Impact of Elimination of Dividend Distribution Tax on Indian Corporate Firms Amid COVID Disruptions

Research background: Dividend payouts have been the subject of scientific research for many years. Although many studies focus on the impact of ownership on dividend payouts, there is still a lack of research on the influence of the contestability and collusion of the largest shareholders on the catering effect of dividends. This research gap motivated us to investigate this issue and determine whether the interactions between large shareholders have an impact on aligning dividends with investor sentiment. Purpose of the article: The article assesses the impact of the relationship between the largest shareholders (i.e., contestability or collusion) on the adjustment of dividend payouts to investor sentiment. The following research hypothesis has been formulated: If there is contestability between the first and second-largest shareholders, the strength of the catering effect of the dividend is greater than in the case of collusion, both in the years of positive and negative dividend premiums. Methods: The main research method is a panel regression model (pooled OLS and fixed effects). We use the F test, the Breusch-Pagan test, and the Hausman test. Our research is supplemented with descriptive statistics and the Pearson correlation coefficient. The research sample consists of Polish companies from the electromechanical industry sector listed on the main market of the Warsaw Stock Exchange (WSE) in the years 2009?2020. Findings & value added: The main findings are as follows: a) if a dividend premium is positive and the second-largest shareholder holds many shares, the strong catering effect of dividends is observed; b) there are only two years of negative premium, which does not allow to conclude that both the catering effect and the impact of interactions between the largest shareholders on dividend payouts do not exist when dividend premium is negative. We propose pioneering research concerning the catering effect in the context of interactions between the largest shareholders. Its long-term theoretical value added is the original and interdisciplinary research combining financial, behavioral and governance aspects. Our research results may be of particular interest to foreign investors looking for new opportunities to invest their capital abroad, also in Poland.

show abstract

Revisiting the Long-Run Dynamic Linkage between Dividends and Share Price with Advanced Panel Econometrics Techniques

Mohapatra

Kar

2022

JRFM

View full text Add to dashboard Cite

The log-linearized present value model (PVM) has been widely used in corporate finance to understand the long-run relationship between share price and dividends using panel data. However, the application of recently established panel econometric approaches that account for slope heterogeneity and cross-section dependency in the recent literature regarding the long-run link between share price and dividends in an Indian setting is limited. This paper re-examines the log-linearized PVM in an Indian setting using newly developed panel unit root, cointegration, and long-run dynamic estimation approaches. This study employed a panel dataset of 60 Bombay Stock Exchange (BSE)-listed Indian firms paying regular dividends for 28 years (1990–2017). The study found unit root, cointegration, and a long-run relationship between dividend and share price series for Indian firms during a 28-year sample period. By demonstrating the presence of a long-run link between share price and dividends, this paper contributes to the literature on the PVM, which is crucial in comprehending market rationality and share price behavior in India. This paper also discusses issues related to panel data, such as cross-section dependency and slope heterogeneity, as well as panel econometric approaches that can be applied in the appropriate settings.

show abstract

Impact of Elimination of Dividend Distribution Tax on Indian Corporate Firms Amid COVID Disruptions

Cited by 3 publications

References 148 publications

Measuring Tax Impact on Corporate Dividend Behavior in India

Measuring Tax Impact on Corporate Dividend Behavior in India

Catering to investor sentiment for dividends: contestability or collusion of the largest shareholders?

Revisiting the Long-Run Dynamic Linkage between Dividends and Share Price with Advanced Panel Econometrics Techniques

Contact Info

Product

Resources

About