Sectoral Analysis of Factors Influencing Dividend Policy: Case of an Emerging Financial Market

摘要

This study aims to determine whether a firm’s dividends are influenced by the sector towhich it belongs. This paper also examines the explanatory factors for dividends across individualsectors in India. This longitudinal study uses balanced data consisting of companies listed on theNational Stock Exchange (NSE) of India for 12 years—from 2006 to 2017. Pooled ordinary least squares(POLSs) and fixed effects panel models are used in our estimation. We find that size, profitability, andinterest coverage ratios have a significant positive relation to dividend policy. Furthermore, businessrisk and debt reveal a significantly negative relation with dividends. The findings on profitabilitysupport the free cash flow hypothesis for India. However, we also found that Indian companies preferto follow a stable dividend policy. As a result of this, even firms with higher growth opportunitiesand lower cash flows continue to pay dividends. We also find evidence that dividend policies varysignificantly across industrial sectors in India. The results of this study can be used by financialmanagers and policymakers in order to make appropriate dividend decisions. They can also helpinvestors make portfolio selection decisions based on sectoral dividend paying behavior.