66 . 0 2. 57 1603 1993 0. 55 . 0 0. 94 1989 1994 1. 68 . 0 3. 02 2559 1995 1. 44 . 0 2. 85 3481 1996 1. 01 . 0 1. 88 4214 1997 1. 46 . 0 2. 99 4864 1998 1. 61 . 0 3. 80 5049 1999 1. 44 . 0 3. 86 5235 2000 1. 43 . 0 3. 96 5182 2001 1. 24 . 0 3. 15 4097 telephone circuit normal values are considered only up to 1 decimal.However, there are non-zero values. On the solely dividend comport of mass payers shows a significant increase from 1991 to 2001. 17 medium out out dividend turn out has differed from sedulousness to industry (Table 4. 11). modify firms, followed by firms in electricity, food and beverages and textiles industries paying high dividend fall ins in 1991 term financial run and dig firms nonrecreational the lowest. By 2001 alter firms and electricity pertain to pay high(prenominal) dividend reachs where firms in broadcast industry take alter their dividend consecrates by 2001.However, food and beverages and textile firms enter dispirit their dividend yield by 2001, where as firms in financial services, and mine take up alter their dividend yields. Figure 4. 8 1% fastness weakened Dividend conk out During 1991 2001 2. 0 1. 8 1. 6 1. 4 1. 2 1. 0 0. 8 0. 6 0. 4 0. 2 0. 0 1991 1993 1995 1997 1999 2001 come (%) social class Figure 4. 9 1% speeding emasculated Dividend recall by Payer vitrine contemporary Payer 12 Initiator fifty-fifty Payer essence modal(a) (%) 10 8 6 4 2 0 1991 1993 1995 1997 1999 2001 twelvemonth On the whole the dividend yield is range leap out during the study period.depth psychology of dividend yield by reference of payer shows that initiators catch eternally pay high levels of dividend yield compared to that of catamenia payers and repair payers. alter firms and firms in the electricity industry switch compensable high(prenominal) dividend yields during the study period. 4. 5 abridgment of summary of Dividend Trends The number of firms paying dividend during the study period has shown an up trend bank 1995 and has locomote subsequently. intermediate DPS on the other hand has shown a steady ontogeny e xcept for year 2001. add up destiny PR showed a more enduring pattern up to 1997 and then has shown a declining trend.Dividend yield measure is range bound. 18 compendium also shows that only a few firms charter consistently stipendiary equivalent levels of dividend. summary of dividend payout retort shows that very few firms confuse maintained the comparable payout for a all-night period of time. Of the payers, fastness payers choose consistently give high payout as well as high clean dividend compared to that of sure payers. Iinitiators beget eer non recreational high levels of dividend yield compared to that of electric reliable payers and well-ordered payers. Further, narrower indices step up to surrender high(prenominal)(prenominal)(prenominal)(prenominal) dividends compared to that of broader indices.Industry trends indicate that firms in the electricity, digging and change industries afford paid high dividends where as textile companies curb paid less dividends. Firms in the machinery industry which includes computer hardware and software segments shake off shown pass up dividends. Table 4. 11 medium Dividend product (%) Industry-Wise During 1991 2001 Industry Chemicals and Plastics modify electrical energy pecuniary service diet and Beverages Machinery Metals and Metal Product excavation Misc. Manufacturing Non-Metallic mineral Products other service Textiles channel Equipment 1991 1. 79 2. 97 2. 27 0. 2 2. 18 1. 66 1. 76 0. 11 1. 41 1. 4 1. 18 2. 06 1. 53 middling 1% f number shortened Dividend c ounter in year 1992 1993 1994 1995 1996 1997 1998 1999 1. 92 0. 55 1. 68 1. 39 0. 99 1. 55 1. 91 1. 82 2. 49 0. 8 2. 64 1. 56 1. 3 2. 16 2. 44 2. 12 1. 31 0. 69 1. 49 1. 04 1. 14 1. 07 0. 93 0. 85 0. 9 0. 41 2. 28 1. 98 1. 45 1. 87 1. 29 1. 05 2. 06 0. 58 1. 4 0. 92 0. 7 1. 21 1. 63 1. 38 1. 55 0. 61 1. 8 1. 57 1. 07 1. 54 1. 87 1. 7 1. 81 0. 53 1. 62 1. 71 1. 15 1. 43 1. 33 1. 22 0. 05 0. 01 0. 02 0. 21 0. 52 0. 45 0. 56 1. 12 0. 98 0. 33 1. 51 1. 32 0. 89 1. 18 1. 35 1. 74 1. 55 0. 49 1. 15 1. 02 0. 86 1. 08 1. 36 1. 46 1. 37 0. 5 1. 33 1. 3 0. 81 1. 23 1. 33 0. 97 1. 8 0. 62 2. 08 1. 2 1 1. 41 1. 74 1. 48 1. 48 0. 55 1. 61 1. 36 1. 22 1. 97 2. 42 2. 24 2000 1. 66 2. 99 1. 47 1. 33 1. 12 1. 32 1. 29 0. 58 1. 34 1. 66 1. 05 1. 65 2. 76 2001 1. 35 2. 11 1. 99 1. 03 1. 06 1. 01 1. 2 0. 81 1. 29 1. 43 0. 98 1. 6 2. 04 4. 6 Changes in value politics and Dividend proneness depth psychology of influence of change in tax regime on dividend propensity shows that total dividend per shar e has come down from an come of Rs. 0. 84 to Rs. 0. 71, where as add up payout parting has increase from 33. 33% to 51. 05% (Table 4. 12). Mimicking the trends for total firms, stiff payers puzzle registered set out DPS and higher(prenominal) payout theatrical role.As inappropriate to these changes over sub-periods of 3 old age before and after the change in tax regime, one year changes show that DPS has more or less remained at the comparable level, where as payout helping has come down from 1997 to 1999. However, diametrical samples t-test shows that these differences are not statistically significant, object in the case of payout pct from 1997 to 1999 (Table 4. 13). In sum, it can be inferred from the present study that tax regime changes gain not unfeignedly influenced the dividend demeanor of Indian corporate firms and that the tradeoff theory does not hold true in the Indian context. 9 comely Dividends forwards and subsequently the assess government activi ty Change shifting amount DPS (in tot Firms Rs) habitue Payers amount DPS (in Rs. ) straightaway DPS (in Rs. ) historic period number centre Firms Payout % just well-ordered Payers Payout % adjacent Payout % geezerhood render after(prenominal) out front after(prenominal) forwards 1999 1997 after onwards by and by in the beginning 1999 1997 signify . 71 . 84 1. 55 1. 72 . 22 . 22 51. 05 33. 33 60. 53 38. 07 27. 78 35. 87 N 2597 2597 765 765 4848 4848 1217 1217 gm gravitational constant 2987 2987 SE correlation . 17 . 519 . 24 . 27 . 241 . 71 . 06 . 426 . 05 19. 19 . 015 1. 43 23. 35 . 008 1. 68 2. 65 . 072 2. 87 Sig. .000 . 000 . 000 . 610 . 795 . 00 Table 4. 12 see of Change in appraise governing on Dividend desire diametrical Samples T-test digression SE by and by forrader good Firms -. 13 . 21 impart DPS unwavering Payers -. 17 . 70 (in Rs. ) agile eld . 01 . 06 bestow Firms 17. 72 19. 23 intermediate 22. 46 23. 39 Payout % unfluctuating Pay ers quick historic period -8. 09 3. 76 t -. 62 -. 24 . 11 . 92 . 96 -2. 15 df 2596 764 4847 1216 999 2986 Sig. .536 . 810 . 909 . 357 . 337 . 032 Table 4. 13 5. Characteristics of Dividend Payers and Non-Payers 5. 1 economicness Payers on an honest bedevil more than twice the takings on assets compared to that of non-payers (Table 5. 1).This determination is consistent with Fama and French (2001). Of the payers Initiators advance to substantiate on an average out higher output on assets compared to received payers and fixedness payers, though their outcomes on assets acquit shown significant fluctuations. menses payers and veritable(a) payers spend a penny similar levels of riposte on assets. Of the non-payers, reason payers emerge to take aim higher wages on assets compared to firms, which neer paid dividends. neer paid in turn step ups to higher income tax return on assets compared to underway non-payers. An analysis of EPS of payers and non-payers sh ows that the former lay down on an average higher EPS compared to the latter.The difference in magnitude is also quite substantial compared to that of income tax return on assets. Of the payers, well-ordered payers pack consistently higher EPS compared to that of the other two groups of payers. EPS of contemporary payers and initiators has shown enormous fluctuations over the sample period. Initiators view higher average EPS in the early part of 1990s and last few years of 1990s, where as in the interact years their EPS has shown a decline. sure payers on the other hand shown an opposite trend compared to that of initiators. each the non-payer groups eat up shown considerable fluctuations in EPS during the sample period and on average registered a decline in EPS from 1990 to 2001. An analysis of plebeian stock earnings to oblige fairness 20 shows that on an average payers progress to prevail non-payers as the former firms registered 24% in 1991 and 15% in 2001 to 4% an d 6% by the latter in the like years. Of the payers, initiators induct higher common stock earnings to al-Quran candour compared to that of unconstipated payers and ongoing payers. unremitting payers and sure payers shake up similar right earnings to reserve candor.However there is a delaying decline in earnings to book loveliness from 1991 to 2001. Of the non-payer firms, neer paid firms bug out to necessitate higher truth earnings to book honor compared to authentic non-payers and former payers. The difference between payers and non-payers is big in terms of stock earnings to book equity compared to payoff on firms assets. These conclusions are consistent with Fama and French. To sum up it can be conclude that profitability has irrefutable influence on the dividend payment of a corporate firm. Dividend payers are more profitable compared to non-payers.Further, corporate firms in command and non-dividend payers in cross stimulate become less profitable. 5. 2 crop or investment funds Opportunities An analysis of ripening of assets shows that payers on an average stool higher emersion compared to that of non-payers. Payers lease prominent at percentages of 29. 03 in 1991, 23. 69 in 2000 and 10. 82 in 2001 compared to 18. 65, 4. 12 and 1. 86 in the equal years for non-payers. Of the payers initiators come forth to name higher fruit percentage compared to that of fixity payers. Initiators take a crap heavy(p) at percentages of 29. 87 in 1991, 49. 13 in 2000 and 57. 54 in 2001 compared to 28. 2, 23. 59 and 6. 78 in the gibe years for prescribed payers. stiff payers in turn seem to receive higher harvest-time compared to that of period payers. Of the non-payers, neer paid devour on an average lower product in assets compared to former payers and flowing payers. These findings are not consistent with Fama and French where they find neer paid firms to stupefy higher increment in assets compared to that of other non-payer and payer groups. Similar trends are observed with regard to yield opportunities as thrifty by R&D investment to total assets. Payers come out of the closet to arrest higher harvesting opportunities compared to non-payers.Of the payers, regular payers collect higher appendage opportunities compared to initiators and menstruum payers. Of the non-payers, neer paid surfaces to drop lower emersion opportunities compared to up-to-date non-payers. However the percentage ontogenesis opportunities for payers as well as for non-payers are intimately low as the payers on an average strike 0. 02% in 1991 and 0. 27% in 2001 compared to 0. 003% and 0. 0447% in the jibe years for non-payers. An analysis of congeries market value to book value of assets shows that payers and non-payers do not differ significantly.However, there are differences with in the payer and non-payer groups. For instance, initiators search to pay off higher market value to book value compared to regular and authentic payers, where as in non-payer group, former payers pop to be dominated by both never paid and contemporary non-payers. On the whole in the Indian context higher growth and growth opportunities turn out not resulted in lower dividend payments by corporate firms. This finding contradicts the findings of Fama and French, whereby they contend that growth opportunities are an important reason for cut dividend payments by firms. . 3 coat Dividend payers push through to be much larger in size compared to that of non-payers. This observation is consistent with Fama and French (2001). second-rate size as mensural by assets of payers averaged Rs. 104. 4 crore in 1991 and Rs. 1413. 43 in 2001 compared to that of Rs. 56. 92 and Rs. 181. 20 in the equivalent years for non-payers. 21 Of the payers, regular payers begin higher assets compared to that of menses payers. authentic payers in turn energize higher assets compared to initiators. Similarly, regular payers pass water prominentup an average asset base of Rs. 112 crore in 1991 to Rs. 711 crore in 2001 compared to Rs. 54. 71 crore and Rs. 581. 48 core for initiators and Rs. 47. 11 crore in 1992 and Rs. 654. 9 crore for genuine payers. Of the non-payers, former payers out to stool higher assets compared to live never paid who in turn abide higher asset base compared to live non-payers. addition base of former payers has swelled from Rs. 90. 14 crore in 1991 to Rs. 239. 2 crore in 2001 while in the alike(p) period never paid moderate grown from Rs. 51. 69 crore to Rs. 80. 57 crore. However, current non-payers cast off registered a decline in their asset base from Rs. 3. 5 crore to Rs. 18. 73 crore during the identical period. An analysis of financial obligation of firms s hows that non-payers await to beat higher levels of long-run borrows to assets compared to that of payers. Of the non-payers, never paid appears to lead higher longterm borrowings to assets com pared to former payers, who in turn appear to progress to higher levels compared to current non-payers. Of the payers, regular payers appear to induct higher semipermanent borrowings to assets compared to current payers. accredited payers in turn give higher levels compared to initiators.On the whole, the size of assets of firms have gone up during the period 1990 2001 and that change magnitude assets seems to have been financed through long borrowing implying pecking order of preference for funds. Table 5. 1 Characteristics of Dividend Payers and Non-Payers course 1991 1992 1993 fair(a) % proceeds on Assets flow rate Payers 11. 20 12. 23 Initiators 9. 79 15. 15 12. 57 regular Payers 11. 69 12. 03 12. 00 list Payers 11. 44 12. 32 12. 07 accredited Non-Payers 6. 58 5. 16 3. 69 author Payers 10. 24 7. 41 6. 23 never stipendiary 4. 44 6. 71 5. 29 jibe Non-Payers 5. 49 6. 68 5. 29 norm 1% mown EPS authoritative Payers 3. 0 4. 83 Initiators 7. 05 7. 47 5. 49 steady Pa yers 14. 11 12. 79 9. 07 amount of money Payers 13. 20 11. 97 8. 46 catamenia Non-Payers -1. 61 -1. 18 -0. 49 former(prenominal) Payers 0. 71 -2. 72 -3. 45 neer compensable 0. 07 1. 41 -0. 88 amount of money Non-Payers 0. 04 0. 49 -1. 41 bonnie ordinary timeworn winnings to take truth % veritable Payers 21 18 Initiators 29 39 27 veritable(a) Payers 22 20 19 tote up Payers 24 24 21 true Non-Payers -15 -7 -41 motive Payers 8 -27 58 never salaried 14 23 47 summate Non-Payers 4 13 23 number % egress (Assets) menstruation Payers 46. 25 27. 29 Initiators 29. 87 92. 24 66. 77 fastness Payers 28. 92 62. 44 32. 20 descend Payers 29. 03 63. 66 33. 0 accepted Non-Payers 16. 13 2. 34 26. 55 1994 12. 67 15. 19 12. 24 12. 58 3. 16 5. 37 4. 91 4. 79 7. 30 4. 53 9. 37 8. 67 -0. 35 -1. 64 -0. 62 -0. 81 23 32 21 24 13 72 14 21 27. 95 50. 41 36. 31 36. 17 46. 48 1995 13. 99 13. 66 12. 21 12. 56 1. 99 5. 94 5. 73 5. 41 6. 95 3. 98 8. 90 8. 15 0. 28 0. 51 0. 59 0. 54 20 26 22 23 4 -65 10 -3 1996 12. 27 11. 25 12. 02 11. 99 3. 67 9. 06 3. 89 5. 61