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As a result of this, even firms with higher growth opportunities and lower cash flows continue to pay dividends.We also find evidence that dividend policies vary significantly across industrial sectors in India.This longitudinal study uses balanced data consisting of companies listed on the National Stock Exchange (NSE) of India for 12 years—from 2006 to 2017.
It is referred to as the “bird-in-hand” argument, as investors prefer current income rather than future income (Gordon 1963).
Also, the tax treatment of dividends and capital gains is different.
Certain studies consider that the dividend decision influences the value of a firm (Walter 1963), and is interlinked with the firm’s investment policy.
Researchers also theorize that generally, investors are risk-averse and give preference to receive certain dividends rather than uncertain capital gains, which are riskier.
It also assumes that such firms also take a higher amount of debt, which involves the payment of fixed interest charges.
The obligation on the part of the company to make timely payments of principal and interest will ensure that the company does not invest in less profitable investment opportunities, and thus helps in reducing agency cost.This sectoral influence is mainly because firms belonging to a sector have similar earnings prospects, investment prospects, and accessibility of resources.As a result of these similarities, firms in the same sector have similar dividend policies (Michel 1979; Baker 1988; Dempsey et al. However, very limited studies have evaluated the variances in dividend policy behavior across sectors.The results of this study can be used by financial managers and policymakers in order to make appropriate dividend decisions.They can also help investors make portfolio selection decisions based on sectoral dividend paying behavior.Hence, it is not astonishing that “dividend controversy” has been listed by Brealey and Myers (2002) as one among ten of the most important unsolved corporate finance problems. firms, higher dividends are paid by emerging market firms, which itself is puzzling.Also, the determinants of dividend decision are not uniform across firms. (2003b) find that country-specific factors have an impact in determining dividend policies in emerging markets. Reddy and Rath (2005) have also reiterated that dividend behavior in emerging markets has not been evaluated extensively.Investors can get a return on their investment through dividends (current income).Alternatively, if a company has a lucrative investment opportunity available, it may not distribute its profits.(2000) report that dividends are not used by managers to attract investor clientele.The signaling theory by Solomon (1963) and Ross (1977) suggests that dividend policy gives information about a stock.