Ownership Concentration and Dividend Payout in Emerging Markets: Evidence from India

Abstract

Ownership concentration plays an important role in determining the dividend payout of firms. Ownership concentration of Indian companies is quite high due to their peculiar shareholding pattern. We examine the relationship between ownership concentration and dividend payout in India over the period 2010–2017 using panel-data methodology and found that ownership concentration is positively correlated with dividend payout. The evidence, which is at odds with that in many developed markets, corroborates similar findings in many other emerging markets. Corporate dividend policy in emerging markets seems to be different from that in developed markets. Further, the presence of a large shareholder, other than an individual, outside the promoter group has a negative influence on the dividend payout. This negative influence is higher for a financial company and is strongly dependent on the size of the shareholding of such large shareholder relative to that of the promoter group. This study provides additional insights into the relationship between ownership concentration and dividend payout in India and contributes to the growing literature on this relationship. Fund managers and investors can use the findings of the study to predict firms’ payout and to build their portfolios by selecting stocks that best suit them.