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Dividend policy in India: reconciling theory and evidence

Bipin Kumar Dixit (Department of Finance and Accounting, Indian Institute of Management Tiruchirappalli, Tiruchirappalli, India)
Nilesh Gupta (Finance and Accounting Area, Indian Institute of Management, Nagpur, India)
Suman Saurabh (Department of Industrial and Management Engineering, Indian Institute of Technology Kanpur, Kanpur, India)

Managerial Finance

ISSN: 0307-4358

Article publication date: 4 July 2020

Issue publication date: 17 November 2020




The purpose of this paper is to examine the dividend payout behavior of Indian firms and test whether the three prominent dividend policy theories (signaling, life-cycle and catering) explain the dividend policy of Indian firms.


The authors test the three theories using the methodology based on the studies of Nissim and Ziv (2001), DeAngelo et al. (2006) and Baker and Wurgler (2004). For testing the signaling theory, the authors regress the change in earnings on the rate of change in dividends using the pooled and Fama–Macbeth regressions. The life cycle theory is tested by running a logistic regression of the dividend payment decision on two proxies of life-cycle measured by the ratio of earned to total equity. Finally, the catering theory tests the relationship between the decision to pay a dividend and the dividend premium.


The results based on a sample of Indian firms from 1992 to 2017 show that the dividend policy of Indian firms can be explained using the life-cycle theory. However, there is no evidence in support of the signaling and catering theories.


It provides insights into the dividend policy of Indian firms. Though there have been a few studies examining the dividend payout in India, none of the existing studies tests these theories of dividend payout. The existing research using the Indian data provides indirect evidence about the life-cycle theory. This study is the first one to test the application of these theories for Indian firms.



All the authors have contributed equally to this research.


Dixit, B.K., Gupta, N. and Saurabh, S. (2020), "Dividend policy in India: reconciling theory and evidence", Managerial Finance, Vol. 46 No. 11, pp. 1437-1453.



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