Factors Determining the Dividend Policy of a Company

The objective of this paper is to analyse the factors which determine the dividend policy for companies in India. The author has identified a set of 16 factors which may impact the dividend decision. These factors are identified based on prior works in the area and on theoretical framework on dividend policy. The dataset is from the BSE 500 companies, which represent a fair share of the market. The methodology applied is principal component analysis; with Bartlett Test and KMO test done to check the suitability of data for factor analysis. Factor analysis reduces the sixteen variable to seven and these factors are then regressed to the dividend pay-out ratio to identify the key determinants of dividend policy. The major findings of the study are that the ownership structure (both promoters and institutional holdings), liquidity, debt/equity, dividend yield, shareholders' returns, investment policy, taxation aspect, and growth prospects are all significant predictors of the dividend policy for Indian firms.