Stability of Dividends in India
NSE Research Initiative, Project Report no. 229 / 2009
Determinants and the Stability of Dividends in India:
Application of Dynamic Partial Adjustment Equation using Extended Instrumental Variable Approach
Dr. Manoj Subhash Kamat Dr. Manasvi Manoj Kamat
Summary
This paper improves on earlier research on stability and determinants of dividend policies by using a more advanced estimation methodology, a larger and more representative sample of panel data (PD), and different proxies for a longer time window 1971-2007. It is aimed to find whether the Indian private corporate sector follow stable cash dividend policies, whether dividends smoothen earnings in India, to estimate the implicit target payout ratio and speed of adjustment of dividends towards a long run target payout ratio. We further test applicability of dividend stability hypothesis and add to the relatively limited literature on aspects of dividend decision by examining the dynamics of relationship between dividend payouts and a host of other explanatory variables. We estimate the basic static PD model, GMM-in-Levels {GMM (in-Lev)} model, and its other variations GMM-in-first-differences {GMM (in-Diff)] and GMM-in-Systems {GMM (in-Sys)}so to include other lag structures. This procedure shows us how much the size of the dividend determinants, the speed of adjustment coefficient and the one of the implicit target payout ratio varies across the different estimation techniques. In addition, it will also be useful to compare our results with those of Pooled OLS-estimation with alternate data definitions for checking the robustness of the results.
Keywords: Dividends, Determinants, Stability, Panel Data, Partial Adjustment Model, GMM, GMM (in-Diff), GMM (in-Sys), India.
1
Determinants and the Stability of Dividends in India:
Application of Dynamic Partial Adjustment Equation using Extended Instrumental Variable Approach Introduction
There is no consensus in the financial markets or in
Determinants and the Stability of Dividends in India:
Application of Dynamic Partial Adjustment Equation using Extended Instrumental Variable Approach
Dr. Manoj Subhash Kamat Dr. Manasvi Manoj Kamat
Summary
This paper improves on earlier research on stability and determinants of dividend policies by using a more advanced estimation methodology, a larger and more representative sample of panel data (PD), and different proxies for a longer time window 1971-2007. It is aimed to find whether the Indian private corporate sector follow stable cash dividend policies, whether dividends smoothen earnings in India, to estimate the implicit target payout ratio and speed of adjustment of dividends towards a long run target payout ratio. We further test applicability of dividend stability hypothesis and add to the relatively limited literature on aspects of dividend decision by examining the dynamics of relationship between dividend payouts and a host of other explanatory variables. We estimate the basic static PD model, GMM-in-Levels {GMM (in-Lev)} model, and its other variations GMM-in-first-differences {GMM (in-Diff)] and GMM-in-Systems {GMM (in-Sys)}so to include other lag structures. This procedure shows us how much the size of the dividend determinants, the speed of adjustment coefficient and the one of the implicit target payout ratio varies across the different estimation techniques. In addition, it will also be useful to compare our results with those of Pooled OLS-estimation with alternate data definitions for checking the robustness of the results.
Keywords: Dividends, Determinants, Stability, Panel Data, Partial Adjustment Model, GMM, GMM (in-Diff), GMM (in-Sys), India.
1
Determinants and the Stability of Dividends in India:
Application of Dynamic Partial Adjustment Equation using Extended Instrumental Variable Approach Introduction
There is no consensus in the financial markets or in