Ownership structure and dividend payout policy: Evidence from India

This paper tries to examine the impact of ownership structure on dividend payout ratio through the ownership composition or the identity of shareholders. Using a balanced panel data of 1050 firms listed at the NSE(National Stock Exchange) for the period 2006 to 2015 and applying the random-effect panel Tobit Regression, this paper shows that the level of family ownership and corporate bodies have a positive and significant impact on dividend payout policy. Hence, our result supports the signaling aspect of dividend but negates the horizontal agency problem. Dividend is used as a means to address the agency problem in the context of Indian corporate firms. In India, the strong external corporate governance mechanisms followed by stringent legal laws for minority shareholders and good investor protection mechanism compel promoters to distribute more dividends. Hence, dividend is an outcome of strong legal rights of the shareholder to alleviate the agency problem. Moreover, the control variables support the free cash flow theory, the maturity theory and the pecking order theory of dividend.