Dividend policy and corporate life cycle: a study of Indian companies

Abstract

PurposeThe purpose of this paper is to investigate the relationship between dividend policy and the life cycle of firms in India. In addition, this study intends to examine the variation in dividend behaviour over the life cycle of a firm. The study anticipates that a firm's dividend behaviour varies over its life cycle.Design/methodology/approachTo scrutinize the validity of the proposition, the authors classify 1968 non-financial industrial firms listed at Bombay Stock Exchange (BSE) into growth, mature and stagnant firms over the period 2000–20. Additionally, to check the robustness of the results, they use an array of techniques such as analysis of variance, pooled ordinary least squares, fixed effects models and random effects models.FindingsThe empirical findings suggest that dividend behaviour varies over a firm's life cycle. Specifically, stagnant firms are paying significantly higher dividends than growth firms. Mature firms are paying significantly higher dividends than growth firms. The results are consistent after controlling the effects of firm's size, profitability, leverage, operating risk, systematic risk and growth opportunities.Research limitations/implicationsThe findings are useful for corporate decision makers in establishing an appropriate dividend policy conditional on firms' life cycle stage and for shareholders in making investment decisions.Originality/valueThe relation between dividend policy and firm life cycle has not been examined before in the context of Indian stock market. Thus, this research bridges this gap in the literature.