This article tries to explore the link between dividend payout policy and foreign institutional investment (FII). Using panel data of 150 listed Indian companies for the period 2001–2010, this article tries to explore the impact of FII on dividend payout policy and vice versa. The outcomes indicate the FIIs, as a whole, increase the chance of paying cash-dividend, but the marginal impact is quite small in economic terms and also FIIs increase the probability of paying more dividend payouts. Our analysis has further shown that the foreign institutional investors are attracted towards cash-dividend paying firms. Thus, our study does not support the traditional agency cost problems but do support the clientele theory. Our results further reveal that our firm-level characteristics do support the free-cash flow theory and the pecking order theory firmly but the maturity theory partially. However, the financial recession, which has started since 2007, has shown its usual negative impact on the level of dividend payments.
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