DETERMINANTS OF CORPORATE DIVIDEND POLICY –A SEM APPROACH IN SELECT MANUFACTURING SECTORS IN INDIA

gowri kannan, saravanan R

Abstract


ABSTRACT

The prosperity of a country depends, to a larger extent, on the performance of the economy. Manufacturing sector is the backbone of any economy. A major portion of any country’s Gross Domestic Product is contributed by its corporate sector. India is a country with more than 1000 million people with 3.28 square million kilometers of land and endowed with million kilometers of natural resources. The success of India depends on the exploitation of all these resources for its developments. Corporate sectors provide medium level contribution through which these resources could be profitably exploited. The success of the country and its economy to a larger extent depend on the performance of its corporate sectors. Indian corporate sector has the potential to touch US$ 1 trillion by 2025. There is potential for the sector to account for 25-30 per cent of the country's GDP and create up to 90 million domestic jobs by 2025. Business conditions in the Indian manufacturing sector continue to remain positive. Dividend policy is one of the major decisions in corporate finance and also an appropriation or distribution of profit to shareholders. Corporate dividend policy has been the concern of financial managers, and firms at large. Firms have been facing a dilemma of sharing dividend to stockholders and retaining their earning with the view to reinvesting it back into the business so as to promote further growth of the business.  Dividend policy is widely researched topic in finance but still it remains a debatable issue to decide what factors determine the equity dividend. This present study makes an attempt to examine the determinants of corporate dividend policy of select manufacturing industry in India by using Structural Equation Modeling. The present study investigates the factors determine the dividend policy of select industries such as Automobile, Chemical, food, steel and textile industries for the period of 2006-07 to 2015-16. The result of the study indicates that all the measured variables with latent variable of successful operation of determining the dividend policy of the Chemical and steel industry have a positive relationship and also significant at 1 percent and 5 percent level.  In case of Automobile industry PROF and Growth which has negative relationship with the determinants of dividend policy in Automobile industry. In case of Food industry SIZE has negative relationship with the determinants of dividend policy in Food industry. In case of Textile industry, SIZE, PROF, LIQ, GROW and RISK of the firm has negative relationship with the determinants of dividend policy.

Key words: Dividend policy, Determinants of dividend, Automobile industry, Chemical industry, Food industry, Steel industry, Textile industry.


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ISSN : 2251-1547