What Determines Dividend Policy- Evidence from Banking Sector in India

Abstract

D ividend policy (D P) is one o f the m ost im portant aspects o f fin a n cia l m anagement to achieve the objectives o f a business concern. The objective o f this paper is to analyze the trends and identify the variables that determ ine the D P o f corporate firm s o f banking sector in India. The banks, whose shares are actively traded in Bombay Stock Exchange (BSE), are considered as sample units fo r the study fo r the period o f fiv e years ranging from 2005-06 to 2009-10. A multiple regression model, in addition to L in tn e r’s, and B ritta in ’s models is used fo r analysing the determinants o f DP. The results o f the study show that the previous year dividend, profit after tax, cash flow, previous y e a rs dividend payout ratio, debt equity ratio and return on investment are the most significant factors that influence the D P o f the corporate firm s o f banking sector in India.