The IUP Journal of Accounting Research and Audit Practices:
The Determinants of Dividend Policy in Indian Corporate Sector

Article Details
Pub. Date : Jan, 2019
Product Name : The IUP Journal of Accounting Research and Audit Practices
Product Type : Article
Product Code : IJARAP31901
Author Name : Mahesh Chand Garg and Vikas Bhargaw
Availability : YES
Subject/Domain : Finance
Download Format : PDF Format
No. of Pages : 51



The present paper is an attempt to examine the determinants of dividend policy of Indian corporate sector for a duration of 12 years from 2002-03 to 2013-14. The sample contains 200 companies out of listed companies in the BSE-500 index at Bombay Stock Exchange which paid dividend for at least 10 years out of 12 financial years. The well-known multiple regression analysis-based dividend model, namely, Lintner’s (1956) dividend model is used to test the relationship among the study variables. The empirical results suggest that current year profits after tax and lagged dividends are the most important factors that affect positively the current dividend policy of the companies, which demonstrates the suitability of Lintner’s dividend model for determining the dividend behavior of the sample companies. In order to provide a comprehensive analysis of the determinants of dividend policy, additional explanatory variables such as investment demand, flow of net debt, interest payment, and change in sales have also been included along with the Lintner’s dividend model, and it is found that none of these additional variables are significant determining factors of dividend decision of Indian corporate sector. On the practical side, the study holds the argument that information related to profitability and lagged dividend would help the firms to focus on the major factors concerning the payment of dividend by Indian corporate sector.


The dividend decision, one of the widely researched puzzles in the area of finance, has been a core of attraction for the past few decades. Dividends are those periodic cash or kind payments which are made by a corporate unit to its shareholders as an earning on their investment. Dividend decision determines the policy adopted by any company for division of earnings as dividend to shareholders as well as retaining it for reinvestment in the firm. Retained earnings are one of the most significant sources of funds for financing corporate growth, which eventually makes it possible to get more dividends.


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