Leading Determinants of Dividend Policy: A Case Study of the 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 also 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.