Description
This corporate finance report discusses auto and IT sector through Profit after tax, ash Flow, Lagged dividend, Depreciation allowance, Capital Expenditure, Current Ratio, Debt-Equity ratio, Sales, Share Price Behavior
Report of Dividend Policy of Indian FIRMS
Dividend is an avenue for distributing cash to shareholders. Dividend payout ratio measure the amount of cash paid to the shareholders from the profits and hence the amount of cash reinvested in the business for internal financing. Theoretically if the companies have retained earnings left over after financing all acceptable investment opportunities, then these earnings need to be distributed as dividends. The objective of the study is to empirically examine the dividend policy of Indian firms. The main factors involved in deciding the dividend payout were to be examined. The methodology followed was as follows: 1. Literature survey to identify the models used to examine the dividend policies of firms. 2. Data collection from data sources( Prowess) 3. Analyses of data by application of theoretical models. 4. Conclusions based on the results obtained from the analyses. The analyses were done for 3 different sectors. The sectors considered were IT, Banking and Auto/Auto components sector. The dividend policies of few individual firms were also analysed. The firms considered were Hindustan Unilever, Reliance Industries, State bank of India and Corporation bank Models from Literature Survey: Generalized Model: Karam Pal and Puja Goyal 1 suggest that the leading determinants of dividend policies in general are as follows: 1. Profit after tax 2. Cash Flow 3. Lagged dividend 4. Depreciation allowance 5. Capital Expenditure 6. Current Ratio 7. Debt-Equity ratio 8. Sales
9. Share Price Behaviour
The model assumes a linear relationship between the dividend paid and the factors determining the dividends. Hence Dividend(t) = Constant+b1*PAT(t)+b2*dividend(t-1) + b3 * Sales(t) + b4*Depreciation(t) + b5*Capex(t)+b6*Debt-equity ratio+b7*current ratio+b8*cash flow+b9*share price (t) This model is used to find the dividend policy of Individual firms. Time series data was collected for reach individual firms from the time of listing. Hence firms have been chosen such that they have been listed for more than 15 years. This time series data was regressed to find the coefficients and significance of the model. Lintners Model: The Lintner’s model is the foundation of many researches carried out in the field of dividend decision. Lintner elaborates a model in which he affirms that the dividend policy of a company can be summed up in two objectives: the first includes the annual variation in dividends and second expresses the objective dividend as a constant proportion of profits obtained. Divt = a0 + a1 Et + a2 Divt-1 + u Et is the profit after tax in the present year Div t-1 is the dividend in the previous year. This model was used for industry wise analyses. Cross sectional data was collected industry wise for a particular year. Data was taken for 27-30 firms in a particular industry. The data was regressed to find the coefficients and significance of the factors. Analysis of Individual firms On carrying out the individual firms’ analysis we could determine which factors were responsible for determining the growth of each firm. All firms except Corporation bank are the leaders in their respective sectors. The example of Corporation bank is taken to analyze the difference between the policies of a large and small company belonging to the same
sector. The factors determining the dividend policy of Corporation bank are compared with those determining the dividend policy for State Bank of India. The result for each company is shown below: 1. SBI R2 = 0.997 Coefficientsa Unstandardized Coefficients Standardized Coefficients Model 1 (Constant) B -592.450 Std. Error 182.074 .206 .081 .002 .136 87.458 6.240 .007 .073 .076 -.021 .114 -.296 -.295 .070 .074 1.208 .190 .113 Beta t Sig.
-3.254 .009 -.140 .892 2.654 .024 -2.484 .032 -3.643 .005 1.558 .150 1.816 .099 4.496 .001 3.226 .009 1.677 .124
Dividend_last_year -.029 PAT Cash_flow Depreciation Current_ratio Debt_equity Sales .214 -.005 -.494 136.255 11.332 .031
Capital_expenditure .234 Share_price .128
a. Dependent Variable: Dividend_paid
2. Corporation Bank R2 = 0.992
Coefficients
a
Standardized Unstandardized Coefficients Model 1 (Constant) Dividend_last_year Revenue PAT Depreciation Debt_equity Current_ratio Cash_flow Capex Share_price a. Dependent Variable: Dividend B 2.006 .351 .004 .078 -.388 2.492 -.784 .002 -.086 .139 Std. Error 6.565 .283 .010 .052 .370 4.062 1.371 .001 .122 .051 .303 .121 .368 -.174 .031 -.034 .102 -.039 .338 Coefficients Beta t .306 1.242 .364 1.505 -1.047 .613 -.572 1.415 -.705 2.703 Sig. .768 .249 .725 .171 .326 .557 .583 .195 .501 .027
3. HUL: R2– 0.992 Coefficientsa Model Unstandardized Coefficients rdized Coefficients B Error 1 (Constant) Shareprice debtequity currentratio Sales Depreciation grossFixedAssets Cashflow Lastdividend PAT 229.549 -3.288 662.376 -79.593 .242 -3.805 -1.054 -.711 .411 1.352 678.880 2.375 208.881 433.123 .097 4.240 .760 .228 .391 .281 -.356 .242 -.029 1.475 -.272 -1.281 -.346 .357 1.332 -.338 -1.384 3.171 -.184 2.479 -.897 -1.387 -3.116 1.051 4.812 .745 .209 .016 .859 .042 .399 .208 .017 .328 .002 Std. Beta Standa t Sig.
a. Dependent Variable: Dividend end
4. RIL R2- 0.945 Coefficientsa Model Unstandardized Coefficients B 1 (Constant) Dividend_paid_last_year PAT Cash_flow Depreciation Current_ratio Debt_equity sales Capex Share_price 403.593 -1.006 -.161 .072 .021 -83.137 -146.012 .017 .004 .345 Std. Error 398.724 .201 .434 .040 .103 242.173 192.086 .008 .008 .349 -.816 -.082 .236 .076 -.053 -.079 .983 .082 .443 Standardized Coefficients Beta t Sig.
1.012 .335 -5.007 .001 -.371 .718 1.800 .102 .205 .842
-.343 .738 -.760 .465 2.124 .060 .517 .990 .616 .346
a. Dependent Variable: Dividend_paid In the above tables we find that for SBI the dividend policy depends on the PAT, Cash flow, Debt equity ratio, Depreciation, Sales and Capital expenditure. In contrast for Corporation
bank which is a small player in the same sector the dividend policy depends only on the prevailing share price. For HUL the dividend policy depends on PAT, Sales, Debt equity ratio and Cash flow. For RIL the dividend policy is decided by Sales, Cash flow and the dividend paid in the previous year. For all the firms we take a 90% confidence interval to determine the significance of each factor. Industry wise dividend Policy analyses: IT sector: 27 companies were selected for analyses. The dividends for the years 2008 were regressed against dividends in 2007 and the profit after tax in 2008. The results are as follows:
Model Summary Adjusted R Model 1 R .980
a
Std. Error of the Estimate
R Square .961
Square .958
111.8095828
a. Predictors: (Constant), Dividend07, PAT08
ANOVA Model 1 Regression Residual Total Sum of Squares 7139412.130 287531.804 7426943.934 df
b
Mean Square 2 23 25 3569706.065 12501.383
F 285.545
Sig. .000
a
a. Predictors: (Constant), Dividend07, PAT08 b. Dependent Variable: Dividend08
Coefficients
a
Standardized Model Unstandardized Coefficients Coefficients t Sig.
B 1 (Constant) PAT08 Dividend07 -45.541 .552 -.569
Std. Error 24.512 .055 .213
Beta -1.858 1.305 -.348 10.023 -2.674 .076 .000 .014
a. Dependent Variable: Dividend08
The model is significant at 5% . R square is 0.961 which shows high explanatory power of the model. It can be seen that the current years dividend is directly proportional to the current years PAT as the coefficient of PAT is positive. Also the current years dividend is negatively correlated to the previous year’s dividends. This means that if a company has paid more dividends in the previous year, it is likely to pay lesser dividends in the following year. The effect of PAT is higher than the effect of lagged years dividend as the standardized coefficients beta is greated for PAT than for lagged dividends. Banking Sector: Both public sector and private sector companies were considered for analyses. The dividends for the year 2009 were regressed against PAT for the year 2009 and dividends paid for year 2008. The results are as follows.
Model Summary Adjusted R Model 1 R .996
a
Std. Error of the Estimate
R Square .992
Square .992
35.8720271
a. Predictors: (Constant), PAT_2009, Dividend_2008
ANOVA Model 1 Regression Sum of Squares 4361621.286 df
b
Mean Square 2 2180810.643
F 1.695E3
Sig. .000
a
Residual Total
34743.663 4396364.949
27 29
1286.802
a. Predictors: (Constant), PAT_2009, Dividend_2008 b. Dependent Variable: Dividend_2009
Coefficients
a
Standardized Unstandardized Coefficients Model 1 (Constant) Dividend_2008 PAT_2009 a. Dependent Variable: Dividend_2009 B -19.729 .679 .104 Std. Error 8.273 .051 .009 .546 .473 Coefficients Beta t -2.385 13.244 11.463 Sig. .024 .000 .000
The model is significant at 5% . R square is 0.992 which shows high explanatory power of the model. It can be seen that the current years dividend is directly proportional to the current years PAT and lagged years dividend as the coefficient of PAT and lagged dividend are positive. Both PAT and lagged years dividends have almost equal effect on the current years dividend as the standardized beta coefficients are very close to each other (0.546 and 0.473). Auto/ Auto Components sector: 30 companies were chosen for analyses. The dividends for the years 2008 were regressed against dividends in 2007 and the profit after tax in 2008. The results are as follows:
Model Summary Adjusted R Model 1 R .992
a
Std. Error of the Estimate
R Square .985
Square .984
19.4653649
a. Predictors: (Constant), PAT08, Dividend07
ANOVA Model Sum of Squares df
b
Mean Square
F
Sig.
1
Regression Residual Total
659588.088 10230.312 669818.400
2 27 29
329794.044 378.900
870.398
.000
a
a. Predictors: (Constant), PAT08, Dividend07 b. Dependent Variable: Dividend08
a
Coefficients
Standardized Unstandardized Coefficients Model 1 (Constant) Dividend07 PAT08 a. Dependent Variable: Dividend08 B -2.961 .966 .015 Std. Error 4.124 .049 .014 .948 .050 Coefficients Beta t -.718 19.903 1.055 Sig. .479 .000 .301
The model is significant at 5% . R square is 0.985 which shows high explanatory power of the model. It can be seen that the current years dividend is directly proportional to the current years PAT and lagged years dividend as the coefficient of PAT and lagged dividend are positive.
The effect of last year’s dividend is much higher than the effect of the current years PAT. This is can seen from the standardized beta coefficients. The beat coefficient for lagged years dividend is higher that PAT. This is probably because the auto / auto components tend to provide constant dividends irrespective of the profits in the current year.
Analysis of trend of dividend payout in I.T. companies An analysis was also carried out to study the trend of dividend payout in various I.T. companies since their inception
Year
3I Infotech Ltd.
CMC Ltd.
Core Educomp Projects & Solutions Technologies Ltd. Ltd.
Financial Technologies (India) Ltd.
GTL Ltd.
HCL Infosys Technologies Technologies Ltd. Ltd.
Mar-89 Mar-90 Mar-91 Mar-92 Mar-93 Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09
NA NA NA NA NA NA NA NA NA 0.85 0.17 0.19 0.17 1.50 0.12 0.13 0.31 0.27 0.18 0.21 0.11
NA NA NA NA NA NA NA NA 0.49 0.23 0.22 0.25 0.22 0.18 0.17 0.17 0.30 0.17 0.19 0.19 0.22
NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA 0.01 0.07 0.11 0.04 0.07
NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA 0.06 0.03 0.00 0.01
NA NA NA NA NA NA NA NA NA NA NA NA NA NA 0.00 0.05 0.09 1.50 1.14 4.27 1.07
NA NA NA 0.02 0.00 0.03 0.03 0.21 0.96 0.21 0.21 0.14 0.36 0.15 0.14 0.09 0.10 1.83 0.08 0.09 0.00
NA NA NA NA NA NA NA NA NA NA 0.02 0.01 0.07 0.11 0.37 0.91 1.52 0.81 0.48 0.77 0.00
NA NA NA 0.16 0.17 0.14 0.17 0.17 0.11 0.12 0.09 0.10 0.11 0.16 0.19 0.69 0.16 0.51 0.17 0.43 0.23
Year Mar-89
Moser Baer Mindtree India Ltd. Ltd. NA NA NA NA NA
Patni Computer Polaris Rolta Mphasis Systems Software India Ltd. Ltd. Lab Ltd. Ltd. NA NA NA NA NA NA NA NA NA NA NA NA
Wipro Ltd. 0.17 0.20 0.16
Mar-90 NA Mar-91
NA Mar-92 NA Mar-93 NA Mar-94 NA Mar-95 NA Mar-96 NA Mar-97 NA Mar-98 NA Mar-99 NA Mar-00 NA Mar-01 NA Mar-02 NA Mar-03 NA Mar-04 NA Mar-05 NA Mar-06 Mar-07 Mar-08 Mar-09 0.08 0.07 0.13
NA NA NA NA 0.18 0.14 0.17 0.12 0.12 0.06 0.05 0.05 0.05 0.18 2.39 0.15 0.00 0.00
NA NA NA 0.43
NA NA NA NA NA
NA 0.71 NA 0.76 NA 0.72 NA 0.57 0.04 0.41
0.24 0.36 0.28 0.12 0.08 0.06
0.36 NA 0.00 NA 0.00 NA 0.00 NA 0.00 NA 0.07 0.05 0.08 0.12 0.70 0.64 0.48 0.16 0.00 0.02 0.08 0.11 0.18 0.20 0.11 0.10 0.00
0.05 0.12 0.06 0.13 0.09 0.14 0.31 0.25 0.32 0.92 0.28 0.28 0.00
0.34 0.08 0.26 0.07 0.23 0.03 0.22 0.02 0.18 0.03 0.00 0.03 0.17 0.74 0.24 0.24 0.22 0.35 0.23 0.31 0.22 0.29 0.18 0.20 0.00
Year Mar-89
Satyam Computer Services Ltd. NA NA
Tata Consultancy Tech Tulip Services Mahindra Telecom Ltd. Ltd. Ltd. NA NA NA NA NA NA
Mar-90
NA Mar-91 NA Mar-92 NA Mar-93 NA Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 0.32
NA 0.42 NA 0.62 NA 0.21 NA 0.36 NA 0.51 NA
NA NA NA NA NA NA 0.36 NA 0.20 NA 0.12 NA 0.18 NA 0.15 NA 0.20 NA 0.71 1.07 0.29 0.30 0.24 0.30 0.30 0.29 0.23 NA 0.68 NA 0.38 NA 0.31 0.47 0.27 0.20 0.05
0.31 NA 0.26 NA 0.27 NA 0.11 NA 0.10 NA 0.05 0.08 0.31 0.23 0.21 0.19 0.16 0.14 0.00
0.06 0.06 0.03 0.00
We see that there is no specific trend governing the dividend payout for each firm. Many companies have been incepted in the past decade only and hence we do not find many data points for all firms. Most companies have paid more or less constant payouts except for some years where the dividend payout ratios are exceptionally high. In the last year owing to economic slowdown we observe that many companies have reported losses and thus dividend payouts are zero. Conclusions: We see that for individual companies from different sectors different factors play a significant role in determining their dividend policies. Moreover we also see that even in the
same sector firms with different sizes have differing drivers responsible in determining their respective dividend policies. In IT and Banking sector, last year’s dividend and PAT have a significant effect on the current year’s dividend. In case of auto/ auto components sector, last years dividend is more significant than the current year’s profit. References: 1. “Leading determinants of dividend policy- a case study of Indian Banking Industry”Karam Pal and Puja Goyal, Decision, Vol 34,No2, December 2007) 2. “Determinants of Dividend Payout Ratios-A Study of Indian Information Technology Sector”- Kanwal Anil, Sujata Kapoor , International Research Journal of Finance and Economics- Issue 15 -2008
APPENDIX Companies from IT Sector chosen for analyses
Sl No 1 2 3 4 Company 3I Infotech Ltd. Aptech Ltd. C M C Ltd. Core Projects & Technologies Ltd.
5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
Educomp Solutions Ltd. Financial Technologies (India) Ltd. Firstsource Solutions Ltd. G T L Ltd. H C L Infosystems Ltd. Hexaware Technologies Ltd. Hinduja Global Solutions Ltd. Igate Global Solutions Ltd. Infosys Technologies Ltd. Mastek Ltd. Mindtree Ltd. Moser Baer India Ltd. Mphasis Ltd. N I I T Ltd. Oracle Financial Services Software Ltd. Patni Computer Systems Ltd. Polaris Software Lab Ltd. Rolta India Ltd. Tata Consultancy Services Ltd. Tech Mahindra Ltd. Tulip Telecom Ltd. Wipro Ltd.
Companies from Auto/Auto Components Sector chosen for analyses
Sl No 1 2 3 4 5 6 Company Name Amara Raja Batteries Ltd. Amtek Auto Ltd. Apollo Tyres Ltd. Asahi India Glass Ltd. Ashok Leyland Ltd. Autoline Industries Ltd.
7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Bharat Forge Ltd. Bosch Ltd. Cummins India Ltd. Eicher Motors Ltd. Elgi Rubber Co. Ltd. Escorts Automotives Ltd. Exide Industries Ltd. Gabriel India Ltd. Hero Honda Motors Ltd. Hindustan Motors Ltd. India Pistons Ltd. Jay Bharat Maruti Ltd. Lumax Industries Ltd. M R F Ltd. Mahindra & Mahindra Ltd. Maruti Suzuki India Ltd. Motherson Sumi Systems Ltd. Omax Autos Ltd. Rico Auto Inds. Ltd. Sundaram Auto Components Ltd. T V S Motor Co. Ltd. Tata Motors Ltd. Ucal Fuel Systems Ltd. Wheels India Ltd.
Companies from Banking Sector chosen for analyses
Sr No. 1 2 3 4 5 6 Bank_name Allahabad_bank Axis_bank Bank_of_Baroda Bank_of_India Bank_of_Maharashtra Canara_bank
7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Central_bank Corporation_bank Federal_bank HDFC_bank ICICI_bank IDBI_bank Indian_bank Indusind_bank Karur_vysya_bank Kotak_Mahindra_bank Oriental_bank Punjab_national_bank State_bank_of_India Union_bank_of_India Vijaya_bank yes_bank Indian_overseas_bank ING_ Vysya_bank Dena_bank Dhanalakshmi_bank UCO_bank Karnataka_ bank Syndicate_bank South_Indian_bank
doc_915151851.docx
This corporate finance report discusses auto and IT sector through Profit after tax, ash Flow, Lagged dividend, Depreciation allowance, Capital Expenditure, Current Ratio, Debt-Equity ratio, Sales, Share Price Behavior
Report of Dividend Policy of Indian FIRMS
Dividend is an avenue for distributing cash to shareholders. Dividend payout ratio measure the amount of cash paid to the shareholders from the profits and hence the amount of cash reinvested in the business for internal financing. Theoretically if the companies have retained earnings left over after financing all acceptable investment opportunities, then these earnings need to be distributed as dividends. The objective of the study is to empirically examine the dividend policy of Indian firms. The main factors involved in deciding the dividend payout were to be examined. The methodology followed was as follows: 1. Literature survey to identify the models used to examine the dividend policies of firms. 2. Data collection from data sources( Prowess) 3. Analyses of data by application of theoretical models. 4. Conclusions based on the results obtained from the analyses. The analyses were done for 3 different sectors. The sectors considered were IT, Banking and Auto/Auto components sector. The dividend policies of few individual firms were also analysed. The firms considered were Hindustan Unilever, Reliance Industries, State bank of India and Corporation bank Models from Literature Survey: Generalized Model: Karam Pal and Puja Goyal 1 suggest that the leading determinants of dividend policies in general are as follows: 1. Profit after tax 2. Cash Flow 3. Lagged dividend 4. Depreciation allowance 5. Capital Expenditure 6. Current Ratio 7. Debt-Equity ratio 8. Sales
9. Share Price Behaviour
The model assumes a linear relationship between the dividend paid and the factors determining the dividends. Hence Dividend(t) = Constant+b1*PAT(t)+b2*dividend(t-1) + b3 * Sales(t) + b4*Depreciation(t) + b5*Capex(t)+b6*Debt-equity ratio+b7*current ratio+b8*cash flow+b9*share price (t) This model is used to find the dividend policy of Individual firms. Time series data was collected for reach individual firms from the time of listing. Hence firms have been chosen such that they have been listed for more than 15 years. This time series data was regressed to find the coefficients and significance of the model. Lintners Model: The Lintner’s model is the foundation of many researches carried out in the field of dividend decision. Lintner elaborates a model in which he affirms that the dividend policy of a company can be summed up in two objectives: the first includes the annual variation in dividends and second expresses the objective dividend as a constant proportion of profits obtained. Divt = a0 + a1 Et + a2 Divt-1 + u Et is the profit after tax in the present year Div t-1 is the dividend in the previous year. This model was used for industry wise analyses. Cross sectional data was collected industry wise for a particular year. Data was taken for 27-30 firms in a particular industry. The data was regressed to find the coefficients and significance of the factors. Analysis of Individual firms On carrying out the individual firms’ analysis we could determine which factors were responsible for determining the growth of each firm. All firms except Corporation bank are the leaders in their respective sectors. The example of Corporation bank is taken to analyze the difference between the policies of a large and small company belonging to the same
sector. The factors determining the dividend policy of Corporation bank are compared with those determining the dividend policy for State Bank of India. The result for each company is shown below: 1. SBI R2 = 0.997 Coefficientsa Unstandardized Coefficients Standardized Coefficients Model 1 (Constant) B -592.450 Std. Error 182.074 .206 .081 .002 .136 87.458 6.240 .007 .073 .076 -.021 .114 -.296 -.295 .070 .074 1.208 .190 .113 Beta t Sig.
-3.254 .009 -.140 .892 2.654 .024 -2.484 .032 -3.643 .005 1.558 .150 1.816 .099 4.496 .001 3.226 .009 1.677 .124
Dividend_last_year -.029 PAT Cash_flow Depreciation Current_ratio Debt_equity Sales .214 -.005 -.494 136.255 11.332 .031
Capital_expenditure .234 Share_price .128
a. Dependent Variable: Dividend_paid
2. Corporation Bank R2 = 0.992
Coefficients
a
Standardized Unstandardized Coefficients Model 1 (Constant) Dividend_last_year Revenue PAT Depreciation Debt_equity Current_ratio Cash_flow Capex Share_price a. Dependent Variable: Dividend B 2.006 .351 .004 .078 -.388 2.492 -.784 .002 -.086 .139 Std. Error 6.565 .283 .010 .052 .370 4.062 1.371 .001 .122 .051 .303 .121 .368 -.174 .031 -.034 .102 -.039 .338 Coefficients Beta t .306 1.242 .364 1.505 -1.047 .613 -.572 1.415 -.705 2.703 Sig. .768 .249 .725 .171 .326 .557 .583 .195 .501 .027
3. HUL: R2– 0.992 Coefficientsa Model Unstandardized Coefficients rdized Coefficients B Error 1 (Constant) Shareprice debtequity currentratio Sales Depreciation grossFixedAssets Cashflow Lastdividend PAT 229.549 -3.288 662.376 -79.593 .242 -3.805 -1.054 -.711 .411 1.352 678.880 2.375 208.881 433.123 .097 4.240 .760 .228 .391 .281 -.356 .242 -.029 1.475 -.272 -1.281 -.346 .357 1.332 -.338 -1.384 3.171 -.184 2.479 -.897 -1.387 -3.116 1.051 4.812 .745 .209 .016 .859 .042 .399 .208 .017 .328 .002 Std. Beta Standa t Sig.
a. Dependent Variable: Dividend end
4. RIL R2- 0.945 Coefficientsa Model Unstandardized Coefficients B 1 (Constant) Dividend_paid_last_year PAT Cash_flow Depreciation Current_ratio Debt_equity sales Capex Share_price 403.593 -1.006 -.161 .072 .021 -83.137 -146.012 .017 .004 .345 Std. Error 398.724 .201 .434 .040 .103 242.173 192.086 .008 .008 .349 -.816 -.082 .236 .076 -.053 -.079 .983 .082 .443 Standardized Coefficients Beta t Sig.
1.012 .335 -5.007 .001 -.371 .718 1.800 .102 .205 .842
-.343 .738 -.760 .465 2.124 .060 .517 .990 .616 .346
a. Dependent Variable: Dividend_paid In the above tables we find that for SBI the dividend policy depends on the PAT, Cash flow, Debt equity ratio, Depreciation, Sales and Capital expenditure. In contrast for Corporation
bank which is a small player in the same sector the dividend policy depends only on the prevailing share price. For HUL the dividend policy depends on PAT, Sales, Debt equity ratio and Cash flow. For RIL the dividend policy is decided by Sales, Cash flow and the dividend paid in the previous year. For all the firms we take a 90% confidence interval to determine the significance of each factor. Industry wise dividend Policy analyses: IT sector: 27 companies were selected for analyses. The dividends for the years 2008 were regressed against dividends in 2007 and the profit after tax in 2008. The results are as follows:
Model Summary Adjusted R Model 1 R .980
a
Std. Error of the Estimate
R Square .961
Square .958
111.8095828
a. Predictors: (Constant), Dividend07, PAT08
ANOVA Model 1 Regression Residual Total Sum of Squares 7139412.130 287531.804 7426943.934 df
b
Mean Square 2 23 25 3569706.065 12501.383
F 285.545
Sig. .000
a
a. Predictors: (Constant), Dividend07, PAT08 b. Dependent Variable: Dividend08
Coefficients
a
Standardized Model Unstandardized Coefficients Coefficients t Sig.
B 1 (Constant) PAT08 Dividend07 -45.541 .552 -.569
Std. Error 24.512 .055 .213
Beta -1.858 1.305 -.348 10.023 -2.674 .076 .000 .014
a. Dependent Variable: Dividend08
The model is significant at 5% . R square is 0.961 which shows high explanatory power of the model. It can be seen that the current years dividend is directly proportional to the current years PAT as the coefficient of PAT is positive. Also the current years dividend is negatively correlated to the previous year’s dividends. This means that if a company has paid more dividends in the previous year, it is likely to pay lesser dividends in the following year. The effect of PAT is higher than the effect of lagged years dividend as the standardized coefficients beta is greated for PAT than for lagged dividends. Banking Sector: Both public sector and private sector companies were considered for analyses. The dividends for the year 2009 were regressed against PAT for the year 2009 and dividends paid for year 2008. The results are as follows.
Model Summary Adjusted R Model 1 R .996
a
Std. Error of the Estimate
R Square .992
Square .992
35.8720271
a. Predictors: (Constant), PAT_2009, Dividend_2008
ANOVA Model 1 Regression Sum of Squares 4361621.286 df
b
Mean Square 2 2180810.643
F 1.695E3
Sig. .000
a
Residual Total
34743.663 4396364.949
27 29
1286.802
a. Predictors: (Constant), PAT_2009, Dividend_2008 b. Dependent Variable: Dividend_2009
Coefficients
a
Standardized Unstandardized Coefficients Model 1 (Constant) Dividend_2008 PAT_2009 a. Dependent Variable: Dividend_2009 B -19.729 .679 .104 Std. Error 8.273 .051 .009 .546 .473 Coefficients Beta t -2.385 13.244 11.463 Sig. .024 .000 .000
The model is significant at 5% . R square is 0.992 which shows high explanatory power of the model. It can be seen that the current years dividend is directly proportional to the current years PAT and lagged years dividend as the coefficient of PAT and lagged dividend are positive. Both PAT and lagged years dividends have almost equal effect on the current years dividend as the standardized beta coefficients are very close to each other (0.546 and 0.473). Auto/ Auto Components sector: 30 companies were chosen for analyses. The dividends for the years 2008 were regressed against dividends in 2007 and the profit after tax in 2008. The results are as follows:
Model Summary Adjusted R Model 1 R .992
a
Std. Error of the Estimate
R Square .985
Square .984
19.4653649
a. Predictors: (Constant), PAT08, Dividend07
ANOVA Model Sum of Squares df
b
Mean Square
F
Sig.
1
Regression Residual Total
659588.088 10230.312 669818.400
2 27 29
329794.044 378.900
870.398
.000
a
a. Predictors: (Constant), PAT08, Dividend07 b. Dependent Variable: Dividend08
a
Coefficients
Standardized Unstandardized Coefficients Model 1 (Constant) Dividend07 PAT08 a. Dependent Variable: Dividend08 B -2.961 .966 .015 Std. Error 4.124 .049 .014 .948 .050 Coefficients Beta t -.718 19.903 1.055 Sig. .479 .000 .301
The model is significant at 5% . R square is 0.985 which shows high explanatory power of the model. It can be seen that the current years dividend is directly proportional to the current years PAT and lagged years dividend as the coefficient of PAT and lagged dividend are positive.
The effect of last year’s dividend is much higher than the effect of the current years PAT. This is can seen from the standardized beta coefficients. The beat coefficient for lagged years dividend is higher that PAT. This is probably because the auto / auto components tend to provide constant dividends irrespective of the profits in the current year.
Analysis of trend of dividend payout in I.T. companies An analysis was also carried out to study the trend of dividend payout in various I.T. companies since their inception
Year
3I Infotech Ltd.
CMC Ltd.
Core Educomp Projects & Solutions Technologies Ltd. Ltd.
Financial Technologies (India) Ltd.
GTL Ltd.
HCL Infosys Technologies Technologies Ltd. Ltd.
Mar-89 Mar-90 Mar-91 Mar-92 Mar-93 Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09
NA NA NA NA NA NA NA NA NA 0.85 0.17 0.19 0.17 1.50 0.12 0.13 0.31 0.27 0.18 0.21 0.11
NA NA NA NA NA NA NA NA 0.49 0.23 0.22 0.25 0.22 0.18 0.17 0.17 0.30 0.17 0.19 0.19 0.22
NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA 0.01 0.07 0.11 0.04 0.07
NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA 0.06 0.03 0.00 0.01
NA NA NA NA NA NA NA NA NA NA NA NA NA NA 0.00 0.05 0.09 1.50 1.14 4.27 1.07
NA NA NA 0.02 0.00 0.03 0.03 0.21 0.96 0.21 0.21 0.14 0.36 0.15 0.14 0.09 0.10 1.83 0.08 0.09 0.00
NA NA NA NA NA NA NA NA NA NA 0.02 0.01 0.07 0.11 0.37 0.91 1.52 0.81 0.48 0.77 0.00
NA NA NA 0.16 0.17 0.14 0.17 0.17 0.11 0.12 0.09 0.10 0.11 0.16 0.19 0.69 0.16 0.51 0.17 0.43 0.23
Year Mar-89
Moser Baer Mindtree India Ltd. Ltd. NA NA NA NA NA
Patni Computer Polaris Rolta Mphasis Systems Software India Ltd. Ltd. Lab Ltd. Ltd. NA NA NA NA NA NA NA NA NA NA NA NA
Wipro Ltd. 0.17 0.20 0.16
Mar-90 NA Mar-91
NA Mar-92 NA Mar-93 NA Mar-94 NA Mar-95 NA Mar-96 NA Mar-97 NA Mar-98 NA Mar-99 NA Mar-00 NA Mar-01 NA Mar-02 NA Mar-03 NA Mar-04 NA Mar-05 NA Mar-06 Mar-07 Mar-08 Mar-09 0.08 0.07 0.13
NA NA NA NA 0.18 0.14 0.17 0.12 0.12 0.06 0.05 0.05 0.05 0.18 2.39 0.15 0.00 0.00
NA NA NA 0.43
NA NA NA NA NA
NA 0.71 NA 0.76 NA 0.72 NA 0.57 0.04 0.41
0.24 0.36 0.28 0.12 0.08 0.06
0.36 NA 0.00 NA 0.00 NA 0.00 NA 0.00 NA 0.07 0.05 0.08 0.12 0.70 0.64 0.48 0.16 0.00 0.02 0.08 0.11 0.18 0.20 0.11 0.10 0.00
0.05 0.12 0.06 0.13 0.09 0.14 0.31 0.25 0.32 0.92 0.28 0.28 0.00
0.34 0.08 0.26 0.07 0.23 0.03 0.22 0.02 0.18 0.03 0.00 0.03 0.17 0.74 0.24 0.24 0.22 0.35 0.23 0.31 0.22 0.29 0.18 0.20 0.00
Year Mar-89
Satyam Computer Services Ltd. NA NA
Tata Consultancy Tech Tulip Services Mahindra Telecom Ltd. Ltd. Ltd. NA NA NA NA NA NA
Mar-90
NA Mar-91 NA Mar-92 NA Mar-93 NA Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 0.32
NA 0.42 NA 0.62 NA 0.21 NA 0.36 NA 0.51 NA
NA NA NA NA NA NA 0.36 NA 0.20 NA 0.12 NA 0.18 NA 0.15 NA 0.20 NA 0.71 1.07 0.29 0.30 0.24 0.30 0.30 0.29 0.23 NA 0.68 NA 0.38 NA 0.31 0.47 0.27 0.20 0.05
0.31 NA 0.26 NA 0.27 NA 0.11 NA 0.10 NA 0.05 0.08 0.31 0.23 0.21 0.19 0.16 0.14 0.00
0.06 0.06 0.03 0.00
We see that there is no specific trend governing the dividend payout for each firm. Many companies have been incepted in the past decade only and hence we do not find many data points for all firms. Most companies have paid more or less constant payouts except for some years where the dividend payout ratios are exceptionally high. In the last year owing to economic slowdown we observe that many companies have reported losses and thus dividend payouts are zero. Conclusions: We see that for individual companies from different sectors different factors play a significant role in determining their dividend policies. Moreover we also see that even in the
same sector firms with different sizes have differing drivers responsible in determining their respective dividend policies. In IT and Banking sector, last year’s dividend and PAT have a significant effect on the current year’s dividend. In case of auto/ auto components sector, last years dividend is more significant than the current year’s profit. References: 1. “Leading determinants of dividend policy- a case study of Indian Banking Industry”Karam Pal and Puja Goyal, Decision, Vol 34,No2, December 2007) 2. “Determinants of Dividend Payout Ratios-A Study of Indian Information Technology Sector”- Kanwal Anil, Sujata Kapoor , International Research Journal of Finance and Economics- Issue 15 -2008
APPENDIX Companies from IT Sector chosen for analyses
Sl No 1 2 3 4 Company 3I Infotech Ltd. Aptech Ltd. C M C Ltd. Core Projects & Technologies Ltd.
5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
Educomp Solutions Ltd. Financial Technologies (India) Ltd. Firstsource Solutions Ltd. G T L Ltd. H C L Infosystems Ltd. Hexaware Technologies Ltd. Hinduja Global Solutions Ltd. Igate Global Solutions Ltd. Infosys Technologies Ltd. Mastek Ltd. Mindtree Ltd. Moser Baer India Ltd. Mphasis Ltd. N I I T Ltd. Oracle Financial Services Software Ltd. Patni Computer Systems Ltd. Polaris Software Lab Ltd. Rolta India Ltd. Tata Consultancy Services Ltd. Tech Mahindra Ltd. Tulip Telecom Ltd. Wipro Ltd.
Companies from Auto/Auto Components Sector chosen for analyses
Sl No 1 2 3 4 5 6 Company Name Amara Raja Batteries Ltd. Amtek Auto Ltd. Apollo Tyres Ltd. Asahi India Glass Ltd. Ashok Leyland Ltd. Autoline Industries Ltd.
7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Bharat Forge Ltd. Bosch Ltd. Cummins India Ltd. Eicher Motors Ltd. Elgi Rubber Co. Ltd. Escorts Automotives Ltd. Exide Industries Ltd. Gabriel India Ltd. Hero Honda Motors Ltd. Hindustan Motors Ltd. India Pistons Ltd. Jay Bharat Maruti Ltd. Lumax Industries Ltd. M R F Ltd. Mahindra & Mahindra Ltd. Maruti Suzuki India Ltd. Motherson Sumi Systems Ltd. Omax Autos Ltd. Rico Auto Inds. Ltd. Sundaram Auto Components Ltd. T V S Motor Co. Ltd. Tata Motors Ltd. Ucal Fuel Systems Ltd. Wheels India Ltd.
Companies from Banking Sector chosen for analyses
Sr No. 1 2 3 4 5 6 Bank_name Allahabad_bank Axis_bank Bank_of_Baroda Bank_of_India Bank_of_Maharashtra Canara_bank
7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Central_bank Corporation_bank Federal_bank HDFC_bank ICICI_bank IDBI_bank Indian_bank Indusind_bank Karur_vysya_bank Kotak_Mahindra_bank Oriental_bank Punjab_national_bank State_bank_of_India Union_bank_of_India Vijaya_bank yes_bank Indian_overseas_bank ING_ Vysya_bank Dena_bank Dhanalakshmi_bank UCO_bank Karnataka_ bank Syndicate_bank South_Indian_bank
doc_915151851.docx