Dividend behaviour of Indian companies under monetary policy restrictions
Abstract
In this study we examine the dividend behaviour of Indian companies. We use GMM
estimator, which is the most suitable methodology in a dynamic setting. Our results
show that the Indian firms have lower target ratios and higher adjustment factors. The
most significant result is that the restricted monetary policies have significant influence
on the dividend behaviour of Indian firms, causing about 5-6 percent reduction in the
payout ratios. The significance of macro economic policy variable suggest that
monetary policy restrictions do have impact on cost of raising funds, and the
information asymmetry between lenders and borrowers increases that forces companies
to reduce their dividend payout.
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