Ownership Structure and Dividend Payout Policy in...

Ownership Structure and Dividend Payout Policy in India

Jayesh Kumar∗

Indira Gandhi Institute of Development Research

Gen. A. K. Vaidya Marg, Goregaon (East), Mumbai - 400065

Ph: +91 (22) 28400919 Extn.263(R) 591(O)

E-mail : [email protected]

This version: November 2003.

∗The author would like to thank Kausik Chaudhuri for his continuous help, suggestions and comments. Usual disclaimerapplies.

Ownership Structure and Dividend Payout Policy in India

Abstract

This paper examines the possible association between ownership structure, corporate governance and

firms dividend payout policy. It is also one of the very first example, which tries to detect any poten-

tial association in ownership structure, corporate governance and well established dividend payout

models in context of an emerging market (India). The present study examines the payout behavior

of dividends and the association of ownership structure for Indian corporate firms over the period

1994-2000 and attempts to explain the observed behavior with the help of well established dividend

models of Linter (1956), Waud (1966), and Fama and Babiak (1968). The results consistently sup-

port the potential association between ownership structure and dividend payout policy. Though the

relationship differs across different group of owners and at different level of shareholding.

Furthermore, we suggest a more generalized model to explain the dividend payout intensity, incor-

porating firm’s financial structure and investments opportunities along with dividends and earnings

trend and ownership structure, after controlling for firm’s unobserved heterogeneity. We also find ev-

idence of dividends dependence on past dividends after controlling for unobserved firm heterogeneity.

We find evidence in support of the hypothesis that a positive association exists between dividends

and earnings trend. Debt equity is found to be negative and associated, whereas past investment

opportunities are positive and associated with dividends in some cases. Corporate and directors

ownership is positive and related in level, and corporates ownership is negative and related in square.

Institutional ownership have inverse effect on dividends in comparison to corporate ownership in

levels as wel as in its squares. We find no evidence in favor of association between foreign ownership

adn divided payout growth

JEL Classification: G32, G35.

Keywords: Ownership Structure, Dividend Payout, India.

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1 Introduction

Corporate governance in India differs dramatically from the dominant form of corporate governance in

US, UK or other developped economies. Within India though corporate governance is not homogenous.

Some firms operate within industrial groups while others are independent. Group firms differ in depth

and breadth of inter firm relationship. Ownership structure in India, differs from most of Anglo-

Saxon countries like US and UK. Here, large shareholders (especially directors and corporates) have

ample incentives and ability to control. Research on corporate governance and dividend payout policy

has mostly addressed the United States, whose well regulated and dispersed shareholding leave salient

agency problem between managers and shareholders. In emerging markets, widely held corporations are

in the minority and mostly held in few hands (block shareholders). In this paper, we examine whether

differences in ownership structure and owners identity, across firms can explain their dividend payout

differences in an context of an emerging economy, India. Using dividend payout and detailed ownership

structure of more than 2000 Indian corporate firms over the period 1994-2000, we try to answer some

of the questions raised herewith.

Dividends are referred as reward for providing finances to a firm in literature as without any dividend

payout, shares would not have any value. Dividend payout policy has been the primary puzzle in the

economics of corporate finance since the work of Black (1976). The dividend literature has primarily

relied on two lines of hypothesis: signaling and agency cost.

Does shareholders identity matter? If it does, then, whether directors ownership is more effective

than foreign ownership, corporate ownership or institutional ownership in determining the firms div-

idend payout policy? Does dividend signal any conflict between the insider shareholders and outside

shareholders? Does dividend change provide any new information about this conflict? Are dividends a

method of aligning directors’ interests with those of outside investors? Does group-affiliated corporations

in India pay higher dividends than stand-alone firms, dampening insider expropriation?

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These are some of the important questions which researchers are trying to explore in the recent

literature of corporate finance. In this context, we investigate Indian corporate firms in order to provide

new evidence on how ownership structure influence dividend payout policy.

Information asymmetry between an ‘insider’ and ‘outsider’ may also lend to agency cost (Jensen and

Meckling 1976). One of the mechanisms suggested to reduce ‘outsiders’ expropriation is to reduce free

cash flows available to managers through high payout. The cash flow hypothesis asserts that insiders

have more information about firms future cash flow than do outsiders, and they have incentive to signal

that information to outsiders. Dividends can be an ideal device for limiting rent extraction of minority

shareholders. Large shareholders, by granting dividends, may signal their unwillingness to exploit them.

Dividend payout, however guarantee, equal payout for both insider and outsider equity holders.

This study has examines empirically the relationship between the ownership structure, corporate

governance and dividend payout using a large panel of Indian corporate firms over 1994-2000. We find

unobserved firm heterogeneity explains a large fraction of cross-sectional variation in dividend payout

growth that exists among Indian corporate firms, and found in several studies. We also document that

ownership is one of the important variables which influence the dividend payout policies. Though the

relationship is different for different class of owners andat different levels. Which suggests that the

ownership structure does not influence dividend pay out policy uniformally. The impact changes over

the change in size of the holdings as well as their identity. We expect that firms, for which the interest

alignment between different class of owners, is more likely to be severe, pay out less of their earnings as

dividends. We test this propostion by estimating the partial adjustment model.

The remainder of the paper is organized as follows. Section 2 briefly reviews the existing literature

and provide a brief introduction to economic and legal framework within which Indian corporate firms

operate and its implication for dividend payout policy. Data, institutional details and variable con-

structions are presented in Section 3. The methodology used and the obtained results are presented in

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Section 4. Finally, some concluding remarks are presented in Section 5.

2 Literature Review

A substantial theoretical literature, including Bhattacharya (1979: 1980), Linter (1956), Lintner (1962: 1970),

Miller and Rock (1985), suggests that corporate dividend policy is designed to reveal earnings prospects

to investors. Fama and Babiak (1968) argues that the firms a priory set their target dividend level

and try to stick to it. In addition there may be interrelation between dividend payout policy and

agency cost (Easterbrook 1984, Jensen and Meckling 1976). Easterbrook (1984) presents two agency

cost explanations for changes in dividend payouts. Lalay (1982) investigate a large sample of bond

indentures focusing on conflict between shareholders and bondholders on the dividend decision. Bhat-

tacharya (1979: 1980) derive the existence conditions for a non dissipative signaling model and show

that dividends are signals for future cash flows. Brennan and Thakor (1990) develops a theory of choice

for distribution of cash from firm to shareholders. Black and Scholes (1974) tests the effect of dividend

yield on the stocck returns, after dividend announcements. Gorden (1959) in his semianl work proposes

that even in presence of perfect capital markets, the existence of uncertainty about the future cash flow,

suffices to make the price of shares dependent upon the dividend policy. Lang and Litzenberger (1989)

tests the cash flow signaling and free cash flow explanations of the impact of dividend announcements

on stock prices. Hurley and Johnson (1998) propose a generalised makov dividend discount model.

Feldstein and Green (1983) provide a model of market equilibrium to explain why firms that maximise

the value of their shares pay dividends. Miller and Modigliani (1961) in their seminal work analyze the

effect of dividend policy on the current price of its shares Miller and Rock (1985) extend the standard

finance model of the firms dividend by allowing the firms manager ‘insider’ to know more about the

firm’s financial health than ‘outside’ investors. Barclay et al. (1995) analyze the relationship between

leverage and dividends choice. Kumar (1988) showd that the existence of coase dividend-signaling

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equilibria. Fama and French (2002) tests the trade-off and pecking order models. Bagwell and Shoven

(1989) analyze cash distribution to shareholders. Miller and Scholes (1982) re-examines whether share-

holders with high dividend yield recieve higher risk adjusted rate of return. Gugler (2003) investigates

the relationship between dividends and ownership and control structure of the firm for Astrian firms.

Black (1976) tries to answer the dividend puzzle. Faccio et al. (2001) provide quantitative evidence on

the expropriation that takes place within business group and on the differences in expropriation be-

tween Europe and Asia. Gugler and Yurtoglu (2003) provide a new explanation of why dividends may

be informative. Fukuda (2000) tests the dividend signaling hypothesis using Japanese data. Benartzi

et al. (1997) investigate the information content of dividend changes. Fama (1974) provide empirical

relationship between the dividend and investment decision of firms. Porta et al. (2000) outline and test

two agency model namely, “outcome model” and “substitute model”. Aivazian et al. (2003) finds that

emerging market firms exhibit dividend behavior similar to those of US. Amihud and Murgia (1997)

investigates relation between dividends, taxes and signaling using Germna data. Kato et al. (1997)

analyze voluntary dividend announcements in Japan. Baker and Wurgler (2003) document a close link

between fluctuations in the propensity to pay dividends and catering incentives. Ramcharran (2001)

provide an empirical model of dividend policy in emerging equity markets. Feldstein (1970) examine

corporate taxation and dividend behavior, they find that the policy of differential profits taxation had

a substantial effect on corporate saving. Baumol et al. (1970) examines the relation between earings

retention, new capital and growth of the firm. Jensen et al. (1992) examine the determinant of cross-

sectional differences in insider ownership, debt, and dividend policies. Fenn and Liang (2001) analyze

how corporate payout policy is affected by managerial stock incentives. Fama and French (2002) analyze

cause of disappearing dividends. Marsh and Merton (1987) develop a model of the dividends process for

the aggregate stock market. Howe and pin Shen (1998) examine the intra-industry information effects

of dividend initiations announcement. Brook et al. (1998) examine do firms use dividends to signal large

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future cash flow increases. DeAngelo et al. (1996) study the signaling content of managers dividend

decisions. Dewenter and Warther (1998) compare dividend policy of US and Japanese firms. Healy

and Palepu (1988) finds that investors interpret announcements of dividend initiations and omissions

as managers forcast of future earning changes.

In case of India, Narasimhan and Asha (1997) tries to explain the implications of dividend tax on

corporate financial policies. Reddy (2002) examines the dividend behavior and attempts to explain the

observed behavior with the help of trade-off theory, and signaling hypothesis. They supports earlier

finding that dividend omissions have information content about future earnings, but they do not find

any evidence in support of the tax-preference theory. Porta et al. (2000) do not find any conclusive

evidence on the effect of taxes on dividend policies. Kevin (1992) shows that dividend stability is a

primary determinant of payout while profitability is only of secondary importance. Mahapatra and

Sahu (1993) does not find evidence in support of Linter’s model. Mohanty (1999) attempts to examine

the behavior of payout after the bonus issue, they find that bonus issuing firms yielded greater returns

to their shareholders than those that did not make any bonus issue but maintained a steadily increasing

dividend rate. In a survey of manager’s perception about dividend decision, Bhat and Pandey (1994)

find that payment of dividends depend on current and expected earnings as well as the pattern of past

dividends, dividends are used in signaling the future prospects, and dividends are paid even if there

is profitable investments opportunity. In an analysis of state-owned enterprises (SOEs), Mishra and

Narender (1996) find support for the Linter’s model.

These studies in general tried to explain the dividend behavior over time with the help of past

dividends, earnings, taxes etc. But none of the studies in Indian case, tries to explain the behavior of

pay-outs with respect to ownership structure or corporate governance. None of the studies have tried to

control for the unobserved firm heterogeneity, which we show is a key factor for the differences among

dividend pay out policy across firms. These studies have either focused on bigger firms or on specific

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group of owners (for example SOEs). We in turn try to analyze the changing pattern of ownership

structure along with the differences among the firm’s dividend payout policy.

The empirical evidence concerning the possible association of owners and payout policy is extremely

limited, none in case of emerging economies. Most of the studies have tried to explain this phenomena

of dividends and institutional shareholders in developed countries. In a recent study Short et al. (2002)

examines the link between dividend policy and institutional ownership for UK firms. They find a positive

association between dividends and institutional share-holders and negative association with managerial

ownership. In emerging markets like India, Korea, Taiwan, China etc. The institutional setup is quite

different than those of the developed countries. There is a wide gap in literature to address these

questions in context of emerging economies. This paper tries to fill this gap, with the help of Indian

case study.

2.1 Implications of ownership structure on dividend payout

Indian corporate firms ownership structure is characterized by large shareholders, like other emerging

markets. Majority control gives the largest shareholder incentive and control over key decisions, like

dividend payout. The dominance of large shareholders may affect the dividend payout in several ways.

There has been changes in the taxation policy for dividend during the sample period, which gives us an

opportunity to test the tax-prefference theory and its implications for the dividend payouts in emerging

economies.

India operates a classical company tax system in which companies are taxed separately from the

investors receiving the profits in form of dividends. Firms pay differential rate of corporate tax on their

profits and shareholders pay income tax on the dividend income received. This leads to twice taxation

of profit earned by firm, one in the hands of company through corporate tax and other in hands of

investors, in form of income tax. In such a case an investor should prefer to get less dividends paid

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and earnings to be retained by firm, as they can always get the amount by selling the shares in equity

market, in form of ‘home made dividend’ (Black 1976).

The signaling perspective suggest that dividends are used as a signal of firm’s future earnings, by

insiders. Most of the signaling and agency cost models assumes that there is separation of ownership

and control and finance is raised externally through capital markets. However, the characteristic of

financing in India is different than those of the developed nation. In India, most of the financing comes

from financial institutions, and these lenders also have equity holding (in general) in the firm concerned,

then they have access to insider information as well. This reduces the importance of dividends as a

signal of firms financial health.

Taxation policy is supposedly a key determinant of payout in developed countries (see Short et al.

2002), in case of India tax policy is different than those of developed countries. In India, dividends

have been taxed at a flat rate of 10% for quite some time, which has been removed totally recently.

Dividend payout may be beneficial, if used to offset tax liability against the capital loss, as after dividend

payments the prices of stocks fall. Narasimhan and Asha (1997), Reddy (2002) did not find any evidence

in favor of tax-preference theory of for implication of dividend tax on corporate financial policies.

3 Data discription and sample selection

For our study of effects of ownership structure (shareholding pattern) on dividends, in an emerging

economy, we focus our attention on Indian corporate sector. We choose this as an experimental set-

ting as Indian corporate sector offers the following advantages over other emerging market economies.

The Indian Corporate Sector has large number of corporate firms, lending itself to large sample sta-

tistical analysis. It is large by emerging market standards and the contribution of the industrial and

manufacturing sectors (value added) is close to that in several advanced economies. Unlike several

other emerging markets, firms in India, typically maintain their shareholding pattern over the period

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of study, making it possible to identify the ownership affiliation of each sample firm with clarity. It is

by and large a hybrid of the “outsider systems” and the “insider systems” of corporate governance.

The legal framework for all corporate activities including governance and administration of companies,

disclosures, share-holders rights, dividend announcements has been in place since the enactment of the

Companies Act in 1956 and has been fairly stable. The listing agreement of stock exchanges have also

been prescribing on-going conditions and continuous obligations for companies1. India has had a well

established regulatory framework for more than four decades, which forms the foundation of the cor-

porate governance system in India. Numerous initiatives have been taken by Stock Exchange Board of

India (SEBI) to enhance corporate governance practice, in fulfillment of the twin objectives: investor

protection and market development, for example: streamlining of the disclosure, investor protection

guidelines, book building, entry norms, listing agreement, preferential allotment disclosures and lot

more. Although the Indian Corporate Sector is a mix of government and private firms (which are again

a mix of firms owned by business group families, and multi nationals and stand alone firms), it has not

suffered from the cronyism that has dominated some of the developing economies, nor it possess the

characteristics of the Korean chaebols(OECD-Publication 2001). Accounting system in India is well

established and accounting standards are similar to those followed in most of the advanced economies

(Khanna and Palepu 2000).

This increases our confidence in the reliability of our data. The firm level panel data for our study

is primarily obtained from the corporate database (PROWESS) maintained by CMIE, the Center for

Monitoring the Indian Economy. The data used in the analysis consists of all manufacturing firms listed

on the Bombay Stock Exchange (BSE), for which we could get their historical share holding pattern

along with the dividend payout ratio.

We confine our analysis to BSE listed firms only because all the listed firms are required to follow1For more discussion on this see pg. 249, (OECD-Publication 2001).

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the norms set by SEBI for announcing the financial accounts. The BSE also has the second largest

number of domestic quoted companies on any stock exchange in the world after NYSE, and more

quoted companies than either the London or the Tokyo stock exchange.

We analyze data from 1994 to 2000, as this is the period for which we have the most coverage in

the database. Also, during the 1990’s India went for liberalization, allowing diversified shareholding

pattern of Corporate firms.

To construct the data sample, we start with all companies listed in Prowess database. We exclude

Public Sector firms as their dividend payments are highly influenced by a large number of social obliga-

tions, which may be difficult to account for. We also exclude financial firms and utilities because their

dividend policeas are highly constrained by external forces. We restrict our analysis to firms which have

no missing data (on share holding pattern and dividends) for at least 2 consecutive years 2. We finally

end up with 2575 firms resulting in an unbalanced panel of 5,224 observations. For this unbalanced

panel of 5,224 observations, we collect the following additional data for each firm observation: earn-

ings, sales total assets, and debt equity. Despite the problem of attrition and missing data, our sample

provides several distinct advantages over the samples used in earlier studies.

As noted earlier, distinct form of corporate governance exist in India. A distinguishing feature

of Indian corporate sector is the existence of industrial groups, pre dominantly family firms. For this

study, we distinguish those firms which are member of industrial groups from those that are independent.

Membership in a corporate group is not easily defined. Similar to the prior studies like Khanna and

Palepu (2000), we adopt the calssification of CMIE, which classifies firms as group members if they

exibit strong group ties over the entire period of their existence.

In the analysis that follows, we look at the dividend cuts and increases, as well as the dividend

ommissions. Cuts and increases are diefined as negative or positive growth in annual dividends respec-2We can not avoid these conditioning because we can not use firms with observations less than two continuous years of

data in our methodology.

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tively, as in India most of the firms pay annual dividends unlike US, where dividends are paid quaterly.

Dividend omissions are indentified, if the firms annual dividend is zero. We perform our analysis after

restricting the dependent variable to lie between 1st and 99th percentile to tackle the problem of outliers.

3.1 Key Variables

The key variables of the interest are dividend payout ratio in percentage of their shares face value (div),

managerial shareholding (dir) 3, institutional investors shareholding (fii), foreign investors shareholding

(fore), and corporate shareholding (corp). We also include their squares, namely, ‘dirh2’, ‘fiih2’, ‘foreh2’

and ‘corph2’ to examine the presence of ownership effect after a certain threshold. We also use earnings

growth, debt equity and growth in sales intensity as controls. Year dummies are also included to control

for contemporaneous macroeconomic shocks. To control for potential tax clientele effects, we include

dummy to measure the change in tax regime. In order to examine the dividend models, dividends

are calculated as the total amount of ordinary dividends relating to the accounting year. The earning

variable is calculated as net profit derived before depreciation, interest and taxes.

4 Empirical Analysis

This section is divided in two sub-sections: sub-section 1 presents the empirical model. The descriptive

statistics and regression results are presented in sub-section 2.

4.1 Empirical Model

For testing the hypothesized link between ownership and dividend policy, we use following models: the

Full Adjustment Model (FAM), the Partial Adjustment Model (PAM) (Linter 1956), the Waud Model

(WM) (Waud 1966), the Earning Trend Model (Fama and Babiak 1968) and the modified model of firm3A number of studies, for example, Mork et al. (1988) have used board of directors’ equity holdings as a proxy for

managerial ownership.

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level characteristics proposed by Aivazian et al. (2003). We further modify theses models to account

for the potential association between the ownership variables and dividend policy (Easterbrook 1984,

Short et al. 2002).

4.1.1 The Full Adjustment Model (FAM)

The association between change in earnings (ear) and change in dividends (div), for firm i at time t, is

given by:

divit − divi(t−1) = α+ β(earit − eari(t−1)) + µit (1)

We assume that the firms with significant block-holding may have a different β, then the model becomes:

divit − divi(t−1) = α+ β(earit − eari(t−1)) + βf (earit − eari(t−1)) ∗ fore (2)

+βi(earit − eari(t−1)) ∗ fii+ βd(earit − eari(t−1)) ∗ dir

+βc(earit − eari(t−1)) ∗ corp+ µit

The coefficients βf , βi, βd and βc denote the respective impacts of foreign ownership, institutional

ownership, managerial (directors) ownership and corporate ownership in association to the dividend

payout ratio of the firm.

4.1.2 The Partial Adjustment Model (PAM)

According this model, dividends are the results of a partial adjustment towards a target ratio. The

changes in dividends are determined by the difference between last year’s dividend and this year’s target

payout level which is assumed to be a fixed proportion of the earnings. In any given year firm adjusts

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partially to the target dividend level. Thus the model becomes:

divit − divi(t−1) = a+ c(div∗it − divi(t−1)) (3)

here, c is the rate of adjustment to target payout ratio. Thus, after including ownership variables,

equation for a firm i at time t, is given by:

divit − divi(t−1) = α+ cβ(earit − eari(t−1)) + cβf (earit − eari(t−1)) ∗ fore (4)

+cβi(earit − eari(t−1)) ∗ fii+ cβd(earit − eari(t−1)) ∗ dir

+cβc(earit − eari(t−1)) ∗ corp− cdivi(t−1) + µit

4.1.3 The Waud Model (WM)

According this model, dividends are the results of a ‘the partial adjustment’ and ‘the adaptive expec-

tations’. Waud proposes a second order rational distributed lag function (see Waud 1966) for detailed

derivation of the model. After including ownership variables, equation for a firm i at time t, is given by:

divit − divi(t−1) = α+ β(earit − eari(t−1)) + βf (earit − eari(t−1)) ∗ fore (5)

+βi(earit − eari(t−1)) ∗ fii+ βd(earit − eari(t−1)) ∗ dir

+βc(earit − eari(t−1)) ∗ corp− divi(t−2) + µit

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4.1.4 The Earnings Trend Model (ETM)

Fama and Babiak (1968) proposes a modified ‘partial adjustment model’ for dividend analysis. After

including ownership variables, equation for a firm i at time t, is given by:

divit − divi(t−1) = α+ βearit + βeari(t−1) + βfeari(t−1)) ∗ fore (6)

+βieari(t−1)) ∗ fii+ βdeari(t−1)) ∗ dir

+βceari(t−1)) ∗ corp− divi(t−1) + µit

4.1.5 The Proposed Model (PM)

In view of Porta et al. (2000), dividends play a basic role in limiting insider expropriation by removing

corporate wealth from control of insiders. Under the assumption that the managers are not perfect

agents of owners, Easterbrook (1984) propose two forms of agency cost, the cost of monitoring and cost

of risk aversion on the parts of managers. In Indian context, Bhat and Pandey (1994) on a basis on

survey of managers perspective about dividend payment and retention, claim that dividend depends on

current and expected earnings as well as the pattern of past dividends, dividend helps in signaling the

future prospects of the firm, and dividends should be paid even if the firm have profitable investment

opportunity. To measure the investment opportunity across firms over time, we use past growth in

sales intensity (sales-total assets ratio), this measure was also used in (Porta et al. 2000), but has the

disadvantage of relying on the past to measure for the future in vestments opportunities. We do not

expect any effect of taxes on the dividends, and there has been evidences of this in case of India Reddy

(see 2002). Barclay et al. (1995) argues that tax penalty associated with dividend payments depends

on the tax rate of the firm’s investors, but all firms have access to same pool of investors and so face

the same potential tax penalty. Therefore we would expect differences in dividend policy to be driven

by factors other than taxes. However, we do use tax dummy (for change in tax regime) in one of the

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regressions but do not find any evidence for effect of taxation on dividends4.

Aivazian et al. (2003) examine the influence of firm-level characteristics on the dividend decision.

Their empirical model is expressed as:

divitAit

= αi +n∑j=1

βjXijt + εit (7)

Where Xijt is explanatory variable j for firm i at time t and divitAit

is the dividend-to-assets ratio sub-

scripted for firm i at time t, εit is error term and αi is the intercept.

We however, propose a modified version of the model suggested by Fama and Babiak (1968), Linter

(1956), Short et al. (2002), Waud (1966) and Aivazian et al. (2003). We propose that the dividend

policy is influenced by the dividends payment of previous years, and managers of a firm are reluctant

to change the current dividend form past years dividend payment, unless unable to maintain it. Once,

they change the dividend payout they try to remain at the new level. Dividend payments are not

only determined by the past dividends, but also by current and past earnings (net sales), investment

opportunities, firm’s capital structure (measured as debt equity ratio) and the ownership structure of

the firm. We examine the influence of firm-level characteristics (debt equity ratio), past dividend and

earnings trend, and ownership structure on the dividend payout decision of a firm.

There empirical model for a firm i at time t, is given by:

div intit = αi + β0(ear int)it + β1(ear int)i(t−1) + β2(div int)i(t−1) (8)

+β3(debt equity)it + β4(sale int gr)it + βi1(fii) + βi2(fii)2 + βf1(fore)

+βf2(fore)2 + βc1corp+ βc2(corp)2 + βd1(dir) + βd2(dir)2 + εit

4Results are available on request

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Where div intit is the dividend-to-assets ratio subscripted for firm i at time t, εit is error term and αi

is the intercept. We use different specification of this function in terms of ownership structure adn firm

characteristics.

The probelm with models like these proposed may be the possible endogeneity of ownership and

performance, as documented by Himmelberg et al. (1999). We defend our approach by the arguments

of Gugler and Yurtoglu (2003), their claim is though ownership and average performance measures like

return to total assets may be endogenous, its unlikely that ownershp and dividends, the focus of our

work, are endogenous. We, therefore, believe that our results are robst to these concerns. Detailed

discussion of this function and estimation results are provided in results section.

4.2 Descriptive Statistics and Regression Results

Summary statistics relating to the dependent variable and explanatory variables are presented in Table

1-5. Table 1, reports the data structure, industry wise distribution of observation in each year. Most

of our data comes form 2 major industries. In table 2-5, summary statistics of our major variables are

provided. We observe that the mean level of dividend payments have significantly increased over the

period, from 2.96% in 1994 to 3.41% in 2000. Whereas, the maximum payment have increased form

100% in 1994 to 299% in 1997 and 466% in 2000. During the sample period the PBDIT (Profit before

Depriciation, Interest and Tax) have remained almost stable from 27 in 1994 to 33 in 2000 Crores.

Though the maximum PBDIT have increased from 531 in 1994 to 4,788 Crores in 2000. We also find

that even when the earning growth rate has been negative (-0.002%), the dividend payments have been

growing at the rate of 0.47% for full sample. This trend is consistent for all the periods in the sample.

This may inturn , imply that the change in dividend payments are not solely determined by the change

in earnings. We see that the mean level of foreign ownership have been decreasing from 11.73% in 1994

to 10.84% in 1997 to finally at 10.20% in 2000, institutional investors holding have remained more or

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less stable during the period form 1.91% in 1994 to 1.55% in 1997 to 1.59% in 2000, while directors

holding have been significantly increasing from 12.23% in 1994 to 17.48% in 1997 to 17.63% in 2000 and

corporate holding from 24.16% in 1994 to 25.51% in 1997 to 29.83% in 2000. Mean level of retained

profit by firms have also been reducing from 7.19 in 1994 to 5.29 in 1997 to 4.76 in 2000.

We use dividend growth as a dependent variable in this analysis. The results of the modified linter

model are shown in Table 6. Column 1 reports the result for a sub-sample restricted between 1 and

99 percentile for dividend growth with time and industry dummies at 2-digit level. The coefficients

for the lagged dividends are significant, first lag have negative impact and second lag have positive

impact on the dividend growth. Current earnings have positive and significant effect. column 2 refers

to a sample of firms, which have changed their dividend level from the past dividend, i.e. either they

have reduced the dividend payment or have increased with time and industry dummies at 2-digit level.

Result remains same as before while magnitude of effect increases marginally. In column 3 and 4, we

repeat the same analysis with fixed-effects panel regressions. In case of panel regression with 1 and 99

percentile cutoff for the sample we find no evidence, while in case of sample with the firms who have

changed their dividend payments from the past dividend, results in turn remains significant and their

magnitude is even higher than before. It appears that in the presence of change in dividends pay out,

the Linter Model holds, even after controlling for the firm fixed-effects. This result is in contrast to the

results of Mahapatra and Sahu (1993) and consistent with the result of Mishra and Narender (1996),

who have tested the linter’s model for state-owned enterprises in India.

The results of full adjustment model (FAM) for the sample between 1 and 99 percentile for dividend

growth are shown in Table 7. Column 1 reports result with time and industry dummy at 2-digit level

and rest for fixed-effects. The coefficient of the earning growth and interaction term of earning growth

with ‘dir’ are positive and significant, while the interaction term between ‘fii’ and earing growth is

negative and significant. In column 2, we use an indicator dummy for the interaction term in our model

17

with fixed -effects. In this case the indicator variable takes the value of one if it’s value is maximum

among the four ownership groups, and zero otherwise. Here, finding remains same as of earlier results,

only interaction with ‘dir’ losses its significance and the coefficient becomes negative. We do similar

exercise with indicator variables constructed at different levels, for example 5,10 and 25%. None of the

variables turn out to be significant in case of indicator variables at 5 and 10%, see column 3 and 4

respectively. In case of indicator variable at 25%, interaction of earning growth with ‘fii’ is negative and

significant, see column 5. It appears that the presence of institutional ownership has a negative impact

on increasing dividend payout ratio and directors ownership has a positive impact, which is in sharp

contrast to the findings of Short et al. (2002).

The results of the partial adjustment model (PAM) are presented in Table 8. Results for sample

between 1 and 99 percentile of dividend growth with time and industry dummy at 2-digit level is

reported in column 1 and with fixed-effects in other columns. The coefficient for earning is positive

and significant, while for interaction terms for earnings with ‘fii’ and ‘corp’ are negative and significant.

In column 2, we report the results of the fixed-effect regression, results remain the same as in case of

column 1 other than that of ‘corp’, which losses its significance. In column 3, we find similar results

with interaction between indicator dummies (max) and earnings, as in case of column 1. In column 4,

5 and 6, we use indicators at 5, 10, and 25% level of shareholding. In case of 5 and 10% only lagged

dividend turns out to be significant and negative coefficient. In column 6, with 25% as level for indicator

variable, we find similar results as in case of indicator at max level, i.e column 3.

The results of the modified earnings trend model (ETM) are presented in Table 9. Results for

sample between 1 and 99 percentile of dividend growth with time and industry dummy at 2-digit level

is reported in column 1 and with fixed-effects in other columns. The coefficient for the earning is

positive and significant and interaction term of ‘corp’ with past earning is negative and significant.

Similar result is found in case of fixed-effects as well, see column 3. In column 2, we report the results,

18

where interaction is with actual values of share holding and earnings, in this case interaction for ‘dir’

and ‘corp’ with earning is negative and significant. Past dividends has negative and significant impact

and earning has positive and significant impact The results, suggest that the increase in ‘dir’ or ‘corp’

reduces the dividend growth. In column 4, 5 and 6, we report the regression results with indicator

dummies at 5, 10 and 25% level. In all cases earning is positive and significant while past dividend is

negative and significant.

The results of the waud model (WM) are presented in Table 10. Results for sample between 1

and 99 percentile of dividend growth with time and industry dummy at 2-digit level is reported in

column 1 and with fixed-effects in other columns. In column 1, earning is positive and significant, while

the interaction terms with ‘fii’, ‘fore’ and ‘corp’ are negative and significant. Dividend’s second lag is

positive and significant. In column 2, we report the results of same regression with fixed-effect, earing

is positive and significant and interaction with ‘fii’ and earning is negative and significant, all other

variables losses their significance.

The results of the proposed model with firm charecteristics are presented in Table 11. In this model

the dependent variable is dividend intensity, defined as the ratio of dividends and total asset. Results

for sample between 1 and 99 percentile of dividend growth with time and industry dummy at 2-digit

level is reported in column 1 and with fixed-effects in other columns. The coefficient of lagged dividend

intensity, earing intensity and growth in sales intensity is positive and significant in column 1. Whereas

debt equity ratio is negative and significant, but none of the ownership variables is significant. In case of

fixed-effect regression, results are reported in column 2, earning intensity and growth in sales intensity

is positive and significant. The coefficient of debt equity is negative and significant. In this case, the

impact of ‘dir’ turns out to be significant and positive, similar to the findings of Short et al. (2002). To

capture the non-linearity in effect of ownership, we use squares of ownership variables in next regression

with fixed-effect, see column 3. Here, earning intensity, first lag of earning intensity, and growth in sales

19

intensity is positive and significant. Impact of debt equity is negative and significant. We find that ‘fii’

has non-linear impact on dividend intensity, negative in level and positive in squares, where as ‘dir’ and

‘corp’ have positive effect in levels and negative effect in squares, ‘dir’ losses its significance in square

though. In column 4, we report the regression results with indicator dummies (max) for ownership

variables. Results are similar to those of the column 2, except that now, ‘fore’ and ‘fii’ are positive and

significant impact. In column 4, 5 and 6, we use indicator dummies at 5, 10 and 25% level of share

holding respectively. Here, earing intensity and growth in sales intensity are positive and significant and

debt equity is negative and significant. In case of indicator at 5%, ‘corp’ has positive and significant

impact on dividend intensity, while in case of indicator at 25%, ‘fii’ has positive and significant impact.

The current evidence shows that the effect of ownership is significant at different levels, for different

class of owners. We further use the spline specification to examine the level of ownership at which their

impact changes. The results of the spline specification are presented in Table 12. For this analysis, we

create spline at 5, 10, 25% and above and re-estimate the well established models of dividends, namely

FAM, PAM, WM and ETM. In column 1, we report the results for FAM, we find that ‘fore’ has negative

and significant impact, if there holding is between 10-25% and has positive and significant impact if

there holding crosses the threshold limit of 25%. Negative and significant effect is fond for the ‘fii’, if

there holding is between 10-25%, whereas in case of ‘corp’, they have positive and significant effect ,

if there holding is between 5-10%. In column 2, we report the results of PAM, earning has positive

and first lagged value of dividend has negative impact. Interaction term between earning and ‘fore’ has

positive and significant effect, if their holding is between 5-10%, negative if their holding is between

10-25% and again positive effect if their holding increases beyond 25%. while ‘fii’ has negative impact if

holding is between 10-25%. In case of ‘corp’, we find that initially they have negative impact till their

holding is below 5%, positive effect if it is between 5-10% and again negative effect if holding crosses

25%. In column 3, we report the regression results of WM, we find that interaction between earning and

20

‘fore’ has positive and significant impact, if holding is between 5-10%, negative if its between 10-25%

and again positive if it crosses 25%, first lagged value of dividend is found to have negative impact.

In column 4, we report the regression results of ETM, earning has positive and first lagged value of

dividend has negative impact. Interaction term between first lagged value of earning and ‘corp’ has

negative impact if the holding is above 25%. First lag value of dividend has negative and significant

impact of dividend growth.

5 Conclusion

As in any such empirical analysis, the findings must be considered no more than tentative. Yet, the broad

consistency of the results by equations form, by variables choice is quite consistent with some widely

accepted principles in the field of corporate finance. This study has examines empirically the relationship

between the ownership structure, corporate governance and dividend payout using a large panel of

Indian corporate firms over 1994-2000. We document that unobserved firm heterogeneity explains a

large fraction of cross-sectional variation in dividend payout growth that exists among Indian corporate

firms, and found in several studies. Furthermore, it is the first example of using well established dividend

payout models to examine the the impact of ownership structures, corporate governance and dividend

payout policies in context of an emerging market.

Due to high ownership concentration, the conflict between large and controlling owners and small

outside shareholders is one of the main issues in the corporate governance literature. We find that

ownership is one of the important variables which influence the dividend payout policies. Though the

relationship is different for different class of owners andat different levels. Which suggests that the

ownership structure does not influence dividend pay out policy uniformally. The impact changes over

the change in size of the holdings as well as their identity. The results support the hypothesis, that

the interest alignment between different class of owners, is one of the important factors influencing the

21

dividend payout.

Our paper contributes the literature of corporate governance by expanding the effect of corporate

governance to another area, that of dividend payout policy, where we find significant effect of ownership

structure on dividend payouts in case of an emerging economy, India. There is a need for further analysis

with respect to influence of ownership structure and corporate governance on dividend pay out policy.

Further research may extend the present use of dividend payout models to examine the influence of

ownership identity to other emerging economies. Examining the influence of board charectersitics on

dividend policy would be an interesting exercise.

22

Table 1: Data structure

sic 1 1994 1995 1996 1997 1998 1999 2000 Total1 42 109 204 199 297 147 306 13042 115 205 413 466 641 343 625 28083 29 51 114 134 183 90 181 7824 4 4 4 4 11 2 6 355 0 0 1 1 0 0 1 36 0 0 2 0 0 0 0 27 0 9 19 16 35 30 55 1649 7 10 19 23 34 12 21 126Total 197 388 776 843 1201 624 1195 5224

Table 2: Summary statistics for year 1994

N mean sd min median maxdividends 197 2.9593909 9.7157759 0.000 0.000 100div gr 0 1.000e+300 1.000e+300 1.000e+300 1.000e+300 1.000e+300ear gr 0 1.000e+300 1.000e+300 1.000e+300 1.000e+300 1.000e+300net profit 197 10.480406 29.842642 -10.05 1.92 227.87fore 197 11.725279 16.383059 0.000 4.54 74.209999fii 197 1.9138071 5.9073988 0.000 0.000 37dir 197 12.23599 15.552932 0.000 4.8600001 74.400002corp 197 24.163249 18.777908 0.000 21.200001 76.349998debt equity 196 .8322449 5.5194812 -59.28 .975 18.6retained profit 197 7.1855837 22.055724 -10.05 1.28 195.84equity capital 197 14.714315 26.068447 .2 5.6300001 196.85001tot borrowings 197 81.592081 228.22396 0.000 14.95 2204.3301total assets 197 209.71254 498.33255 1.09 49.189999 4218.29sales 197 176.2538 417.54192 0.000 42.599998 4213.8198pbdit 197 27.402995 64.003433 -2.0699999 6.9200001 531.31

23


N mean sd min median maxdividends 843 2.8090154 13.95336 0.000 0.000 299div gr 504 .46626984 4.4416756 -14 0.000 63ear gr 504 -3.0928771 18.235803 -192.08 -.2349999 85.820007net profit 843 8.3422419 54.317965 -54.02 .70999998 1322.7fore 843 10.842005 15.978311 0.000 3.95 76.25fii 843 1.5503203 4.6735064 0.000 0.000 60.060001dir 843 17.483701 18.665165 0.000 11.57 97.489998corp 843 25.517544 19.679585 0.000 22.440001 95.599998debt equity 841 1.0094174 8.1546117 -85.43 .86 162.33retained profit 843 5.2975208 41.831763 -54.02 .46000001 1023.46equity capital 843 14.642586 33.254315 .2 6.0500002 458.45001tot borrowings 843 86.02057 365.09623 0.000 14.22 7625.48total assets 843 212.88612 862.24069 .49000001 39.380001 19536.141sales 843 162.66428 494.21209 0.000 36.029999 8730.3701pbdit 843 27.38153 101.00778 -29.129999 4.4699998 2019.1899


N mean sd min median maxdividends 1195 3.4075314 19.350304 0.000 0.000 466div gr 134 .7238806 4.1009659 -7 0.000 27ear gr 134 -.26791077 30.766387 -221.28 .01 165.89999net profit 1195 8.3494644 87.743908 -333.29999 .41 2403.25fore 1195 10.201255 17.525473 0.000 1.6799999 100fii 1195 1.5942343 4.8825469 0.000 0.000 48.299999dir 1195 17.633331 20.207917 0.000 10.36 94.260002corp 1195 29.827347 24.401907 0.000 25.73 100debt equity 1195 1.1100084 54.555846 -1361.67 .72 1240.5retained profit 1195 4.7583599 71.150811 -333.29999 .23 1936.8101equity capital 1195 19.587766 62.379256 0.000 6.3000002 1054.75tot borrowings 1195 109.7331 484.86003 0.000 15.04 11520.24total assets 1195 280.48547 1200.6497 .19 48.549999 29368.82sales 1195 207.74675 793.70857 0.000 43.599998 20301.391pbdit 1195 32.961916 172.23732 -127.94 4.04 4788.4399

24

Table 5: Summary statistics of Full Sample

N mean sd min median maxdividends 5224 3.1272971 19.710184 0.000 0.000 711div gr 2057 .46621293 6.770699 -72 0.000 180ear gr 2057 -.00170636 22.089324 -269.22003 .01999998 267.79999net profit 5224 8.8238878 66.09174 -333.29999 .83999997 2403.25fore 5224 10.866493 16.657783 0.000 3.495 100fii 5224 1.7053082 5.2249121 0.000 0.000 60.060001dir 5224 17.250538 19.162045 0.000 10.575 97.489998corp 5224 26.132806 20.936894 0.000 22.384999 100debt equity 5219 3.775e+12 2.727e+14 -1361.67 .82 1.970e+16etained profit 5224 5.4632255 50.665853 -333.29999 .51999998 1936.8101equity capital 5224 16.72554 48.038791 0.000 6.1399999 1054.75tot borrowings 5224 95.110978 393.9525 0.000 15.245 11520.24total assets 5224 237.90113 939.26093 .1 45.175001 29368.82sales 5224 179.66127 613.32869 0.000 40.75 20301.391pbdit 5224 28.900572 123.62025 -127.94 4.7600002 4788.4399

25

Table 6: Linter Model with time, industry and firm dummies

(1) (2) (3) (4)1-99 div gr6=0 Panel-1-99 Panel div gr6=0

ear 0.022 0.102 0.024 0.161(0.000)** (0.000)** (0.112) (0.001)**

div lag1 -0.119 -0.579 -0.097 -1.007(0.030)* (0.005)** (0.380) (0.000)**

div lag2 0.087 0.287 -0.090 0.330(0.039)* (0.106) (0.289) (0.050)+

group 0.178 0.170(0.044)* (0.843)

tax d 0.028(0.989)

Observations 1170 367 1170 367R-squared 0.236 0.479 0.661 0.840Prob > F : IndustryEffect

0.45 0.00

Numbers in parentheses are p-values of t-statistics.Standard errors are robust to heteroscedasticity.Intercept term is used in the regression but not reported here.+ significant at 10%; * significant at 5%; ** significant at 1%.

26

Table 7: Regression results for Full Adjustment Model

(1) (2) (3)1-99 Max 25

ear gr 0.082 0.064 0.034(0.000)** (0.008)** (0.145)

ear gr i -0.040 -0.053(0.001)** (0.000)**

ear gr d 0.036 -0.005(0.105) (0.762)

ear gr f 0.016 -0.019(0.378) (0.316)

ear gr c -0.013 -0.027(0.389) (0.182)

ear gr g -0.015 -0.010 -0.003(0.347) (0.637) (0.870)

ear gr t -0.037 -0.004 0.001(0.008)** (0.785) (0.928)

ear gr i25 -0.033(0.050)*

ear gr d25 0.004(0.784)

ear gr f25 0.019(0.410)

ear gr c25 -0.003(0.885)

Observations 2013 2013 2013R-squared 0.208 0.633 0.633Prob > F : TimeEffect

0.13 0.34 0.20


27

Table 8: Regression results of Partial Adjustment Model

(1) (2) (3) (4) (5) (6)1-99 Max Own 5 10 25

ear 0.062 0.071 0.093 0.044 0.045 0.056(0.000)** (0.002)** (0.001)** (0.085)+ (0.082)+ (0.016)*

ear i -0.028 -0.053(0.000)** (0.000)**

ear d -0.005 -0.028(0.616) (0.154)

ear f -0.009 -0.020(0.119) (0.206)

ear c -0.025 -0.015(0.000)** (0.301)

ear g -0.021 -0.024 -0.023 -0.029 -0.028 -0.027(0.039)* (0.270) (0.310) (0.172) (0.176) (0.229)

ear t -0.015 0.007 0.007 0.005 0.005 0.013(0.066)+ (0.356) (0.389) (0.509) (0.505) (0.290)

div lag1 0.011 -0.268 -0.269 -0.274 -0.269 -0.291(0.603) (0.001)** (0.001)** (0.001)** (0.001)** (0.001)**

ear i25 -0.041(0.000)**

ear d25 -0.017(0.335)

ear f25 -0.006(0.519)

ear c25 0.009(0.381)

ear i10 0.002(0.926)

ear d10 -0.007(0.690)

ear f10 0.012(0.307)

ear c10 0.008(0.593)

ear i5 -0.002(0.890)

ear d5 -0.018(0.254)

ear f5 0.022(0.143)

ear c5 0.003(0.848)

ear fii -0.001(0.004)**

ear dir -0.001(0.063)+

ear fore -0.001(0.303)

ear corp -0.001(0.120)

Observations 2013 2013 2013 2013 2013 2013R-squared 0.304 0.676 0.677 0.672 0.668 0.675Prob > F : Time Effect 0.08 0.57 0.67 0.70 0.63 0.53


28

Table 9: Regression results of Earnings Trend Model

(1) (2) (3) (4) (5) (6)None Max Own 5 10 25

ear 0.026 0.043 0.045 0.038 0.040 0.045(0.000)** (0.000)** (0.000)** (0.000)** (0.000)** (0.000)**

ear lag1 0.017 -0.016 0.020 -0.037 -0.030 -0.025(0.243) (0.513) (0.523) (0.250) (0.301) (0.313)

ear lag1 i -0.005 0.028 0.040(0.633) (0.334) (0.135)

ear lag1 d -0.008 -0.033(0.525) (0.133)

ear lag1 f -0.009 -0.015(0.203) (0.421)

ear lag1 c -0.026 -0.011(0.001)** (0.524)

ear lag1 g -0.010 0.007 -0.001 0.003 -0.001 0.003(0.349) (0.748) (0.978) (0.894) (0.967) (0.895)

ear lag1 t -0.012 0.012 0.012 0.007 0.008 0.018(0.156) (0.202) (0.175) (0.543) (0.490) (0.157)

div lag1 0.036 -0.245 -0.234 -0.255 -0.245 -0.257(0.118) (0.003)** (0.004)** (0.004)** (0.005)** (0.003)**

ear lag1 d25 -0.021(0.241)

ear lag1 f25 -0.013(0.263)

ear lag1 c25 0.004(0.730)

ear lag1 i10 0.024(0.217)

ear lag1 d10 -0.029(0.132)

ear lag1 f10 0.005(0.729)

ear lag1 c10 0.016(0.393)

ear lag1 i5 0.002(0.908)

ear lag1 d5 -0.025(0.156)

ear lag1 f5 0.012(0.478)

ear lag1 c5 0.019(0.303)

ear lag1 fii 0.000(0.659)

ear lag1 dir -0.001(0.009)**

ear lag1 fore -0.001(0.129)

ear lag1 corp -0.001(0.055)+

Observations 2013 2013 2013 2013 2013 2013R-squared 0.304 0.670 0.676 0.668 0.671 0.674Prob > F : Time Effect 0.08 0.73 0.79 0.80 0.76 0.67


29

Table 10: Regression results of Waud Model

(1) (2)None Max

ear 0.046 0.094(0.001)** (0.023)*

ear i -0.037 -0.058(0.000)** (0.060)+

ear d -0.006 -0.042(0.408) (0.197)

ear f -0.014 -0.050(0.042)* (0.143)

ear c -0.031 -0.018(0.000)** (0.585)

ear g -0.008 -0.045(0.413) (0.221)

ear t -0.004 0.006(0.669) (0.426)

div lag1 -0.037 -0.166(0.183) (0.095)+

div lag2 0.040 -0.068(0.040)* (0.479)

Observations 1170 1170R-squared 0.346 0.690Prob > F : TimeEffect

0.16 0.51


30

Table 11: Regression results of Proposed Model

(1) (2) (3) (4) (5) (6) (7)None Own Own Max 5 10 25

div int lag1 0.457 -0.003 -0.012 -0.003 -0.006 0.001 -0.008(0.000)** (0.952) (0.819) (0.952) (0.917) (0.985) (0.882)

ear int 0.101 0.070 0.070 0.071 0.070 0.071 0.071(0.000)** (0.000)** (0.000)** (0.000)** (0.000)** (0.000)** (0.000)**

ear int lag1 -0.015 0.016 0.017 0.014 0.016 0.016 0.015(0.076)+ (0.139) (0.086)+ (0.207) (0.124) (0.136) (0.177)

debt equity -0.001 -0.002 -0.003 -0.002 -0.003 -0.003 -0.003(0.000)** (0.018)* (0.002)** (0.018)* (0.008)** (0.012)* (0.012)*

sale int gr 0.007 0.004 0.004 0.004 0.004 0.004 0.004(0.000)** (0.008)** (0.005)** (0.013)* (0.013)* (0.010)* (0.013)*

fore -0.000 -0.000 0.000(0.884) (0.976) (0.709)

fii 0.000 -0.000 -0.001(0.917) (0.588) (0.069)+

dir 0.000 0.000 0.000(0.999) (0.075)+ (0.055)+

corp 0.000 0.000 0.000(0.369) (0.304) (0.052)+

group -0.002(0.005)**

tax d -0.001(0.602)

f25 0.002(0.111)

c25 0.001(0.145)

i25 0.005(0.001)**

d25 0.003(0.117)

f10 -0.001(0.321)

c10 0.001(0.443)

i10 -0.003(0.327)

d10 0.002(0.368)

f5 -0.001(0.448)

c5 0.003(0.069)+

i5 -0.002(0.351)

d5 0.003(0.123)

f 0.002(0.067)+

c 0.001(0.294)

i 0.007(0.004)**

d 0.003(0.147)

foreh2 -0.000(0.575)

fiih2 0.000(0.032)*

dirh2 -0.000(0.166)

corph2 -0.000(0.053)+

Observations 753 753 753 753 753 753 753R-squared 0.662 0.905 0.908 0.905 0.907 0.905 0.905Prob > F : Time Effect 0.02 0.54 0.48 0.49 0.54 0.58 0.42


31

Table 12: Regression results for the spline specification with Max Indicator

(1) (2) (3) (4)

FAM PAM WM ETM

ear gr 0.054

(0.449)

ear gr fore1 -0.003

(0.708)

ear gr fore2 0.008

(0.383)

ear gr fore3 -0.004

(0.004)**

ear gr fore4 0.003

(0.014)*

ear gr dir1 0.007

(0.325)

ear gr dir2 -0.008

(0.440)

ear gr dir3 0.002

(0.568)

ear gr dir4 -0.000

(0.920)

ear gr fii1 0.010

(0.206)

ear gr fii2 -0.004

(0.559)

ear gr fii3 -0.004

(0.065)+

ear gr fii4 -0.001

(0.651)

ear gr corp1 -0.013

(0.395)

ear gr corp2 0.009

(0.090)+

ear gr corp3 -0.001

(0.648)

ear gr corp4 -0.000

(0.828)

ear 0.097 0.084 0.040

(0.010)** (0.109) (0.000)**

ear fore1 -0.002 -0.007

(0.632) (0.330)

ear fore2 0.013 0.016

(0.012)* (0.027)*

ear fore3 -0.005 -0.007

continued on next page

32

continued from previous page

(0.003)** (0.000)**

ear fore4 0.002 0.003

(0.048)* (0.000)**

ear dir1 0.004 0.007

(0.550) (0.449)

ear dir2 -0.005 -0.002

(0.581) (0.850)

ear dir3 0.001 0.002

(0.659) (0.582)

ear dir4 -0.001 -0.001

(0.453) (0.323)

ear fii1 0.000 -0.005

(0.930) (0.495)

ear fii2 0.002 0.011

(0.698) (0.327)

ear fii3 -0.003 -0.005

(0.079)+ (0.178)

ear fii4 -0.001 -0.000

(0.354) (0.828)

ear corp1 -0.017 -0.011

(0.018)* (0.166)

ear corp2 0.007 0.002

(0.074)+ (0.728)

ear corp3 -0.001 0.001

(0.778) (0.725)

ear corp4 -0.001 -0.001

(0.077)+ (0.440)

div lag1 -0.307 -0.227 -0.238

(0.000)** (0.006)** (0.004)**

ear lag1 0.008

(0.856)

ear lag1 fore1 -0.003

(0.620)

ear lag1 fore2 0.008

(0.177)


(0.108)


(0.966)

ear lag1 dir1 0.003

(0.593)

ear lag1 dir2 -0.011

(0.221)

ear lag1 dir3 0.003

continued on next page

33

continued from previous page

(0.330)

ear lag1 dir4 -0.000

(0.719)

ear lag1 fii1 -0.005

(0.464)

ear lag1 fii2 0.006

(0.555)

ear lag1 fii3 -0.001

(0.769)

ear lag1 fii4 0.001

(0.433)

ear lag1 corp1 -0.008

(0.401)

ear lag1 corp2 0.006

(0.137)

ear lag1 corp3 0.001

(0.780)

ear lag1 corp4 -0.001

(0.049)*

div lag2 -0.067

(0.341)

Observations 2013 2013 1170 2013

Numbers in parentheses are p-values of t-statistics.

Standard errors are robust to heteroscedasticity.

Intercept term is used in the regression but not reported here.

+ significant at 10%; * significant at 5%; ** significant at 1%.

34

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