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Financial management analysis of dividend policy pursued by selected Indian manufacturing companies.

Abstract

Corporate managers are actively engaged to take business and financial decisions which results in long term value to their shareholders. Managers pursue this goal through their investment, financing and dividend decisions. Dividend policy refers to the payout the management decides to compensate their shareholders for having assumed the risk of investment. The pattern and payment of dividend reflects on the company's financial position and it is a valuable source of information for investors, managers and lenders.

The present study is to analyze the pattern and the determinants of dividend payout by Indian manufacturing companies, measured in terms of Return on Equity, Economic Value Added and the liquidity position of the company; and to explore if there is there any value creation to shareholders in the long run in terms of increase in market price per share; increased market capitalization; and improved reserve position in the sample companies. The correlation analysis shows that there exists a positive correlation between Dividend and Economic Value Added for most of the companies under study. The results of analysis through Multiple Regression and General Linear Model indicate that, economic value added explains the dividend payment decisions of most of the sample companies. The study also shows that the consistent and high dividend paid by these companies is not adding any value to the shareholders in the long- run with the exception of a few companies.

Key words: Dividend, EVA, Shareholder value, Return on equity.

JEL Classification: C82; G32; G35; L21; L60; 053

Introduction

Globalization of economies has opened up competitiveness in most field of business activities, be it satisfying their customers with quality product at competitive prices or adding value to the shareholders wealth. Competitiveness among businesses is in terms of investments, technology adoption, new product development, financial inclusion, internationalization, mergers and acquisitions, and so on. Corporate managers are actively engaged to take business and financial decisions which results in long term value to their shareholders. Managers pursue this goal through their investment, financing and dividend decisions. Investment decision involve commitment of funds for long-term projects, while financing decision is concerned with selection of an appropriate capital structure that aims to minimize the cost of capital of firm (Chowdhury, (1)). A financial decision which also includes dividend policy decision has assumed great importance in Corporate Finance that many studies have led to new theories and models to create value. Dividend policy refers to the payout the management decides to compensate their shareholders for having assumed the risk of investment. But what determines the amount to be paid to the shareholders as dividend is a key policy decision that management has to make by keeping various investment, market, expectations etc., in mind. Brealy and Myers (2) found that, the dividend policy comes among the top ten puzzles in finance.

Dividend policy by firms depends on various factors such as the age of the firm, stability of earnings, trade cycles, liquidity position, management philosophy etc. For example, a new company may not prefer to pay all its earnings as dividend as it would enable for investments, though, technically, firms pay dividend out of the profit it earn. Profits do not guarantee the dividend, if liquidity position is not sound. As the dividend policy decision shapes its long term financing, short-term investments, and also helps in creation of wealth to shareholders, management should therefore act prudently to arrive at a decision to appropriate the profit between dividend and earnings. In Pandey (3) view, Dividend policy is a decision by the financial manager whether the firm should distribute all profit or retain them or to distribute a portion and retain the balance. Thus, the dividend decisions in the form of dividend policy forms an important aspect of corporate financial management.

That is, the pattern and payment of dividend reflects on the company's financial position and it is a valuable source of information for investors, managers and lenders. Through and by means of highpayout a firm can attract investors and increase the demand for its share, but shareholders consider the dividend payout as a crucial factor in determining the financial health of a company, in terms of its ability to increase earnings and stock price-in future. For managers, they will be left with fewer funds for further business development, and for lenders, high dividends are an indication of fewer amounts available to settle their claims. So, the first objective of the study is to map the pattern of dividend by the sample companies.

Prelude

As the dividend announcement and payment stimulate the market price of equity shares, it also influences market capitalization of firm. The studies conducted have found current year's earnings as the major determinant of dividend payment. Lintner (4) in his study on the determinants of dividend payout amongst American companies found that, the dividend decisions are based on current year's profit and previous year's dividend payment. Companies pay a fixed portion of their earnings after tax as dividend and the amount of dividend varies according to the earnings. Baker and Powell (5) concluded that the determinants of dividend are industry specific and the major determinant is anticipated future earnings.

Bose and Husain (6) showed that, most of the firms increased their dividend payment due to increase in profits and decrease their dividend payment due to decrease in profits. Ramachandran and Packkirisamy (7) found that, the dividend payout of Small Size, Medium Size, Large Size, and Overall Corporate Firms across industries in India is dependent on the level of debt in capital structure. Adesola and Okwong (8) indicated that, dividend policies of companies under study were influenced by the current year earnings and past year dividend. Firm size and future growth had no significant impact on dividend. Omar (9) explains dividend policy is related to profitability, change in previous year's dividend and size of the companies and not to financial leverage. Kanwal and Kapoor (10) found only liquidity and beta to be a noteworthy determinant. Bhayani (11) examined the influence of earnings and lagged dividend on dividend policy of companies listed on the BSE and found that the current year's earnings is the foremost factor affecting the dividend behaviour of a firm and concludes that Indian companies follow a stable cash dividend policy. Baker, et al, indicated the most important factors influencing dividend policy as the level of current and expected future earnings, size of the firm, stability of earnings, and the pattern of past dividend. Kumar (12) examined the relationship between corporate governance and dividend payment of Indian Companies and found positive influence 6f dividend with earnings and dividend trends and no relationship between foreign ownership and growth in dividend payout. Amidu and Abor (13) found that, payout ratios are positively related to profitability, cash flow and tax but were negatively related to risk and growth. Naceur, et al, (14) indicated that highly profitable firms with more stable earnings, with larger free cash flows are able to payout larger dividend, and fast-growing firms dispense larger dividend so as to appeal to investors. Myers (15) finds strong support for earnings, profit margin, institutional ownership and debt-equity ratio 1 on the dividend decision. Kumar stated that, ownership structure as one of the important variable to influence dividend policy decisions, though not uniformly. The relationship is different for different class of owners and at different levels.

Though a number of studies have been conducted to find the determinants of dividend, most of the studies focused on, what determines dividend?; Impact of dividend on future earnings; Correlation between profits and dividend; Growth of company and dividend; and industry specific. A sound strategic & operational footing on the issue of dividend policy decision that helps the firms to enhance the value to shareholder is not found in totality at an advanced and economic performance level. The present study focuses on finding the relationship between economic performance measured in terms of economic value added by companies over a period of time and dividend payments. Hence, we frame our second objective as to find the nexus between economic performance and dividend payout. Economic performance being measured in terms of Return on Equity (ROE), Liquidity Ratio (LR), and the Economic Value Added (EVA) in determining the dividend payout.

where:

ROE = PAT/Average Equity

Liquidity Ratio = Current Assets-lnventory) /Current Liability

EVA = (ROIC - WACC) x Invested Capital

Rationale for considering these three variables are, that something belongs to equity shareholders after all the contractual charge; preferential return, that which can be really paid-out to signal the market( liquidity ability of the firm), and which check the managers ability to re-earn in economic sense (Economic Value Added). Return on Equity represents the profit after tax available to the shareholders for distribution as dividend. If in a particular year, no return is available after the deduction of tax and preferential dividend, if any, no dividend will be paid as the Indian Companies Act allows dividend only out of current year's profits or past profits. Liquidity ratio is considered in the study, as the payment of dividend means cash outflow. Though a company may have sufficient earnings to declare dividend, it may not have adequate cash to pay dividend. So, unless a company's liquidity position is good, it cannot convert its current assets into cash to meet short term obligations. Liquidity and dividend payment behaviour of a company have a direct relationship (Benito and Young, (16)). As dividends amounts outflow of cash, a sound liquidity position is desired. Higher the ratio, better it is for the company to declare dividend. As regards Economic Value added, it aims to measure the firm's ability to generate profits in excess of the cost of capital employed. It is the difference between net operating profit after tax and cost of capital invested by both the lenders and providers. That is, a clear recognition and incorporation of the cost of capital for both debt and equity. A company with a positive EVA will be better equipped to pay dividend. Also because most investors in particular and other stakeholders in general, seek to see how firms sustain in an economic manner without affecting the financial risk of firms.

The goal of any organization is to maximize the wealth and value to its shareholders. Fernandez (17), a company creates value for the shareholders when the shareholder return exceeds the share cost (the required return to equity). Stewart (18) has identified six shareholder value drivers: net operating profits after taxes, the tax benefit of debt associated with the target capital structure, the amount of new capital invested for growth, the after-tax rate of return of the new capital investments, the cost of capital for business risk and the future period of time over which the company is expected to generate a return exceeding' the cost of capital from its new investments. Share holders receive their return on the investments, either through dividend or in the form of capital gains, bonus shares, warrants etc. In other words, the value of company's share in the market is in turn dependent on the investment, financing and dividend decisions of the company. According to Miller and Modigliani (19), the effect of a firm's dividend policy on the current price of its shares is a matter of considerable importance, not only to management who sets the policy, but also to investors planning portfolios and to economists seeking to understand and appraise the functioning of the capital markets.

Chauhan (20) analyzing value creation by Petroleum industry to its shareholders, found a significant correlation between EVA, EPS, Market capitalization & MVAin both public and private sector companies. Gul, et al, (21) while examining the relationship between dividend policy and shareholders wealth, concluded that the difference in average market value relative to book value of equity is highly significant among dividend paying companies and retained earnings have insignificant influence on market value of equity. Iturriaga and Crisostomo (22) examined the effect of the presence or absence of growth opportunities on the subsequent effect of leverage, dividend payout, and ownership concentration on firm value, and found that, dividend are positively related to firm value when growth opportunities are absent; they discipline managers by limiting their access to free cash flow. With the joint effect of signaling and the need of funds to finance profitable investment projects, the study does not find a significant effect of dividend on firms with growth opportunities. Huang, et al (23), in a study on Taiwanese companies, who have the habit of paying double dividend, also found significant positive association between dividend and future earnings. They also made an interesting observation that as the firm size grows; the relation between the dividend and earnings weakens. Azhagaiah and Sabari (24) found that, the wealth of the shareholders is greatly influenced by growth in sales, improvement of profit margin, capital investment decisions, capital structure and cost of capital. The core objective of business managers is to maximize the wealth of shareholders, dividend payment is an important tool to achieve this objective by keeping align market price of common stock (Azhagaiah,). Zhou and Ruland (25) tested the impact of dividend on future earnings growth. Their regression results confirmed a strong positive relation between dividend payout and future earnings growth. Pandey tested the effect of profitability on shareholder value (M/B ratio) and found strong positive relationship between profitability and the shareholder value creation. Dockery, et al, found that enhancing margins, generating new/enhanced products internally and instituting a leverage buyout results in creating shareholders value.

Today, investors and portfolio managers are engaged and eager to find best of the companies in terms of wealth creation, when deciding to construct stock portfolio, to mitigate risks. Studies have shown that higher dividend payout has resulted in higher growth in future earnings, which leads us to the third objective of the study, i.e., to explore the effect of dividend payout by these companies on the value creation to the shareholders. The value to the shareholders is measured in terms of market capitalization, retained earnings, and the market value of the shares. The rationale for selecting these three variables is:

Market capitalization is the value of a company's outstanding shares. Size of a company is determined in terms of its market capitalization. If a company consistently does good business and earns profits, its effect is reflected on the market price of its shares. A consistent upward movement of its share prices results in improvement in company's market capitalization as well as wealth to shareholders. Reserves are undistributed profits that belong to the shareholders, retained or provided for reinvestment into business or for any specific purpose. Higher the accumulated reserves, higher will be the economic value created for the shareholders. Market price of a share is one of the most important aspects considered by the investors before investment decision is made. The market price of a company's shares is directly influenced by its earnings. If the company makes consistent profit, the value of its share price grows up thereby increasing the demand for its share. High share price results in good return to its shareholders.

Research Strategy

The pertinent research focuses on the Indian Manufacturing Sector as it is the backbone of the country's economy. This sector stimulates growth, productivity and employment opportunities apart from strengthening the other sectors of the economy. The manufacturing sector comprises of manufacturing, mining and quarrying, and electricity, water supply, and gas sectors. The Indian manufacturing sector is matching pace by equating with the Information Technology (IT)/services sector growth rate of 9.8 per cent for the year 2010-11. The sector contributes in the range of 15-16 per cent of the Gross Domestic Product (GDP) and employs about 12 per cent of the Indian labour force. Growth of the manufacturing sector is so strong that it has outpaced theoverall GDP growth during the last few years. That is, the real GDP expanded at a Compounded Annual Growth Rate (CAGR) of 8.4 per cent from 2005-2012, growth in manufacturing sector was marginally higher at 8.5 per cent for the same time period. During the said period, the sector's share in the economy also increased marginally from 15.3 per cent to 15.4 per cent. The other reason to select the said sector is, it is expected to contribute 25 per cent to the GDP by 2025 as per National Manufacturing Competitiveness Council.

Growth in this sector is accompanied by higher productivity and profitability of many Indian manufacturing companies. Even during the downturn of 2009, the companies were resilient and reported growth in business activity due to increase in domestic demands and-exports. The country is placed fourth in the world in terms of competitiveness as per the 2013 Global Manufacturing Competitiveness Index (GMCI)-US Council on competitiveness and Deloitte. India manufacturing sector is ahead of several developed and emerging economies such as the US, South Korea, Brazil and Japan (www.ibef.org). Dividend policies of companies vary from country to country due to institutional and capital market differences (Ahmed, 26). The present study is based on the secondary data extracted from Centre for Monitoring Indian Economy's, Prowess Database. The other rationale considered for choosing the companies under study are consistent dividend payouts, age of operation, foreign investments and cross listings covering a period of 12 years from April 2002 to March 2013.

Research Findings

From the above table, it is clear that the companies have been paying dividend consistently, except for two years by TTK Prestige Ltd. However, the company improved on its performance, and paid more than 700 times in 2011 than what it had paid in 2002. The compound annual growth rate of dividend shows that except Bombay Dyeing Ltd, Apollo Tyres Ltd, Ashok Leyland Ltd and Reliance Industries Ltd, all other companies the growth rate has been more than 15 per cent. At the same time, combined average CAGR of 14.45 per cent is really alarming one to this traditional sector.

[GRAPHIC OMITTED]

Nexus between Economic Performance and Dividend:

A correlation analysis was first done to find the relationship between the dependent

variable, Dividend with the independent variables, Return on Equity, Liquidity ratio, and Economic Value Added. The outcome of the analysis is in Table 3:
TABLE 3
CORRELATION ANALYSIS BETWEEN DEPENDENT AND INDEPENDENT VARIABLES

Company Name        Dep.Var    Independent Variables

                               ROE     LR      EVA

                    Dividend
Apollo Tyres Ltd               0.27    -0.23   0.34
Ashok Leyland Ltd              0.49    -0.07   0.53
Asian Paints Ltd               0.72    -0.12   0.96
Bombay Dyeing &                0.29    0.10    0.12
  Mfg Co. Ltd
Britannia                      -0.18   0.10    0.32
  Industries Ltd
ITC Ltd                        0.18    0.66    0.71
Mahindra &                     0.62    -0.13   0.77
  Mahindra Ltd
Reliance                       0.43    0.07    0.15
  Industries Ltd
TTK Prestige Ltd               0.90    0.41    0.92
Titan Company                  0.86    -0.04   0.96


The correlation analysis shows that there exists positive correlation between Dividend and Economic Value Added for all the companies under study with high correlation found in respect of Asian Paints Ltd, ITC Ltd., Mahindra & Mahindra Ltd, TTK Prestige Ltd, and Titan Company., while Ashok Leyland Ltd have moderate correlation, Apollo Tyres Ltd and Britannia Industries Ltd have a weak but positive correlation. It is also apparent from the table that there is a negative/weak correlation between Dividend and liquidity position in respect of most companies under study except ITC Ltd and TTK Prestige Ltd which has moderate positive correlation. This establishes that, liquidity position of companies is not a determinant factor in deciding the dividend payment for these sample companies. As far as correlation between Return on Equity and Dividend is concerned, most of the companies are positively correlated with Asian Paints Ltd, Mahindra& Mahindra Ltd, TTK Ltd and Titan Company being highly correlated, except Britannia Industries Ltd which is negatively correlated with Return on Equity.

To understand the relationship better, a regression analysis was carried out. Dividend payment was used as the dependent variable and other variables ROE, LR and EVA as independent variables. The regression co-efficient indicates the amount of change in dependent variable for a unit change in independent variables. The value of [r.sup.2] indicates the proportion of variance in dependent variable explained by the independent variables. The P value shows the significance of the independent variable.

In line with the results of the correlation analysis, the regression results also showed the EVA of five companies AsianPaints Ltd, Britannia Industries Ltd, ITC Ltd, Mahindra & Mahindra Ltd, and Titan Company have significant regression coefficient and P values at less than 5 per cent level of significance. However, the EVA of TTK Prestige Ltd which had a high positive correlation with dividend did not have any significant influence in the regression analysis while Britannia Industries Ltd, which had a weak, but positive correlation, was significant with a P value of 0.00.

As there was no correlation between the liquidity and dividend payments, the regression result was also not significant either, for any of the sample company chosen for study. This is empirically in contrast to the study of Kanwal and Kapoor, who found liquidity to be a noteworthy determinant.

As regards Return on Equity, ITC Ltd and Reliance Industries Ltd are significant at 5 per cent and 10 per cent level respectively. And with respect to Britannia Industries Ltd, and Titan Company, though the p values are significant at 5 per cent level, the Regression co efficient were negative, meaning an increase in independent variable leads to a decrease in the dependent variable, which means increase in return on equity results in decrease in dividend payment in the long run. When looked at the R square of seven companies out of ten under study, i.e., Ashok Leyland Ltd, Asian Paints Ltd, ITC Ltd, Mahindra & Mahindra Ltd, TTK Prestige Ltd, Britannia Industries Ltd and Titan Company reveals that financial performance of the company measured in terms of EVA explains the Dividend payment decisions. The results of the regression analysis shows that the EVA's of companies which were statistically significant at 5 per cent level play a crucial role in determining the dividend payment. These companies made consistent profits right through the study period and prudently managed their equity and debt, because of which they had a better return on investment over cost of capital.

As regards, TTK' Prestige Ltd., the company apart from utilizing almost 50 percent of their reserves had also borrowed heavily in the initial years 2002, 2003, and 2004 resulting in high interest outflow and negative EVA on all these three years. The company also failed to manage its debt and equity position properly and failed to pay dividends to its shareholders for two consecutive years in 2003 and 2004. The position of the company improved from 2009 onwards with the borrowings and subsequently the interest payment also coming down, resulting in return on investment getting better than the cost of capital, and the company paying good dividend to its shareholders in 2010 & 2011.

As regards Apollo Tyres Ltd., Reliance Industries Ltd, and Ashok Leyland Ltd, the borrowings in the years 2002 and 2009 resulted in interest outflow, which consumed major chunk of the profits. The net effect was high cost of capital over return on investments ultimately leading to negative economic value added. However, all these three companies continued paying dividend to its shareholders with Reliance Industries Ltd and Ashok Leyland Ltd paying good dividends from 2006 onwards.

In the case of Britannia Industries, though there was weak but positive correlation between the variables, the regression results showed EVA influencing dividend with a p value of 0.00. However, though Return on Equity was significant at 1 per cent level, the negative Regression co efficient meant an increase in return on equity resulting in decrease in dividend payment in the long run. The company paid consistent dividend and generated very good return and positive EVA throughout the study period. R square of 73 per cent explains the proportion of variance accounted in dividend payment by the independent variables.

With reference to Bombay Dyeing, the company made losses in 2002, 2007 & 2009 generated negative EVA and ROE in most of the study period. At the same time, borrowings increased, utilized almost 70 per cent of the reserves till the year 2010, and, as a matter of policy the company continued paying a notional dividend to its shareholders.

Effect of Dividend Payment on Value Creation to Shareholders:

To find the effect of dividend paid on the value created to the shareholders, General Linear Model (GLM) is applied. General linear model is applied when there are multiple dependent variables and one or more independent variable. The dependent variables need to be correlated to implement the multivariate tests of significance. Since the study contains three dependent variables namely market capitalization, reserves and market price of share and one independent variable dividend. The model is used to find, Is there is any significant effect between the dependent and independent variables? The correlation between the independent and dependent variables were found to be high for all the companies except Britannia Industries (Table 3).

Apollo Tyres Ltd. : Is significant at 5 per cent level for all the three dependent variables, i.e. dividend payment is adding value to the shareholders in the form of reserves, and raise in market price per share resulting in increased market capitalization.

Ashok Leyland Ltd. : The Bonus issue (1:1) of June 2011 has diluted the market price per share and accordingly the market capitalization too. Compared to previous years, there is a drastic decrease on the dividend paid in the years 2012 and 2013.

Asian Paints Ltd. : Though there was very good correlation between the dependent and independent variables, the p values were not found to be significant.

Bombay Dyeing Ltd. : The P values are significant with regard to market capitalization and market price per share, thereby adding value to shareholders, whereas the dividend payment do not have any impact on the reserves of the company. As the company continued paying dividend from its reserves, despite making losses, it was not able to add value to shareholders in the form of reserves. However, having paid dividend as a matter of company policy it was able to sustain its name and thereby its market price.

Britannia Industries Ltd. : As there was no correlation between the dependent variables, General Linear Model could not be applied to find the impact of dividend payment.

ITC Ltd., Mahindra & Mahindra Ltd., and Reliance Industries Ltd: The p values were not found to be significant, though these companies paid consistent and fluctuatingdividends, which did not lead to any economic value to shareholders measured in terms of market capitalization, reserves and market price per share.

As regards, TTK Prestige Ltd. and Titan Company, reserves of both the companies are significant at 5 per cent level, indicating that the high dividend paid has added value to the shareholders in the form of reserves. However both market capitalization and market price per share were found to be not significant.

Conclusions

The study examined the factors responsible for dividend decisions of ten Indian manufacturing companies listed with Bombay Stock Exchange (BSE) by taking three relevant variables, viz., return on equity, liquidity and economic value added. The results indicate that, EVA explains the dividend payment decisions of five companies.

That is, though Economic Value Added was found to be a major determinant in payment of dividend, the study shows that high dividend payout by these companies did not add value to shareholders (in the long run) with the exception of few companies, in the form of market capitalization; reserves; or market price per share. At the same time, there was no correlation between the liquidity and dividend payments. Whereas, there exists a high degree of correlation between the independent and dependent variables amongst most of the companies, except Britannia Industries Ltd.

The authors are grateful to the Journal, JFMA referees for their valuable comments and suggestions.

The authors own full responsibility for the contents of the paper.

REFERENCES

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(3.) Pandey, I., M. What Drives Shareholder Value-Working Paper, No 2005-09-04, Indian Institute of Management (2005)

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(15.) Myers, M. The Determinants of Corporate Dividend Policy. Academy of Accounting and Financial Studies Journal (September: 1-12, 2004)

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(23.) Huang, C., C. Cash Dividends, Stock Dividends and Subsequent Earnings Growth. Pacific-Basin Finance Journal (2009)

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b) Baker, K., Saadi, S., and Gandhi, D. The Perception of Dividends by Canadian Managers: New Survey Evidence. International Journal of Managerial Finance (1: 2007)

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Professor D.N.S. KUMAR, Ph.D.

Professor (Finance)

email: dns.kumar@christuniversity.in

and

VIDYA CHANDRASEKAR, ESQ.

Research Associate

email: Vidya.chandrasekar@christuniversity.in

Centre for Research--Projects

Christ University

Bengaluru, INDIA
TABLE 1
DETAILS OF CRITERIA IN SELECTION OF COMPANIES

Company Name    Age         Size (market       Foreign       Cross
                operation   capitalization)    Investments   listings
                In Years    Rs. In millions)

Apollo          38(1975)    42,035.67          Yes           Yes
  Tyres
  Ltd(ATL)
AshokLeyl       58(1955)    58,401.85          Yes           Yes
  andLtd
  (ALL)
Asian Paints    68(1945)    4,71,388.16        Yes           Yes
  Ltd(APL)
Bombay          34(1879)    18,071.8           Yes           Yes
  Dyeing
  Ltd(BDL)
Britannia       21(1892)    62667.38           Yes           Yes
  Industries
  Ltd(BIL)
ITCLtd(ITC)     113(1910)   24,42,456.61       Yes           Yes
Mahindra&       68(1945)    5,28,729.53        Yes           Yes
  Mahindra
  Ltd(M&M)
Reliance        47(1966)    24,98,016.86       Yes           Yes
  Industries
  Ltd (RIL)
Titan           29(1984)    2,27,717.15        Yes           Yes
  Industries
  Ltd (Titan)
TTK Prestige    68(1945)    36,681.94          Yes           Yes
  Ltd (TTK)

TABLE 2
PATTERN OF DIVIDEND PAYMENT AMONG THE SAMPLE COMPANIES

(Figures in percentage)

YEAR      ATL     ALL     APL      BDL     BIL

2002      45      45      90       20      75
2003      45      50      110      30      100
2004      45      75      85       40      110
2005      45      100     95       40      140
2006      45      120     100      50      150
2007      45      150     130      50      150
2008      50      150     170      35      180
2009      45      100     175      10      400
2010      75      150     270      25      250
2011      50      200     320      35      325
2012      50      100     400      50      425
2013      50      60      460      50      425
Mean      49      108     200      36      228
CV *      17.25   43.84   65.19    36      58.23
CAGR **   0.88%   2.43%   14.56%   7.93%   15.55%

YEAR      ITC      M&M      TTK      RIL     TITAN

2002      13.5     50       15       47.5    15
2003      150      55       0        50      10
2004      200      90       0        52.5    10
2005      310      100      20       75      20
2006      265      75       25       100     30
2007      310      100      30       110     50
2008      350      115      35       130     80
2009      370      100      50       130     100
2010      450      190      100      70      150
2011      445      230      125      80      125
2012      450      250      150      85      175
2013      525      260      175      90      210
Mean      320      135      60       85      81
CV *      45.72    56.78    100.83   33.58   86.44
CAGR **   35.67%   14.73%   22.72%   5.47%   24.6%

Notes : * Coefficient of Variation

** Compound Annual Growth Rate

TABLE 4
REGRESSION ANALYSIS RESULTS

Company Name       ROE                 LR

                   Co-eff.   P Value   Co-eff.   P Value

Apollo             0.00      0.99      -0.09     0.13
  Tyres Ltd
Ashok              0.60      0.15      -0.80     0.72
  Leyland Ltd
Asian              -0.46     0.35      0.07      0.97
  Paints Ltd
Bombay Dyeing      0.19      0.33      0.16      0.13
  & Mfg Ltd
Britannia          -2.33     0.00      0.15      0,73
  Industries
  ltd
ITC Ltd            5.75      0.04      0.06      0.72
Mahindra &         -0.87     0.16      -0.02     0.69
  Mahindra Ltd
Reliance           1.11      0.06      0.35      0.39
  Industries Ltd
TTK Prestige Ltd   0.43      0.53      0.87      0.85
Titan Company      -0.78     0.05      -0.42     0.96

Company Name       EVA                 R

                   Co-eff.   P Value   Square

Apollo             0.02      0.60      0.13
  Tyres Ltd
Ashok              -0.02     0.78      0.72
  Leyland Ltd
Asian              0.82      0.00      0.97
  Paints Ltd
Bombay Dyeing      -0.03     0.69      0.13
  & Mfg Ltd
Britannia          2.42      0.00      0.73
  Industries
  ltd
ITC Ltd            1.86      0.02      0.72
Mahindra &         0.26      0.02      0.69
  Mahindra Ltd
Reliance           0.00      0.85      0.39
  Industries Ltd
TTK Prestige Ltd   0.29      0.54      0.85
Titan Company      0.92      0.00      0.96

TABLE 5
RESULTS OF GENERAL LINEAR MODEL

Dependent Variables (P Values)

Company                   MktCapt.   Reserves   MPS

Apollo Tyres Ltd          0.02       0.01       0.03
Ashok Leyland Ltd         0.20       0.38       0.20
Bombay Dyeing Ltd         0.00       0.50       0.00
ITC Ltd                   0.31       0.28       0.13
Mahindra & Mahindra Ltd   0.16       0.25       0.12
Reliance Industries Ltd   0.19       0.33       0.32
TTK Prestige Ltd          0.17       0.06       0.17
Titan Company             0.23       0.01       0.23

DESCRIPTIVE STATISTICS FOR OBJECTIVE 2:  Nexus between Divident
payment and financial performance

              Apollo Tyres      Ashok Leyland
                  Ltd.              Ltd.

Variables    Mean     Std      Mean      Std
                      Dev                Dev

ROE         14.73     8.40    16.14     6.57
QR           0.35     0.10     0.70     0.29
EVA         554.09   802.48   794.68   1221.90

               Asian Paints           Bombay
                    Ltd.              Dyeing

Variables    Mean       Std      Mean      Std
                        Dev                Dev

ROE          37.98     8.71      -2.26    18.24
QR           0.40      0.15      0.54      0.39
EVA         3462.70   2769.67   -527.27   837.06

                 Britannia              ITC
                 Inds Ltd.              Ltd.

Variables    Mean      Std       Mean       Std
                       Dev                  Dev

ROE          32.23    12.87     29.74       3.52
QR           0.26      0.14      0.32       0.16
EVA         1180.53   415.00   22830.74   14935.10

                    M & M            Reliance Inds
                                          Ltd.

Variables     Mean       Std       Mean       Std
                         Dev                  Dev

ROE          23.99      9.22      16.65       4.55
QR            0.64      0.13       0.56       0.33
EVA         11308.76   7773.48   23556.11   27877.15

            Titan Industries     TTK Prestige
                  Ltd.               Ltd.

Variables    Mean     Std      Mean      Std
                      Dev                Dev

ROE         30.80    15.98    23.91     22.95
QR           0.44     0.25     0.61     0.18
EVA         870.72   877.20   914.17   1853.66

DESCRIPTIVE STATISTICS FOR OBJECTIVE 3 : To explore the effect of
high dividends paid on the economic value to shareholders

                 Apollo Tyres         Ashok Leyland
                     Ltd.                  Ltd.

Variables     Mean       Std        Mean       Std
                         Dev                   Dev

MktCap      19500.79   14554.29   44698.77   24748.02
Reseive     11281.63   6894.82    23035.06   13507.74
MPS          410.93     272.25     344.56     181.55

                  Asian Paints             Bombay
                      Ltd.                 Dyeing

Variables     Mean         Std        Mean       Std
                           Dev                   Dev

MktCap      137899.15   141060.48   13253.16   8818.28
Reseive      1111273     8648.19    6140.81    5522.89
MPS          1455.80     1454.75     369.24    218.57

                  Britannia                 ITC
                  Inds Ltd.                 Ltd.

Variables     Mean       Std        Mean         Std
                         Dev                     Dev

MktCap      28516.68   11737.09   859686.25   700791.88
Reseive     5079.77    1494.78    112706.79   53200.30
MPS          952.50     495.62     1740.19     743.93

                     M & M                 Reliance Inds
                                               Ltd.

Variables     Mean         Std         Mean         Std
                           Dev                      Dev

MktCap      204787.23   178231.81   1900826.40   1199577.75
Reseive     54336.69    44625.15    886042.24    568567.78
MPS          772.05      523.61       938.15       568.77

             Titan Industries        TTK Prestige
                    Ltd.                 Ltd.

Variables    Mean       Std       Mean       Std
                        Dev                  Dev

MktCap      9058.28   14052.15   7121664   81833.14
Reseive     1104.50   1131.51    5475.47   5832.17
MPS         1609.43   1840.48    799.55     870.92
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Article Details
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Author:Kumar, D.N.S.; Chandrasekar, Vidya
Publication:Journal of Financial Management & Analysis
Article Type:Report
Geographic Code:9INDI
Date:Jan 1, 2014
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