Dividend Analysis of Banking Industry
Leading Determinants of Dividend Policy: A Case Study of Indian Banking Industry
ABSTRACT: Dividend policy is a critical decision area in the field of finance. The subject of corporate dividend policy has captivated finance scholars for a long time, resulting in intensive theoretical modeling and empirical investigation. But several questions related to dividend decisions remain perplexing because of diverse and conflicting theories and evermore due to diverse empirical results. This paper attempts to give a focused overview of the important dividend theories and identify the leading factors that determine the dividend behavior in the corporate financial management. Dividend behavior of Indian Banking Industry has been analyzed using various econometric techniques. It may be concluded that lagged dividend, PAT, interest are the most important factors affecting dividend decisions of the industry whereas capital expenditure is not. However, Target payout ratio of the industry has decreased to 44% in 2005-06 from 71% in 1996-97. The paper may serve as ready reference for future researches in this field of corporate finance vis-à-vis Dividend Decision Policy.
Key Words: Dividend Decisions; Lintner 's Model; Agency Cost; Information Asymmetry; Free Cash Flow Hypothesis; Granger Causality Test; Determinants of Dividend Policy; Dividend Decisions in Developing Countries, Indian Banking Industry.
INTRODUCTION: Banking is an integral part of Indian financial system as it plays very important role in mobilizing savings from various sectors, which is the foundation for growth and development of an economy. Indian policymakers at the national level deliberately shifted for a series of economic reforms in the wake of a serious balance-of-payments crisis in 1991. To start with the reforms process, the central plank was to carry out reforms in the financial sector with the banking being the mainstay of financial intermediation. The objective of the banking sector
ABSTRACT: Dividend policy is a critical decision area in the field of finance. The subject of corporate dividend policy has captivated finance scholars for a long time, resulting in intensive theoretical modeling and empirical investigation. But several questions related to dividend decisions remain perplexing because of diverse and conflicting theories and evermore due to diverse empirical results. This paper attempts to give a focused overview of the important dividend theories and identify the leading factors that determine the dividend behavior in the corporate financial management. Dividend behavior of Indian Banking Industry has been analyzed using various econometric techniques. It may be concluded that lagged dividend, PAT, interest are the most important factors affecting dividend decisions of the industry whereas capital expenditure is not. However, Target payout ratio of the industry has decreased to 44% in 2005-06 from 71% in 1996-97. The paper may serve as ready reference for future researches in this field of corporate finance vis-à-vis Dividend Decision Policy.
Key Words: Dividend Decisions; Lintner 's Model; Agency Cost; Information Asymmetry; Free Cash Flow Hypothesis; Granger Causality Test; Determinants of Dividend Policy; Dividend Decisions in Developing Countries, Indian Banking Industry.
INTRODUCTION: Banking is an integral part of Indian financial system as it plays very important role in mobilizing savings from various sectors, which is the foundation for growth and development of an economy. Indian policymakers at the national level deliberately shifted for a series of economic reforms in the wake of a serious balance-of-payments crisis in 1991. To start with the reforms process, the central plank was to carry out reforms in the financial sector with the banking being the mainstay of financial intermediation. The objective of the banking sector
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