Dividend policy is one of the most important issues for any business unit. In its wider sense
it is defined as the reward to the investor for providing finances to the firm. Although
with the certain unrealistic assumptions Modigliani and Miller (1958) showed that the
value of the firm is independent of its dividend policy, other modern corporate finance
theories have posited that dividend policy does matter (Jenson, 1976 and Rozett, 1982).
In the modern corporate finance literature, the role of corporate governance has increased.
Therefore, the importance of ownership structure of the company or the shareholding
pattern has increased to determine the dividend pay-out ratio. It is argued that the
payment of dividends is highly influenced by the owner of the shares. Dividend policy may
reflect the concerns of shareholders with limited ability to monitor and control the
behavior of managers.
In India ownership structure of the companies differs from the USA and the UK, etc.
In the case of India large shareholders i.e., directors, promoters and corporate have ample
incentive and ability to control the financing decisions of the companies than other small
investors. In the recent years, the research on determinants of dividend policy is quite vast
in both developed and developing countries, but more specifically very few literatures are
available about the relationship between shareholding pattern and dividend policy.
Looking towards the research gap this paper has tried to fill-up this by answering the
following questions: (1) Does shareholding pattern in a company matter for deciding
dividend policy? (2) If it does then whose ownership is more effective? Empirically, this
paper has two fold contribution enhancing positive features. First, the sample size is large.
Second, it constructs and estimates the robust and advanced panel data models for finding
out the effect of shareholding pattern on the dividend pay-out ratio. |
