Corporate governance and dividend policy of the US and Indian companies

The paper examines the relationship between corporate governance and dividend payout, using a sample of Indian and US listed firms. In contrast with the substitution hypothesis, but in line with the outcome hypothesis, this study documented that companies with good corporate governance pay higher dividends than companies with weak corporate governance. Specifically, board independence, board size and institutional ownership are the key corporate governance drivers of dividend payout in US firms, while none of the individual corporate governance parameters is significantly associated to dividend payout in for Indian firms. An investor can use this information to make an investment decision. Financial Regulators need to improve corporate governance framework to enhance the disbursement of dividend and mitigate the agency problem. Companies need to consider the signalling effect of dividend payments while framing their dividend policy in both countries.

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Notes

Top 10 economies in 2050, according to PWC’ “The world in 2050” report available at https://www.pwc.com/gx/en/research-insights/economy/the-world-in-2050.html.

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Authors and Affiliations

1. Department of Commerce, Faculty of Commerce & Business at the Delhi School of Economics, University of Delhi, Delhi, India Sunaina Kanojia
2. Sri Aurobindo College, University of Delhi, Delhi, India Bunny Singh Bhatia

1. Sunaina Kanojia