Empirical evidence on the determinants of dividend pay-outs in the auto components sector in India

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Determinants of dividend policy have been a topic of debate in the academic literature for several decades, but the studies have not been able to give a concluding result on the topic. Existing literature reveals that one of the most challenging decisions, dividend payout, is affected by multiple determinants thereby impacting the value of stock, among which proficatibility, capital structure and level of cash flows are identified to be significant factors. The aim of this study is to evaluate empirically the determinants of dividend payout among the companies in the Indian auto components sector which are listed in major Indian bourses. This paper constitutes a modest attempt to explore the relationship between dividend policy (dividend pay-out ratio) of the companies and the variables representing profitability, capital structure, investments, liquidity and cash flows. The other salient feature of the study is that it examines casual relationship of financial performance, operational efficiencies and investment strategies on decision of paying the dividend. ANOVA, correlation analysis and regression analysis have been used to explore the relationship between the identified variables. The study finds that the dividend policy of the companies in the Indian auto components sector is largely influenced by the operating profit, cash from operations, proportion of cash from operations used for financing the investment activities and the proportion of equity in the capital structure of the companies. The study addresses the Indian auto components sector, which is not researched much, and suggests rejuvenation in dividend policy after accounting a derived variable of cash flow to capital expenditure, as identified relevant to the group of auto manufacturers selected for the study.

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    • Table 1. List of variables
    • Table 2. Summary statistics
    • Table 3. Results of ANOVA and Correlation Analysis of the relationship between measures of profitability and dividend pay-out ratio
    • Table 4. Results of ANOVA and correlation analysis of the relationship between capital structure and dividend pay-out ratio
    • Table 5. Results of ANOVA and correlation analysis of the relationship between cash flows and liquidity and dividend pay-out ratio
    • Table 6. Results of ANOVA and Correlation Analysis of the relationship between investment activities and dividend pay-out ratio
    • Table 7. Model summary of regression
    • Table 8. Multiple regression ANOVA
    • Table 9. Regression coefficients of independent variable