Relevance of Signaling and Smoothing Approaches to Dividend: A Study of Indian IT Sector

Abstract

The study is an attempt to validate Linter dividend policy model in Indian Information Technology sector. More importantly, it establishes a relationship between PAT and equity dividend with the aid of multiple regression analysis. The basic objective of the study is to identify the primary determinant of dividend policy in Indian Information Technology industry. Thus, this paper investigates whether IT firms strive for stability and regularity of dividends and tend to arrive at a target payout ratio or not. An effort has been made to find the applicability of dividend signaling and smoothing approaches in IT sector by empirically testing the Linter model through our study. The findings suggest that current year profits is the major determinant of dividend decision in IT sector. The dividend payout of IT companies fluctuates with the earnings.