Factors Influencing Dividend Policy Decisions in Banking Sector: An Indian Evidence

Abstract

The present study re-examines the applicability of Lintner’s (1956) and Britain (1966) path breaking analyses of dividend policy. The banks listed on National Stock Exchange, and declaring dividend consistently from the last eleven years constitute the sample for the present study. Here, we have carried out a cross-sectional analysis for the years 1996 to 2006. The results are found in-line to the Lintner model as well as Britain cash flow model. The findings offer evidence that stable dividend policy is followed by commercial banks in India. The results indicate that the major determinants of current dividend are lagged dividend and the current earnings. The above evidence is almost similar to those in developed markets like the U.S. The study is also found giving support to argument of ‘information content of dividend’ in the context of dividend proceeds. Hence, dividend policy can be used as signaling device by the management of the banks.

Keywords: Lintner’s model, dividend policy, commercial banks, cash flow model