Propensity to Propose and Pay Dividend: Does Firm Characteristics Matter?

Abstract

The study assesses the impact of firm characteristics on the propensity to propose dividends and pay a dividend as proposed. This study uses a dataset of 4011 listed Indian non-financial firms over 15 years, spanning 2004–2005 to 2018–2019. Firm characteristics are observed to be important determinants of firms’ propensity to propose dividends and pay as proposed. With respect to a propensity to propose dividends, firms’ size, profitability, market-to-book ratio (MBR), capital expenditure, cash holding, ownership concentration, and group affiliation are found to have positive coefficients, whereas earning volatility, leverage, free cash flow (FCF) and illiquidity are found to have negative coefficients. On the contrary, with respect to a propensity to pay dividends as proposed, the study observes that size, profitability, MBR, and ownership concentration have negative coefficients, and leverage, FCF, illiquidity, and group affiliation have positive coefficients. The results are consistent for both group and stand-alone firms. These findings have practical significance for the investors since investors are likely to be more concerned about the payment of dividends as proposed rather than the mere promise to pay dividends.