Title: Determinants of dividend policy-evidence from an emerging market

Authors: Arit Chaudhury; Varun Dawar

Addresses: Institute of Management Technology (IMT), Ghaziabad, India ' Department of Finance and Business Economics, University of Delhi, India

Abstract: The present study empirically investigates the determinants of dividend policy by focusing on the small-capitalisation firms in the context of emerging market of India. The study adds to relatively limited empirical literature on factors influencing dividend policy decisions in case of a set of small capitalisation firms in India and introduces extensive set of explanatory variables observed in previously related studies in developed and emerging markets. Our empirical results (derived through robust estimation techniques) find support for dividend signalling, agency argument and transaction cost theory and identify leverage, growth and investment opportunities as the major determinants of dividend policy in case of small capitalisation firms. The results however fail to provide any evidence with respect to free cash flow hypothesis and tax clientele in Indian context. The results of this study would be helpful for analysts and investors in assessing the right valuation of small capitalisation companies through better understanding of their dividend determinants and behaviour.

Keywords: dividends; emerging market; signalling; agency; tax clientele; transaction.

DOI: 10.1504/IJICBM.2024.137937

International Journal of Indian Culture and Business Management, 2024 Vol.31 No.4, pp.488 - 500

Received: 23 Apr 2022
Accepted: 07 Jul 2022
Published online: 11 Apr 2024 *

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