Original Article

Content Analysis of IMIB Journal of Innovation and

Management
Dividend Distribution Policy 3(1) 89­–103, 2025
© The Author(s) 2024
of Indian Listed Companies DOI: 10.1177/jinm.241252529
[Link]
[Link]

Meraj Inamdar1, Ranjith Krishnan1

and Shweta Mehrotra2

Abstract
This study attempts to perform content analysis, which is based on specific
paradigms of unobtrusive research techniques, including conceptual and document
analysis of the dividend distribution policies of the top 200 listed companies by
market capitalisation to assess whether the policies enunciated by the companies
align with the parameters suggested in the SEBI regulation. To conduct a content
analysis, the authors use a three-step methodology to collect the dividend
distribution policy documents and thus evaluate their content. First, we revisited
the regulatory framework for the dividend policy and the provisions laid down by
the regulators. The necessary information pertaining to the divided policy as per
the legislations was retrieved from the policy documents and categorised further
for the analysis. Finally, the collected information in the form of a document
as per different categories was used as primary data for the content analysis.
Our analysis found that dividends declared by companies were largely guided by
the board’s long-term strategy. Further, looking from the investors’ perspective,
having in place a dividend distribution policy for companies has probably not
addressed their needs.

Keywords
Dividend policy, retained earnings, SEBI (Listing Obligations and Disclosure
Requirements) Regulations, 2015, dividend payout

1National Institute of Securities Markets (NISM), Raigad, Near Navi Mumbai, Maharashtra, India
2Institute of Public Enterprise, Hyderabad, Telangana, India
Corresponding author:
Shweta Mehrotra, Institute of Public Enterprise, Survey No. 1266, Shamirpet (V&M), Medchal,
Malkajgiri, Hyderabad, Telangana 500101, India.
E-mail: shwetamehrotra@[Link]

Creative Commons Non Commercial CC BY-NC: This article is distributed under the
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90 IMIB Journal of Innovation and Management 3(1)

Introduction
The distribution of dividends by firms remains a quandary for finance researchers
because of its implications on the various aspects of a corporation and its
stakeholders (Black, 1976). Indeed, the relationship between dividend policy and
investment decisions has been a subject of extensive study in the field of finance
(Fama, 1974). The literature on ownership and dividend policy in the corporate
sector is vast and varied. One early study on the topic is the work of Modigliani
and Miller (1958), who developed the concept of the ‘cost of capital’ and its
implications for corporate investment and dividend decisions. Their work laid the
foundation for much of the subsequent research in this area. Black (1976)
famously referred to the ‘dividend puzzle’—the observation that firms often pay
dividends even though they could potentially use the cash for reinvestment
opportunities. Lintner’s work in 1956 indeed made significant contributions to the
understanding of dividend policy. This puzzle has been the subject of much
research, with Lintner (1956) offering one of the first elucidations for the payment
of dividends through his ‘bird in the hand’ theory, which suggests that investors
prefer the certainty of a dividend payment to the uncertain future value of retained
earnings. Researchers such as Franco Modigliani, Merton Miller and John
Gordon, known for their seminal work in dividend policy, provide different views
on dividend policy and the other matters allied thereof. The traditional approach
propounded by Modigliani and Miller (1958) views dividend decision as irrelevant
of firm value. Contrary to this, the modern scholars view dividend policy as
important decisions impacting the value of firms (Gordon, 1963). One theory
advocates the payment of high dividends, and another school of thought opposes
it considering the risk-taking ability of the investors. The significance and
implication of a dividend policy cannot be overlooked.
It is more pertinent to an economy like India, where concentrated ownership
structure is a predominant shareholding pattern (Balasubramanian & Anand,
2013; Chakrabarti et al., 2008; Claessens et al., 2002). Such type of shareholding
pattern may have two implications. The principal block holders, as major
shareholders, have a strong motivation to enhance shareholder value by addressing
agency conflicts and aligning manager and shareholder interests (Bukart, 1997;
Jensen & Meckling, 1976). Furthermore, it offers significant opportunities for
large shareholders, particularly directors and promoters, to have increased
incentives and control over a company’s financial decisions, particularly with
regard to dividends. A well-defined and transparent dividend policy is crucial as it
conveys positive signals to shareholders and reflects positive corporate
performance. On the other hand, a lacking or vague dividend policy, or a failure
to adhere to it during dividend declaration, negatively impacts the securities
market by shifting investment decisions away from dividends and towards trading
gains. In view of the above discussion, this study intends to assess the contents of
dividend policies of listed companies on whether the policies enunciated by the
companies are based on the parameters laid down in the regulation and provide a
critical review of the assessment of the dividend distribution policy by the
companies as mandated by Regulation 43A over a period of five years ever since
Inamdar et al. 91

the introduction of this requirement. By filling the research gaps in the study of
dividend policy in India, scholars can provide valuable insights for policymakers,
corporate managers, investors and other stakeholders. Such research can help
optimise dividend policy decisions, improve corporate governance practices and
enhance investor confidence in India’s financial markets.

Objectives
The objectives of the study are to examine (a) whether the dividend policies
enunciated by listed companies are as comprehensive as required by the regulator,
(b) whether the dividend declared was in accordance with the policy and (c)
whether the policy comprised all the parameters prescribed by the regulators.

Literature Review
As research in corporate finance continues to evolve, there may be further
exploration into the nuances of dividend policy in different organisational
contexts. In the Indian context, a few studies have analysed the dividend behaviour
of corporate firms. However, previous studies suggest that there is a rapidly
growing body of research on dividend policy, with most studies concentrated in
the USA and UK. Despite this, many questions regarding dividend decision-
making remain unanswered, particularly in emerging markets (Pinto et al., 2020).
Aivazian et al. (2003a) posited that the organisation of capital markets plays a
crucial role in determining dividend policy, as companies operating in countries
with well-developed capital markets are more likely to pay dividends and have
higher dividend payout ratios. This observation is supported by Ferris et al.
(2009), who found that firms in countries with strong shareholder protection and
well-developed capital markets tend to have higher dividend payout ratios.
Taxation also plays a significant role in determining dividend policy, as Ferris et
al. (2009) found that firms in countries with high levels of personal taxation tend
to have lower dividend payout ratios. Conversely, firms in emerging economies
have been found to have a lower propensity to pay dividends and a lower payout
ratio (Aivazian et al., 2003b). Glen et al. (1995) argued that this is likely due to
the higher level of risk and uncertainty associated with emerging markets. Another
aspect related to dividend is the determinants of dividend policy. In this regard,
Kumar and Sujit (2018) conducted an empirical study of Indian firms and found
that firm size, profitability and growth opportunities are important factors. Baker
and Weigand (2015) identified several other factors that influence dividend
decisions, including financial performance, growth opportunities, capital structure
and ownership structure. Explicitly, they found that firms with higher levels of
debt and those with a larger proportion of outside ownership tend to have lower
dividend payout ratios. This is also supported by Guo and Ni (2008), who found
that the level of institutional ownership is related to dividend policy, with firms
with a higher proportion of institutional ownership tending to have a higher
dividend payout ratio. There are other factors affecting dividend decisions such as
92 IMIB Journal of Innovation and Management 3(1)

the role and involvement of the board of members, especially the independent
directors, in taking dividend decisions that cannot be overlooked. Gugler (2003)
found that firms with a higher proportion of outside directors on their board tend
to have a higher dividend payout ratio, while Gugler and Yurtoglu (2003) found
that the presence of a corporate governance code is associated with a higher
dividend payout ratio in German firms. Boshnak (2021) examined the impact of
board composition and ownership structure on dividend payout policy in Saudi
Arabian firms and found that firms with a higher proportion of independent
directors and those with a higher level of family ownership tend to have a higher
dividend payout ratio. Reviewing the past seminal research work relating to
dividend decision provides insights into the investigation of all aspects of the
subject matter as a whole and other matters allied thereof. However, while
reviewing the past literature, we could not find any article on the current state of
dividend policies adopted by the top Indian firms. This motivated us to investigate
to what extent the companies are following the best practices in terms of their
dividend policy.

Research Design
The research approach employed is prefaced on specific paradigms of unobtrusive
research methods, including conceptual and document analysis. Unobtrusive
research refers to methods of gathering data which do not intervene with the
subjects under study (because these methods are not obtrusive). It is a kind of
qualitative content analysis commonly used for analysing qualitative data. There
is an ongoing demand for effective and straightforward strategies for evaluating
content analysis studies (Rani & Salanke, 2023). In the context of this study,
unobtrusive research was necessary to collect data without interacting with the
subjects (Maroveski, 2016). Data analysis is done through an in-depth analysis of
the dividend policy documents of listed firms.
For the purpose of this study, the top 200 companies by market capitalisation
as on 31 March, 2021 (NSE) are selected, which covers 40% of the top 500
companies in terms of number and 88.77% in terms of market capitalisation as on
the said date. The scope of the study covers whether these companies have
developed their dividend distribution policies covering the individual parameters
as stipulated by the said Regulation 43A and whether there is any relationship
between dividend behaviour and dividend policy. The information relating to
dividend distribution policy, dividend paid, dividend payout ratio, stock splits,
bonus issues and listing dates in the case of new entrants during the period 8 July
2016 to 31 March 2021 (referred to hereinafter as the ‘review period’) into the top
200 companies as per NSE Market Capitalisation was taken from the following
sources: (a) website of National Stock Exchange (NSE), (b) website of respective
companies to the extent information is available and (c) website of Money
Control. To conduct a content analysis, the authors used a three-step methodology
to collect the dividend policy documents and thus evaluate their content. First, we
revisited the regulatory framework in India for the dividend policy and the
provisions laid down by the regulators. The necessary information pertaining to
Inamdar et al. 93

the divided distribution policy as per the provisions of the legislation was retrieved
from the policy documents and categorised further for the analysis. Finally, this
file was used as the primary data for the content analysis. The results of the content
analysis are discussed in the next section.

Results and Discussion

Before the analysis, the descriptions of the statistics of the select companies in
terms of the number of companies listed during the review period, corporate
actions such as the split of shares and bonus issuance by the companies and non-
payment of dividend in terms of banking and other than non-banking sectors are
mentioned below. During the review period, 25 companies got listed and entered
the top 200 companies by market capitalisation. These companies were required
to comply with the provisions of Regulation 43A from the date of their respective
listing. During the review period, some of the companies carried out corporate
actions in the form of stock splits and bonus issues, which must have impacted the
amount of dividend per share. Approximately 9% of companies have undergone
sub-division of shares, leading to changes in the equity structure due to the
increase in the number of outstanding shares. It is important to note that stock
splitting does not affect the value of existing shares. Despite an increase in the
number of shares, the underlying value of each share remains unchanged. In
addition to cash dividends, companies have also undertaken the corporate action
of issuing bonus shares. The Companies Act 2013 and the Companies (Share
Capital and Debentures) Rules 2014 outline the provisions for the issuance of
bonus shares through section 63 and rule 14, respectively. The Act imposes certain
conditions for the issuance of bonus shares, including that they may be issued out
of free reserves, securities premium account or the capital redemption reserve
account, but cannot be issued as a substitute for dividends. The details of the
number of stock splits and bonus issues are provided in Table 1.
There are several reasons for firms to pay dividends such as to signal firms’
earnings quality, to return profits that are not required for investment outlays to
shareholders. The companies can indicate their current situation and prospects to
outside investors in the form of dividend payment and, thus, reduce information
asymmetry between insiders and outsiders (Aharony & Swary, 1980; Asquith &
Mullins, 1983). Therefore, it is always beneficial for a company to declare
dividends. There are quite a few companies where dividends were not distributed.
Non-payment of dividend appears to signal poor financial performance or

Table 1. Corporate Actions Taken by the Companies.

Split of Shares Bonus Shares
(No. of Companies) (No. of Companies)
Top 100 companies 8 20
Top 101–200 companies 9 16
Top 200 companies 17 36
94 IMIB Journal of Innovation and Management 3(1)

Table 2. Dividends Skipped by the Companies.

Banks Other than Banks
Top 100 companies 2 4
Top 101–200 companies 3 9
Top 200 companies 5 13

inadequacy of profits. This analysis implies that dividend omissions have

information content in that these firms expect lower earnings for the future. Most
companies, that is, 90%, have a good track record of payment of dividends. The
details of companies that skipped dividend payment in all years of the review
period are provided in Table 2.
While looking further into details, we found around one-fifth of companies
default in one or more than one year for the payment of dividend, signalling poor
financial performance or inadequate funds. In this regard, banking companies
attributed the reason(s) for skipping dividend to the RBI (Reserve Bank of India).

Compliance with the Legal Provisions

It is the responsibility of the companies to implement the dividend policy keeping
in view the provisions of SEBI’s LODR Regulations and the Companies Act
2013. The purpose of the policy is to lay down in broad terms the external and
internal factors including financial parameters that will be considered while
deciding on the distribution of dividend, the circumstances under which
shareholders of the company, may or may not expect dividend and the policy
relating to retention and utilisation of earnings. Defining the objectives of the
policy is an important aspect while formulating it quantifies its purpose. However,
it is observed that quite a lot of companies (almost 22.5% of the companies
selected) have not stated the reasons for not mentioning the objectives while
formulating the dividend distribution policy. It may imply that these firms formed
their policy just to comply with the regal requirements (Table 3).
As regards the companies that have specified the objects of adoption of dividend
distribution policy, a perusal of the objective as stated by the companies reveals that,
by and large, the following are the objects that have been adopted in the policy:

• Establish the parameters to be considered by the Board for recommending/

declaration of dividend.
• Ensure the right balance between quantum of dividend payment and
retained earnings, or preservation of balance between expectation of
shareholders and the company’s needs for growth.
• Endeavour a consistent approach for dividend payout and provide for long-
term appreciation.
• Apart from long-term value creation, also maintain the desired liquidity
and leverage plus protection interest of all stakeholders.
• Ensure compliance of Regulation 43A of LODR and the provisions of
Companies Act, 2013.
Inamdar et al. 95

Table 3. Number of Companies That Did Not Define the Objective of the Policy.
No. of Companies %
Top 100 companies 14 7
Top 101–200 companies 31 15.5
Top 200 companies 45 22.5

We found only four companies, including three in the top 100, have mentioned
that the objective of the Dividend Distribution Policy follows Regulation 43A
of the LODR. The Regulation also mandates that the dividend distribution
policy needs to specify the circumstances under which the shareholders of the
listed entities may or may not expect a dividend. The research studies argue that
there could be various circumstances affecting dividend decisions (Jensen &
Meckling, 1976; Rozeff, 1982). For example, the firms choose to finance their
positive NPV (net present value) project outlays through cheaper internally
generated retained earnings instead of raising costly external finance from the
capital markets (Myers & Majluf, 1984). Therefore, the firms facing higher
investment opportunities and, thereby, higher fund requirements will pay lower
dividends to investors to reduce dependence on costly external finance raised
from the capital markets (Myers, 1984). The policy statement on the
circumstances under which the shareholders may or may not expect benefit
investors to take a buy, hold or sell decision especially based on the first three
quarters’ performance. However, one of the striking aspects that have been
noticed is that almost 34% have not addressed this requirement of the policy.
Surprisingly, around one-third of the sample companies identified above can be
considered in terms of inadequacy of transparency with respect to dividend
policy. Some of the circumstances/justifications for not adhering to the dividend
payment, declared by the 65% companies, are as follows:

• Necessity to conserve capital

• Inadequacy of cash balance and large forthcoming requirements that are
best funded through internal accruals
• Regulatory restrictions
• Exercise of prudence to conserve capital for future needs or contingencies
• Alternate forms of distribution of surplus as if there are proposals for
buy-back
• Requirement of higher working capital for long-term purposes
• Restrictions/covenants in the loan agreement with the lenders
• Funds required for significant expansion project or acquisition or joint
venture
• Inadequacy of profits or losses
• Inability to meet long-term financial requirements, debt service obligations
and other liabilities
• Adverse market conditions and business uncertainty
96 IMIB Journal of Innovation and Management 3(1)

Table 4. Number of Companies Not Disclosing Financial Parameters.

No. of Companies % of Selected Sample
Top 100 companies 17 8.5
Top 101–200 companies 19 9.5
Top 200 companies 36 18.0

Another important aspect of dividend decisions is the consideration of financial

parameters as they involves the outflow of cash. In this regard, the Regulation
clearly requires the dividend distribution policy to include the financial parameters
based on which dividend will be paid. It is noticed that out of the sample selected
for study, 18% have not clearly disclosed the financial parameters based on which
dividend will be declared/paid, as detailed in Table 4.
From an analysis of the various financial parameters stated by those companies
that have disclosed these parameters, it is noticed that the following financial
parameters are given weightage for the determination of the amount of the
dividend to be paid:

• Current earnings
• Setting off unabsorbed losses and/or depreciation of prior years
• Earning outlook for the next 3–5 years
• Cash balance and cash flow
• Plans for mergers and acquisitions
• Funds required for additional investments in subsidiaries, JV’s and
associates
• Capex and investment plans
• RBI norms for banks
• Corporate actions such as rights, bonus, buy-backs etc.
• Debt service coverage ratio (DSCR), debt repayment schedule and financial
leverage ratio
• Impact of dividend on debt equity ratio
• Past dividend trends include interim dividend
• Sustainability of dividend payout ratio in future
• Estimate of contingency requirements
• Probability of crystallisation of contingent liabilities

Requirement to transfer to debenture redemption reserve, capital redemption

reserve and any other statutory reserve which reduces the availability of profits
available to the equity shareholders
Dividend payout ratios of comparable companies
There is ample research work on internal and external factors affecting the
dividend decisions (Pinto et al., 2020). For example, Mueller (1972) argues that
every company has a well-defined life cycle, and the firm’s dividend payment
decision varies across its different life-cycle stages. Mature firms have fewer
investment opportunities, more accumulated earnings and less systematic risk
and, thus, pay more dividends to investors (Denis & Osobov, 2008). The
Inamdar et al. 97

Table 5. Identification and Disclosure of Internal and External Factors Affecting

Dividend Payout.
No. of Companies % of Selected Sample
Top 100 companies 3 1.5
Top 101–200 companies 52 26.0
Top 200 companies 55 27.5

Table 6. Number of Companies Not Disclosing Internal and External Factors.

No. of Companies % of Selected Sample
Top 100 companies 10 5
Top 101–200 companies 10 5
Top 200 companies 20 10

distribution of dividends is also affected by the level of free cash flow. In fact, it
reduces the excess of free cash flow in the hands of managers, thereby reducing
the agency problem (Jensen & Meckling, 1976). External factors such as changes
in the macro-economic environment also affect the dividend decision (Pandey,
2022). The Regulations require the dividend distribution policy to identify the
internal and external factors to be considered for declaration of dividend separately.
From an understanding of Regulation 43A of LODR as prescribed by SEBI, it
appears that since the financial parameters are separately prescribed, the internal
and external factors that influence the dividend recommendation and declaration
should be other than financial parameters. However, it is noticed that in the case
of 55 companies, though the financial parameters and internal and external factors
have been covered, they have been merged under the same head. The details are
given in Table 5.
As regards the inclusion of the internal and external factors that must be
considered for declaration of dividends in the dividend distribution policy, it has
been noticed that in the case of 20 companies, these have not been specifically
disclosed (Table 6).
The companies that have addressed this requirement have inter alia disclosed
the following internal and external factors:

• Significant changes in the macro-economic environment affecting India or

in the geographies where the company is operating
• Business cycles and long-term and short-term industry outlook
• Policy, tax and regulatory changes
• Significant change in business or technological environment
• Capital adequacy requirement stipulated by RBI in the case of banks
• Prevailing capital market conditions
• Dividend declared by peers and prevailing market practices with respect to
dividend
• Contractual obligations
• Requirement of research and development projects
98 IMIB Journal of Innovation and Management 3(1)

Table 7. Number of Companies Not Disclosing the Policy on Utilisation of Retained

Earnings.
No. of Companies % of Selected Sample
Top 100 companies 16 8.0
Top 101–200 companies 16 8.0
Top 200 companies 32 16.0

Table 8. Number of Companies with Commitment Regarding Dividend Payment.

No. of Companies % of Selected Sample
Top 100 companies 11 5.5
Top 101–200 companies 5 2.5
Top 200 companies 16 8.0

Another important requirement is with respect to stating in the dividend

distribution policy how the retained earnings will be utilised. There are various
aspects pertaining to the retained earnings. For instance, Higgins (1972) finds
evidence that larger firms are less dependent on internal funds as they have an
advantage in raising external funds from the capital markets. Therefore, retention
of profit would be less. We found that 32 companies do not mention in the policy
about utilisation of retained earnings (Table 7).
In the case of companies that disclosed the policy with respect to utilisation of
retained earnings, it is observed that that companies disclosing their policies
regarding the utilization of retained earnings prioritize various strategies aimed at
fostering growth, financial health, and shareholder value. The common purposes
outlined for utilizing retained earnings include developing new products,
conducting research and development, or investing in subsidiaries, joint ventures
(JVs), or associates. Some companies also cited the reasons for the buy-back of
shares for ploughing back of profit, while a few companies retained their earnings
for meeting requirements of long-term working capital and repayment of debts. It
is noticed that some companies have given clear commitment/indication regarding
dividend payment as part of the dividend distribution policy, subject of course to
applicable statutory provisions. The details are given in Table 8.
The commitment/indication given regarding dividend by these companies are
along the following lines:

• Minimum dividend payout as a percentage of profits after tax available to

equity shareholders ranging from 15% to 40%
• A few companies have committed to pay dividends at the lower of 5% of
net worth or 30% of profits after tax available to equity shareholders
• Minimum dividend payout of 10% of consolidated profits after tax
• Minimum dividend payout of 40% of consolidated profits after tax subject
to availability of standalone profits
• With reference to leverage and free cash flow calculations
Inamdar et al. 99

Table 9. Dividend Commitment Versus Actual Dividend Paid by the Companies.

March March March March March March
2016 2017 2018 2019 2020 2021
Dividend paid as per the 9 6 6 7 4 5
dividend policy
Dividend criteria not met as 5 8 8 7 10 9
per the dividend policy, so
dividend not paid

In the case of two banks, not exceeding 40% of profits after tax is subject to RBI
guidelines
It is quite admissible that a company may not fulfil its commitment towards
dividend payment. There are merely 16 companies that mentioned their dividend
commitment in dividend policy. We studied 14 companies’ dividend payout
behaviour post the dividend policy. As per Table 9, all sample companies adhere
to their commitment.

Companies with Deficiencies in the Dividend Policy

SEBI has prescribed five broad parameters on which the dividend policy is
expected to have made policy statement/disclosure. However, based on the above
analysis, an observation is made in our sample data that companies are identified
with at least one or two deficiencies in making policy statements on various
parameters prescribed by SEBI in their policy. A summary of observations is
given in Table 10.
It is very interesting to note that one-third of companies are falling short on
account of not clearly specifying circumstances under which the shareholders of
the listed entities may or may not expect a dividend. Twenty per cent of the
companies have not specified the objectives of the policy. Moreover, nearly one-
fifth of the companies did not disclose the financial parameters based on which
dividend will be paid (Table 11).
There are quite a few identified companies with more than one discrepancy
while framing their policies. There are 34 companies with two or more deficiencies
in incorporating policy statements on prescribed parameters. No company was
found deficient in all five parameters except Nestle, with four deficiencies. Nestle
Ltd. prepared a policy statement on the objective of the policy but was found
wanting on the other four parameters. Thirty-eight companies did not make a
policy statement on how retained earnings will be used. In view of the above
results and discussion, it is notable that there is a large proportion of the companies
disregarding the parameters required by the regulators. The purpose of disclosing
the dividend policy is to provide clarity to shareholders regarding the distribution
of dividends and to aim at promoting transparency. However, by and large it
appears that the dividend payouts are guided by a consideration of the board’s
long-term strategy. In fact, looking from the investors’ perspective, having in
100 IMIB Journal of Innovation and Management 3(1)

Table 10. Number of Companies with at Least One Deficiency.

Number of
SEBI-prescribed Parameter on Which Policy Statement Is Companies Fall-
Sr. No. Expected ing Short
1 Companies which have not specified the objective of the 45
dividend distribution policy
2 Companies which have not clearly specified the 68
circumstances under which the shareholders of the listed
entities may or may not expect dividend
3 Companies which have not clearly disclosed the financial 36
parameters based on which dividend will be paid
4 Companies which have not specified the internal and 20
external factors in the dividend distribution policy
5 Companies which have not specified how the retained 32
earnings will be utilised in the dividend distribution policy

Table 11. Number of Companies with Two or More Than Two Deficiencies.
Number of
SEBI-prescribed Parameter on Which Policy Statement Is Companies
Sr. No. Expected Falling Short
1 Companies which have not specified the objective of the 10
dividend distribution policy
2 Companies which have not clearly specified the 18
circumstances under which the shareholders of the listed
entities may or may not expect dividend
3 Companies which have not clearly disclosed the financial 20
parameters based on which dividend will be paid
4 Companies which have not specified the internal and 12
external factors in the dividend distribution policy
5 Companies which have not specified how the retained 18
earnings will be utilised in the dividend distribution policy

place a dividend distribution policy on the part of companies has probably not
addressed their needs.

Conclusion and Future Implications

The topic of dividends continues to generate significant discussion and merits
thorough examination. The dividend policy is intended to reward shareholders by
allocating a portion of profits for distribution, while retaining sufficient funds for
future business needs and growth prospects, considering external factors such as
the national economy and the financial strength of the company and its material
subsidiaries. Based on the perusal of the dividend distribution policy documents
of selected top 200 companies and the dividends declared by them, after
Inamdar et al. 101

considering the earnings available for equity shareholders, stock splits, bonus
issues and requirement of internal accruals for company’s operations, by and large
it appears that the dividend payouts are guided by a consideration of the board’s
long-term strategy. From an investor perspective, however, having in place a
dividend distribution policy on the part of companies has probably not addressed
their needs of what returns can be clearly expected from an investment in these
companies. In fact, most companies have not clearly indicated what dividend can
be expected by the investors. Perhaps, SEBI may consider mandating a greater
clarity in the dividend distribution policy. However, the bigger questions that
remain from a regulatory perspective are: Are the dividends declared in conformity
with the adopted policies? Has there been a departure from the policy and whether
such departures are disclosed in the directors’ report? These questions relating to
compliance and governance can be better addressed by providing a framework for
independent review on an annual basis. Perhaps the way forward is to stipulate a
requirement for the companies to disclose either in the directors’ report or in the
corporate governance report about any departure from the dividend distribution
policy and the reasons for the same. Further, the regulations may provide for a
minimum commitment on dividend, subject to compliance of identified statutory
requirements and review of the compliance of the dividend distribution policy by
an independent professional.

Acknowledgement
The authors are grateful to the anonymous referees of the journal for their extremely useful
suggestions to improve the quality of the article. Usual disclaimers apply.

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research,
authorship and/or publication of this article.

Funding
The authors received no financial support for the research, authorship and/or publication of
this article.

ORCID iD
Shweta Mehrotra Https://[Link]/0000-0002-7229-199X

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