| Pub. Date | : October, 2021 |
|---|---|
| Product Name | : The IUP Journal of Accounting Research and Audit Practices |
| Product Type | : Article |
| Product Code | : IJARAP181021 |
| Author Name | : Geeta Singh* and S Vijayalakshmi |
| Availability | : YES |
| Subject/Domain | : Finance |
| Download Format | : PDF Format |
| No. of Pages | : 12 |
The paper investigates the lesser researched area of possible association between promoter equity ownership and dividend policy. Firms in India have concentrated ownership of promoters and thus, promoters may influence the firm's various decisions, including its dividend policy. The paper tests the relation between the promoter ownership and dividend payment, after controlling several firm characteristics such as size, return on assets, cash ratio and leverage. Based on panel data of Nifty 100 firms from March 2011 to March 2019, evidence for a positive relation between the promoter's equity ownership and dividend payment is provided. The results are in line with the reputation building hypothesis. This hypothesis suggests that the positive relation between promoter ownership and dividend payout is a result of reputation building mechanism such that firms intend to send a positive signal to the market and investors that they are not expropriating the rights of minority shareholders.
Corporate governance is defined as the way through which suppliers of finance to corporations
assure themselves of getting a return on their investment. For knowing the wider scope of
corporate governance, Andrei and Robert (1997) sought to find out: How do the suppliers of
finance get managers to return some of the profits to them? How do they make sure that
managers do not steal the capital they supply or invest it in bad projects? How do suppliers of
finance control managers? Many mechanisms can answer these questions and one such
mechanism is the dividend payment which acts as a signaling tool, sending a signal to the
market and investors that the firm is not expropriating the rights of minority shareholders.
Dividend payment has been considered a disciplinary mechanism of corporate governance
which also works as a substitute for poor monitoring by a firm's shareholders.
In this paper, we provide evidence that the dividend payment is related to the percent of
equity ownership of promoters. In the presence of control variables which also influence the