Relationship between Company Characteristics and Divided Policy

INTRODUCTION

The growing concern needs finances for its development and expansion in any form, which, may come by way of share capital, borrowings, or self-financing. The dexterity of management lies more in the management of earnings than in the procurement of capital. The efficient use of capital is not only depends upon the acquisition of capital in proper amounts at the right time but also on the careful formulation of internal financial policies and constant vigilance in their administration. The raising of capital may not entail so much of foresight and prudence as the effective utilization of the available resources. Defective administration of income, inadequate provision for depreciation and ill-planned resources likely to be the results of an absence of scientific internal financial control and may lead to liquidation. Earning is one of the important ingredients of business success and it needs constant and intelligent handling by the management. Earnings refer to a company‘s reported profits i.e., profits after all expenses including depreciation, interest and taxes have been deducted. Management of earnings means how these earnings are utilized i.e., how much is paid to the shareholders in the form of dividends and how much is retained and ploughed back in the business.

Where; EBIT= Operating profit, DE= Debt Equity Ratio, IP= Interest Paid, CS= Company Size, GTA= Growth

Table 1.1 displays that in the overall analysis of sample companies, the lagged dividend and company size was the most important determinants of dividend decision as the regression coefficient of lagged dividend and company size are found to be the highest in most of the years under study and also found statistically significant for fifteen and thirteen years respectively The regression coefficient of lagged dividend, and company size have a positive sign in most of the years under study period. This suggests that there was a positive relationship between dividend payment and lagged dividend and company size, which supports the hypothesis. It means companies, which were large in size pay more dividend then the smaller ones. The regression coefficients of operating profit have positive sign during most of the years under study period and were also found statistically significant for seven years out of sixteen years of study. This suggests that there was a positive relationship between operating profit and dividend payment.

The regression coefficients of interest payment have negative values during most of the years and were found statistically significant for twelve years out of sixteen years of study. This suggests that there was a negative relationship between dividend payment and interest paid by the companies. It means companies having more burden of interest payment show a tendency to pay fewer dividends. Likewise in case of debt equity ratio regression coefficients have payment. It means levered firms pay fewer dividends then the unlevered ones. The regression coefficients of current ratio have negative sign during most of the years. This suggests that there was a negative relationship between current ratio and dividend payment, which was contrary to the hypothesis. The above analysis was also supported by the value of coefficients of determinants r2 which ranges between 0.59 and 0.99. This indicates that the independent variables have been causing more than seventy per cent of the variation in dividend paid by the companies under study. The F values also indicate that independent variables are the important determinants of current dividend. The Durbin Watson test which has been applied to examine the existence of autocorrelation in the cross sectional data series reveals the absence of autocorrelation in each year of the study as its values are near 2. Hence, the results of the model give reliable estimates. Thus, above analysis tends to confirm that the lagged dividend and company size were the most important determinants of the dividend followed by company size and interest payment. The current ratio was found to be the least important determinant of dividend payment as it gives the least value of regression coefficients during most of the years of the study. As mentioned earlier, lagged dividend in Lintner Model represents the desire of management for a stable dividend policy. It is important to note from Table 1.1 that the lagged dividend has been emerged as a highly significant determinant of dividend in case of more than ninety percent of the time.

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Research Scholar, Department of Commerce, OPJS University, Churoo-136119, Rajasthan (India) nainasharma6902@gmail.com