Dividend and Bank Performance in India: Evidence using Panel Data Analysis

Abstract

Dividend has been a matter of concern since the concept of limited liability of the firms came to existence. The uncertainty regarding dividend policy is supposed to hunker down unless we move away from whack-a-mole approach to a long-winded solution to the problem of dividend policy. The issue gets exacerbated because of inclination towards the valuation by the people who call the shots in the firms. This paper explores the association of dividend with the rising NPAs in the Indian banks. The findings of the paper are the testimony to the fact that dividend policy in the banks has issues and need to be checked and corrected. It is recommended in the paper to decouple dividends from the NPA by linking dividend policy with free cash flow. It is also recommended to adopt DVR shares to cater to the aspirations of those investors who do look for consistent dividend policy irrespective of the performance of the banks in a particular year.