DIVIDEND PAYOUT-POLICY

DRIVERS:
EVIDENCE FROM EMERGING
COUNTRIES

Presented by Group 7:
Ambika Ravi Shankar 14009
Arjun Dayal 14014
Arjun Manoj 14015
Ashish Sopori 14018
Ashvita Ganesh 14020

AIM OF THE RESEARCH

Main aim is to continue the debate on

dividend payout policy in emerging
countries
One of the most controversial topics in the
field of corporate finance
Interest
in
examining
the
behaviour in emerging countries

dividend

RESEARCH MOTIVE

Provide further findings for the Residual

Cash Flow Theory through the
relationship between Dividend Payout
and Cash Position

Test whether the results from previous

findings (2003-11) have changed since

Employ an up-to-date econometric

technique that deals with the

KEY TERMS

Common Law and Civil Law

Difference between common and civil law lies in the actual source of law.
Common-law systems

Refer extensively
to statutes
Judicial cases are
considered the
most important
source of law
Judges to proactively contribute
to rules.

Civil-law systems

Codes and statutes

are designed to
cover all
eventualities
Judges have a more
limited role
Past judgments are
no more than loose
guides

Residual Cash Flow

Measurement of an investment's value creation and is also

known as cash value added.

From net adjusted cash flows for the accounting period

subtract the cost of capital

Provides a fairly realistic assessment of the kind of cash

value a shareholder can expect in return for their capital

Signaling Theory

Company announcements of an increase in dividend payouts

act as an indicator of the firm possessing strong future
prospects

The rationale behind dividend signalling models stems from

game theory

AGENCY MODEL

Shareholders- Principal ; Management- Agent

The outcome model : shareholders can use their rights to

influence companies to pay dividends; this influence
increases with the strength of rights.

The substitution model : companies pay high dividends

as a substitute for poor shareholders rights and to
create a good reputation

METHODOLOGY

2636 companies from 16 countries

between 2003-2011
Multi-country
approach

two
country
variables:
shareholders
rights and legal origin
Two estimation methods OLS
(Ordinary Least Squares) and GMM
(Generalized Method of Moments)

HYPOTHESES IN THE CASE

Higher liquidity ratio, more dividends

paid
Corporate governance positively affects
dividend payouts
Pecking
order
theory

Negative
association between debt and dividend
payout
Trade-off theory Positive association
between debt and dividend payout

MAJOR FINDINGS

Policies for current year are similar to

previous year.
Average dividend payout ratio is 3.22
OLS estimates direct link between
liquidity
and
cash
needs
with
dividends paid
Size and corporate governance are
linked to higher dividend payouts

 Growth indicates negativity but

profitability indicates positivity
Business cycle and risk dont affect
dividend policy
Substitution model is well suited for
emerging
countries

stronger
shareholder rights lead to more
dividends

CONCLUSION

High investor protection more heed

to cash needs
Low investor protection more
importance to liquidity
Similarity in emerging and developed
countries
Important implications for academics,
practitioners and policy makers

 THANK YOU