Determinants of dividends among Indian firms—An empirical study

Figures & data

Table 1. Dividend intensity characteristics of Indian firms

Sl. no	Industry	No of firms	Mean		Standard deviation
			Equity dividend as % of PAT	Dividend/Sales	Equity dividend as % of PAT	Dividend/sales
1	Construction materials	556	9.36	0.013	80.4	0.3
2	Machinery	1,405	8.47	0.005	57.3	0.1
3	Transport equipment	817	8.18	0.002	19.4	0
4	Diversified	380	7.41	0.008	37.7	0.1
5	Chemicals	2,340	6.02	0.003	17.8	0.1
6	Consumer goods	764	5.29	0.002	20.1	0
7	Mining	194	4.76	0.005	17.7	0.1
8	Financial services	5,365	4.21	0.002	28.1	8.3
9	Non-financial services	9,074	4.07	0.02	34.8	0.8
10	Food	2,114	3.61	0.006	16.5	69.8
11	Textiles	1,668	3.33	0.007	14.7	0.2
12	Electricity	728	3.29	0.009	18.6	0.2
13	Construction & real estate	2,490	3.13	0.007	34.9	0.1
14	Metal products	1,790	2.63	0.008	10.7	0.2
15	Miscellaneous manufacturing	1,549	1.27	0.001	10.2	0

Notes: The dividend payment trends of 31,234 firms representing 15 different industry sectors is given in the table. The dividend intensity is examined through variables like equity dividend as percentage of profit after tax and the ratio of dividend to sales. The mean and standard deviation of the variables are given in the last four columns.

Figure 1. PLS-SEM initial model.

Table 2. Reliability and validity of the latent construct

Latent constructs	Composite reliability coefficients	Cronbach’s alpha coefficients	Average variances extracted	Full collinearity VIFs
Leverage (Leverage)	0.797	0.658	0.500	1.09
Intang (Intangibility)	0.947	0.888	0.900	1.036
Dividend (Dividend)	0.663	−0.018	0.500	1.633
Cashflow (Cash flow)	0.865	0.808	0.522	2.488
Growth (Growth)	0.869	0.768	0.692	1.154
Size (Size)	0.921	0.828	0.854	1.307
TAX (TAX)	0.763	0.38	0.617	1.611
Discree (Discretionary expenses)	0.926	0.839	0.861	4.176
Agency (Agency cost)	0.93	0.899	0.770	3.283
Liquid (Liquidity)	0.953	0.925	0.870	1.06
Profits (Profitability)	0.925	0.891	0.757	2.076

Notes: Two latent constructs were removed after initial testing as these constructs didn’t qualify the criteria for reliability and validity of latent variables. Composite reliability and Cronbach’s alpha are measures used to validate internal consistency reliability of reflective measures. Construct Validity is tested using average variance extracted (AVE).

Table 3. Correlation among latent variables with square root of AVEs

	Leverage	Intang	Dividend	Cashflow	Growth	Size	TAX	Discree	Agency	Liquid	Profits
Leverage	0.705
Intang	0.022	0.948
Dividend	−0.069	0.076	0.704
Cashflow	−0.12	−0.033	−0.015	0.723
Growth	−0.019	0.082	−0.007	−0.163	0.832
Size	0.125	−0.05	0.013	0.325	−0.33	0.924
TAX	0.019	0.116	0.438	−0.216	0.034	−0.064	0.786
Discree	0.034	0.147	0.556	−0.375	0.131	−0.167	0.596	0.928
Agency	0.002	0.156	0.472	−0.355	0.121	−0.233	0.521	0.825	0.877
Liquid	−0.158	0.06	0.117	0.014	0.064	−0.107	0.098	0.127	0.116	0.933
Profits	−0.168	0.016	0.183	0.67	−0.024	0.185	0.008	−0.05	−0.096	0.081	0.87

Note:Square roots of average variances extracted (AVEs) shown on diagonal.

Figure 2. Result of nonlinear bootstrapping path coefficients.

Table 4. PLS regression using nonlinear bootstrapping

Robust path analysis—nonlinear-bootstrapping
	Leverage	Dividend	Cashflow	Tax	Agency	Profits
Leverage		−0.042*		0.144*
Intang					0.159*
Cashflow						0.682*
Growth		−0.057*
Size	0.141*	0.051*
Tax			−0.186*
Discree		0.42*
Agency		0.15*	−0.277*
Liquid		0.01*
profits		0.218*

* Indicates significant at 1% level of significance i.e. p = <0.001.

Table 5. PLS regression using linear bootstrapping

Robust path analysis—linear bootstrapping
	Leverage	Dividend	Cashflow	TAX	Agency	Profits
Leverage		−0.061*		0.019*
Intang					0.156*
Cashflow						0.67*
Growth		−0.058*
Size	0.125*	0.075*
TAX			−0.042*
Discree		0.508*
Agency		0.092*	−0.333*
Liquid		0.029*
Profits		0.19*

* Indicates significant at 1% level of significance i.e. p = <0.001.

Table 6. PLS regression model fit and quality indices for linear and nonlinear model

Model fit and quality indices	Linear	Non-linear	Acceptance
Average path coefficient (APC)	0.182	0.195	p < 0.001
Average R-squared (ARS)	0.165	0.186	p < 0.001
Average adjusted R-squared (AARS)	0.165	0.186	p < 0.001
Average block VIF (AVIF)	1.642	3.529	Acceptable
Average full collinearity VIF (AFVIF)	1.901	1.901	Acceptable
Tenenhaus GoF (GoF)	0.342	0.364	Large for nonlinear model
Sympson’s paradox ratio (SPR)	1.00	1.00	Acceptable
R-squared contribution ratio (RSCR)	1.00	1.00	Acceptable
Statistical suppression ratio (SSR)	0.846	1.00	Acceptable
Nonlinear bivariate causality direction ratio (NLBCDR)	0.846	0.846	Acceptable

Notes: Tenenhaus GoF (GoF) value ≥ 0.36 is considered as large goodness of fit. Sympson’s paradox ratio (SPR) acceptable if ≥ 0.7, R-squared contribution ratio (RSCR) ≥ 0.9 is acceptable, Statistical suppression ratio (SSR) should be acceptable if the value is greater than 0.7. Nonlinear bivariate causality direction ratio (NLBCDR) value should be greater than 0.7.

Table 7. R-square and Q-Square

Latent variables	Linear		Non-linear
	Adj R-square	Q-Square	Adj R-square	Q-Square
Leverag	0.016	0.016	0.02	0.02
Dividend	0.37	0.37	0.381	0.376
Cashflow	0.128	0.127	0.202	0.199
TAX	0	0.002	0.021	0.019
Agency	0.024	0.024	0.025	0.025
Profits	0.449	0.45	0.465	0.464

Note: Adj R-square and Q-square values indicates strength of the least-squares fit and explains the variance in the observed activities for the dependent latent variable.

Table

Latent variables	Indicators and variable definitions
Leverage	Debt Equity Ratio (DER)
	Total Debt/Capital (TDC)
	Total Debt/Total Assets (TDTA)
	Long term Debt/Total assets (LTDTA)
Intangibility	Intangible assets/Total assets (Intang)
	P/E (Price to Earnings) (PE)
	P/B (Price to Book) (PB)
Tangibility	Fixed Assets/Total assets (FATA)
	Cash flow Invest/total assets. Cash flow Invest is the cash flow from investing activities (CFITA)
	Fixed Assets/Total Sales (FATS)
Dividend	Equity dividend as % of PAT. PAT refers to profit after tax (PDIVPAT)
	Dividend/Sales (DIVSA)
Cash flow	PBITDA/Total Income. PBITDA refers to profit before income, tax, depreciation and amortization (PBDITAT)
	PBITDA/Total Assets (PDDITTA)
	PBT/Sales PBT denotes profit before tax (PBTSA)
	PBT/Total Assets (PBTTA)
	Net cash flow from operating activities/Sales (NCFOSA)
	Net cash flow from operating activities/Assets (NCFOTA)
Growth	Sales growth: The sales growth rate was calculated as the average sales growth during the latest five-year period (SG)
	Asset growth: The asset growth rate was calculated as the average asset growth during the latest five-year period (AG)
	PBDIT growth: The PBDIT growth rate was calculated as the average pbdit growth during the latest five-year period (PBDITG)
	Operating Cash flow growth: This growth rate was estimated on the basis of five-year average growth rate during the latest five-year period (OCFG)
Size	Log Assets (LOGTA)
	Log Sales (LOGSA)
Tax	Corporate Tax Provision/PBDITA (TAXPBDI)
	Corporate Tax Provision/Sales (TAXSA)
	Corporate Tax Provision/PBT (TAXPBT)
Discretionary expenses	R&D/Total Assets (RDTA)
	Advertisement/Total Assets (ADVTA)
	R&D/Total Sales (RDTS)
	Advertisement/Sales (ADVSA)
Agency cost	Total Sales/Total Assets (TSA).
	Selling Expenses/Sales (SE)
	Selling Expense/Total Assets (SETA)
	Communication Expenses/Sales (COMMSA)
	Traveling Expenses/Sales (TSESA)
	Selling Expenses/PBDITA (SEPBDITA)
	Printing Expenses/Sales (PRINTSA)
Profit	Net Profit Margin (NPM)
	Return on Net Worth (RONW)
	Return on Capital Employed (ROCE)
	Return on Total Assets (RTA)
Value	Enterprise Value/Sales (EVS)
	Enterprise value/PBDIT (EVPBDIT)
	Book Value per share (BV)
	Enterprise Value /PBT (EVPBT)
Liquidity	Current ratio (times) (CR)
	Quick ratio (times) (QR)
	Cash to current liabilities (times) (CACL)
	Cash & bank balance as % of current assets (CBCA)

Table

	Leverage	Intang	Dividend	Cashflow	Growth	Size	TAX	Discree	Agency	Liquid	Profits
TDTA	0.783	−0.021	−0.074	−0.292	0.055	−0.104	0.031	0.096	0.073	−0.179	−0.344
LTDTA	0.634	0.021	−0.066	−0.027	−0.081	0.143	0.016	0.002	−0.009	−0.047	−0.099
DER	0.643	0.051	−0.007	−0.073	0.039	0.023	0.048	0.067	0.037	−0.039	−0.034
DCR	0.75	0.011	−0.048	0.054	−0.067	0.289	−0.04	−0.07	−0.094	−0.177	0.005
PE	−0.005	0.948	0.064	−0.068	0.075	−0.076	0.114	0.151	0.159	0.069	−0.015
PB	0.047	0.948	0.081	0.004	0.079	−0.02	0.107	0.128	0.137	0.045	0.046
PDIVPAT	−0.114	−0.03	0.704	0.305	−0.143	0.224	0.02	−0.043	−0.059	−0.008	0.271
DIVSA	0.016	0.138	0.704	−0.327	0.134	−0.206	0.597	0.826	0.723	0.173	−0.013
PBTSA	−0.168	−0.047	−0.116	0.805	−0.121	0.257	−0.314	−0.509	−0.451	−0.017	0.617
NCFOSA	−0.002	−0.088	−0.295	0.665	−0.241	0.327	−0.371	−0.585	−0.526	−0.11	0.159
PDDITTA	−0.091	−0.052	0.012	0.849	−0.108	0.291	−0.184	−0.289	−0.268	−0.018	0.641
PBDITAT	−0.022	0.098	0.192	0.549	0.024	0.032	0.085	0.077	0.048	0.196	0.39
PBTTA	−0.22	−0.01	0.13	0.807	−0.064	0.235	−0.084	−0.173	−0.182	0.071	0.837
NCFOTA	−0.014	−0.044	0.011	0.608	−0.191	0.251	−0.058	−0.129	−0.143	−0.061	0.228
SG	−0.027	0.086	−0.003	−0.174	0.905	−0.357	0.038	0.14	0.131	0.068	−0.032
PBDITG	0.001	0.036	0.018	−0.041	0.694	−0.092	0.014	0.054	0.045	0.024	0.023
AG	−0.021	0.08	−0.032	−0.19	0.88	−0.369	0.031	0.13	0.123	0.065	−0.051
LOGSA	0.067	−0.084	−0.005	0.317	−0.32	0.924	−0.073	−0.165	−0.257	−0.129	0.227
LOGTA	0.164	−0.01	0.029	0.284	−0.289	0.924	−0.046	−0.143	−0.174	−0.068	0.115
TAXPBDI	−0.018	0.036	0.124	0.064	−0.098	0.131	0.786	0.052	0.047	0.006	0.072
TAXSA	0.049	0.147	0.564	−0.403	0.151	−0.232	0.786	0.885	0.771	0.148	−0.059
RDTA_2	0.038	0.135	0.563	−0.377	0.123	−0.187	0.605	0.928	0.756	0.131	−0.044
ADVSA	0.024	0.138	0.47	−0.32	0.12	−0.123	0.502	0.928	0.774	0.104	−0.049
COMMSA	−0.015	0.169	0.386	−0.334	0.144	−0.281	0.448	0.691	0.907	0.116	−0.11
TSA	−0.014	0.172	0.409	−0.299	0.089	−0.202	0.457	0.691	0.896	0.116	−0.093
PRINTSA	0.018	0.159	0.421	−0.318	0.134	−0.24	0.474	0.746	0.897	0.111	−0.069
TSESA	0.02	0.047	0.439	−0.295	0.057	−0.095	0.446	0.763	0.806	0.064	−0.066
CR	−0.137	0.043	0.09	0	0.059	−0.112	0.08	0.11	0.093	0.917	0.078
QR	−0.168	0.055	0.097	0.033	0.057	−0.096	0.077	0.092	0.089	0.962	0.084
CACL	−0.136	0.07	0.141	0.007	0.062	−0.091	0.116	0.152	0.143	0.918	0.065
NPM	−0.138	0.021	0.196	0.523	−0.006	0.109	0.079	0.045	−0.006	0.112	0.812
RONW	−0.106	0.003	0.125	0.565	−0.01	0.152	−0.048	−0.095	−0.124	0.012	0.821
ROCE	−0.172	0.02	0.163	0.612	−0.031	0.186	0	−0.059	−0.098	0.068	0.924
ROA	−0.167	0.013	0.152	0.629	−0.036	0.197	−0.003	−0.064	−0.107	0.09	0.916