Dividend Policy Promoter Ownership and Firm Life Cycle An Agency Problem Perspective in the Indian Context

Abstract

The dividend policy affects the availability as well as cost of funds to the firm. This area has attracted the attention of many researchers. Prior literature provides determinants of dividend policy, including various firm, industry, and country specific characteristics. One of the important characteristics of the firm is its ownership structure equity ownership of different categories of shareholders. The presence of controlling shareholders, either managers or the insiders, can influence many firm decisions, including its dividends. The effect of controlling shareholders of the firm on the dividend policy is well studied, especially in the framework of managers and family members of firms. Some researchers show an indirect relation between controlling shareholder s ownership and dividends (Ben-Nasr, 2015; Mulyani et al., 2016; Attig et al., 2016); whereas others provide evidence of positive association between controlling shareholder s equity holding and dividend payout (Yoshikawa and Rasheed, 2010; Balachandran et al., 2019), etc; however, there is no consensus on the relation. newlineWe provide the first study to examine the effect of promoters ownership on the dividend policy at different levels of their equity holding in the Indian context. We intend to highlight the importance of promoter ownership in dividend payment decisions in the context of the agency theory. Further, this is the only study to empirically observe the relationship between promoter ownership and dividend policy across all listed Indian firms, including standalone and business group firms from various industries, for the time period 2001 to 2020.Since firms affiliated to business groups can have different dividend policy compared to their standalone counterparts, we examine the relation between promoters ownership and dividend policy for both business group and standalone firms.