Financial centers and dividend policy: evidence from an emerging market

Abstract

Purpose

Is location in the financial center of a country significant determinant of a firm’s dividend policy? The purpose of this paper is to answer this question within the context of an emerging market.

Design/methodology/approach

The authors use variety of techniques (OLS regression, panel regression with random effects, TOBIT regression and quintile regression) to document the effect of location on dividend policies of Indian firms during the period between 2001 and 2016.

Findings

The results show significantly higher dividend payout ratios for firms headquartered in Mumbai, the main financial center of India. The results are robust for alternate proxy of dividend policy and for different sub-samples. The results also show that these results are more pronounced for firms with better information environment (firms with high analyst coverage).

Originality/value

To the best of the authors’ knowledge, most of the prior research overlooks how a location of firm’s headquarter in the financial center affects its dividend decisions. This paper fills this gap by documenting the relationship between the two in India.

Citation

Farooq, O. and Aktaruzzaman, K. (2020), "Financial centers and dividend policy: evidence from an emerging market", Management Decision, Vol. 58 No. 6, pp. 1149-1163. https://doi.org/10.1108/MD-12-2017-1230