Impact of Business Group Size and Diversification on Dividend Policy and Payouts:Evidence from Indian Companies

This paper investigates how the decision of likelihood of dividend payments and the dividend payout level decision vary within business-group-affiliated firms by utilizing 781 sample firms listed on National Stock Exchange (NSE) during 1995-2015. This study is different from previous studies as it examines the impact of business-group size and diversification on dividend policy and payouts considering exhaustive list of explanatory variables taken from major theories of dividend policy during post-liberalization and second-generation reform period in India. The comparative analysis results indicate that the dividend payout ratio increases with the increase in the level of groups’ size and diversification during the entire study period as well as during the post-liberalization and the second-generation reform period. The econometric results indicate that the larger and diversified business-group-affiliated firms are lesser sensitive to investment opportunities, financial leverage, the firm’s maturity, and profitability as compared with the standalone and the other business-group-affiliated firms.