Jour of Adv Research in Dynamical & Control Systems, 15-Special Issue, October 2017

Determinants of Dividend Policy-Evidence

from Select Pharmaceutical Companies in
India
N. Sumathi, Ph.D Research Scholar, Department of Commerce, Karpagam Academy of Higher Education, Karpagam University,
Coimbatore. E-mail:sumathimurugavel@gmail.com
Dr.K. Jothi, Associate Professor, Department of Commerce, Karpagam Academy of Higher Education, Karpagam University,
Coimbatore.
Abstract--- This study analysis the determinants of dividend policy of select pharma Companies in India. The study
is based on secondary data. Five pharma companies are selected to determine the dividend policy. The regression
analysis and correlation analysis are used to determine the dividend policy. For this purpose, various factors
affecting the dividend policy, such as price earnings ratio, dividend payout ratio, debt equity ratio, cash from
operation, earning, corporate tax, earning per share are consider for analysis.
Keywords--- Dividend Policy, Pharma Companies, Dividend Per Share, Earning Per Share.

I. Introduction
Profit might be certain that sharing benefit to the financial specialists. It might be in the frame 'Cash Dividend' or
through designation of loads of the organization which is known as 'Stock Dividend'. Profit strategy might be
characterized as the exchange between the levels of earned income and conveyed money or securities. Profit Policy
refers to an organization's approach which decides the measure of profit installments and the measures of earned
income for reinvesting in new activities. This approach is identified with separating the association's acquiring
between installment to shareholders and reinvestment in new portfolio.
Indian Pharmaceutical players have emerged as global players with the help of institutional transformation and
strategic renewal and hence it is selected for the present study to find the determinants of the dividend policy.

II. Review of Literature

P.G.Thirumagal and S.Vasantha,(2016), investigate that dividend, risk and liquidity of the companies force the
shareholders wealth. S.Karthik, S. Umamaheswari, K. Pavithra (2016) entitled a study “A Comparative study on
Dividend Policy of Ambika Cotton Mills and Bannari Spinning Mills Ltd”. the empirical evidence from this study
reveals that the net profit after tax, lagged dividend have a significant impact on the dividend in Bannari Spinning
Mills and Ambika Cotton Mills Limited respectively and also statistically significant at one per cent level.
Dr.R.Azhagaiah and Sundanam Gejalakshmi (2014), in their study find that, dividend payment to common
shareholders is one of the ways that a firm directly can affect shareholders wealth.
Mr.Nilesh Movalia and Mr.Pintu Vekariya (2014), in their study conclude that all the determinants of dividend
policy affect all companies, and if the companies want to make expansion, they have to make more retention.
Mr.Lalit Kumar Joshi and Mr.Sudipta Ghosh (2012), conduct study using the variables named Dividend per share,
Dividend payout ratio, Earning per share and Current ratio. In this Study, they find that the dividend payouts of two
selected companies are satisfactory.

III. Statement of the Problem

Dividend policy means that the amount of profit circulated to the shareholders and the amount of retained
earnings are retained the profit in business. The policy and the amount of earnings of the firm are divided into two
parts as the dividend paid and the amount reserved for future projects. Dividend policy is considered as a vital tool
for investors to evaluate the company’s financial position as they require returns on their investment and dividend
paying company will certainly attract them. The pharmaceutical industry is a very famous industry and well growing
industry in India. So the present study analyzes the determinants of dividend policy of five pharmaceutical
companies in India.

ISSN 1943-023X 139

Jour of Adv Research in Dynamical & Control Systems, 15-Special Issue, October 2017

IV. Objective of the Study

• To analyze the determinants of dividend payout of Pharma Industries in India.
• To analyze the variation in the impact of PER, DER, CFO, ERN, CT and EPS on the DP of the Pharma
Industries in India.
Hypotheses
• There is no significant association between the dependent and independent variables.
• There is no significant impact on the dependent and independent variables.

V. Research Methodology
Data Collection
The study is based on the secondary data collected from the money control.com based on the market
capitalization. For the present study, a sample of five Pharma companies listed from BSE. The period of the study is
10 years. That is 2006-2007 to 2015-2016.
Tools Used
The collected data have been analyzed by making use of Descriptive methods, Correlation and regression Model.
Sampling Technique
The study used multistage sampling technique to select the sample units for the study. Based on the availability
of data, and five companies are selected for the study
Table 1: Descriptive Statistics of Selected Variables of Pharma Companies
N Minimum Maximum Mean Std. Deviation
PER 5 -4.51 22.91 11.2528 11.80267
DPR 5 .16 .23 .1929 .02671
DER 5 .12 .49 .2914 .14633
CFO 5 668.09 1536.92 1143.2 396.34708
ERN 5 .13 .29 .2209 .05997
CT 5 .05 .21 .1446 .07225
EPS 5 13.81 60.26 34.1104 18.16445
Source: Secondary data
The table shows that descriptive statistics of the variables used in the study. This shows the average indicators of
variable calculated from the financial statement. The average dividend payout ratio is 19.29% . This means that, on
an average the firm pays 19.29% of their profit as dividend. The average cash flow is 1143.2. The pattern of cash
flow during a particular period has an impact on the cash position of the firm, hence, it has a relation with the cash
requirement for the dividend payout. The average corporate tax is 1446. After the payment of tax only the dividend
can be paid. The higher tax lowers the dividend payout.
The average debit equity is 29.14%, which shows that the company paying moderate level of dividend. The
average earning is 22.09%, which shows that earning is moderate and stable. The average earning per share is 34.11,
which shows that Pharma Companies are good position in earning during the period.
Table 2: Correlation Analysis
DPR PER DER CFO ERN CT EPS
DPR 1
PER -0.733 1
DER 0.019 -0.578 1
CFO -0.781 .973** -0.387 1
ERN -0.441 0.194 0.568 0.379 1
CT -0.857 .901* -0.17 .973** 0.522 1
EPS -0.318 0.23 0.293 0.369 0.175 0.473 1
Source: Secondary data

**. Correlation is significant at the 0.01 level (2-tailed).

*. Correlation is significant at the 0.05 level (2-tailed).

ISSN 1943-023X 140

Jour of Adv Research in Dynamical & Control Systems, 15-Special Issue, October 2017

Table shows that the correlation matrix of Pharama Industries during the study period between the dependent
and independent variables. The Correlation matrix highlighted that there is a positive correlation between Dividend
payout and Debit equity ratio and negative correlation with the other independent variables. The correlation analysis
is used to study the relation between the independent and dependent variables and the relationship between CFO and
PER (0.973), CT and CFO (0.973) is highly positively significant at 1% level, Whereas the relationship between CT
and PER(0.901) is positively significant at 5% level.
Table 3: Regression Analysis
Group DF F Significance
Regression 4 2.340 0.440
Residual 1
Total 5
R=0.936 R2: 0.875 Adjusted R2 : 0.501

Variables Co-efficient
Intercept .467
PER .008
DER -.094
CFO .000
EPS .001
The table shows from the Multiple Linear Regression Model, it is clear that the model has a coefficient of
determination of 0.875 which explains 87.5% of variation in dividend payout of Pharma Industries for the period of
the study. Coefficient of Price earning ratio, earning per share shows 0.8% and 0.1% increase in dividend payout.
The Coefficient of Debit equity ratio shows that 9.4 % decrease in the dividend payout ratio. Tabulated value is
more than the calculated value hence, the alternative hypothesis is accepted.

VI. Findings
The finding from the regression model shows R287.5% of variation in dividend Pharma Industries for the period
of the study. The average of dividend payout and earning are 19% and 22% respectively. Which shows that the good
earnings and satisfactory dividend payout in the Pharma Companies during the study period. The correlation
analysis and the relationship between CFO and PER (0.973), CT and CFO (0.973) are highly significant and
positively at 1% level, Whereas the relationship between CT and PER(0.901) is positively significant at 5% level.

VII. Conclusion
The pharma industry is one of the most famous industries in India. In regression analysis the variables highly
influence the independent variable. So the dividend payout is good for this industry. The sample company’s cash
flow, earning, profitability is most satisfactory. In correlation analysis the variables are positively related. For this
study point of view the variables highly determine the dividend payout of the sample pharma companies.

References
[1] Thirumagal, P.G. and Vasantha, S. Dividend policy on Shareholders wealth–Evidences from Indian
Pharmaceutical industry. Indian Journal of Science and Technology 9 (15) (2016) 1-6.
[2] Karthik, S., Umamaheswari, S. and Pavithra, K. A Comparative study on Dividend Policy of Ambika
Cotton Mills and Bannari Spinning Mills Ltd. International Journal of Multidisciplinary Educational
Research 3 (4) (2016).
[3] Ansar, I., Butt, A.A. and Shah, S.B.H. Impact of Dividend Policy on Shareholder's Wealth. International
Review of Management and Business Research 4 (1) (2015).
[4] Azhagaiah, R. Determinants to Dividend Policy: Evidence from IT Sector in India. Pacific Business Review
6 (11) (2014) 34-39.
[5] Movalia, N. and Vekariya, P. A Study on Determinant of Dividend Policy and Its Impact on Dividend of
Listed Company under S&P BSE SENSEX. Journal of Business Management and Social Science 3 (12)
(2014) 70-72.
[6] Joshi, L.K. and Ghosh, M.S. Study on dividend payout trends in the Indian steel industry: A comparative
analysis of Tata Steel Ltd and Steel Authority of India Ltd. Indian journal of Accounting 42 (2) (2012)
52-60.

ISSN 1943-023X 141

Jour of Adv Research in Dynamical & Control Systems, 15-Special Issue, October 2017

Appendix 1
List of Companies
S.No Name of the Companies
1 Lupin
2 Dr Reddys Laboratories
3 Sun Pharmaceutical Industries
4 Cipla
5 Cadila Healthcare

Appendix 2
List of Variable Used for the Study
S.No Variables
1 Price earnings ratio
2 Dividend payout ratio
3 Debt equity ratio
4 Cash from operation
5 Earnings
6 Corporate tax
7 Earnings per share
Formula
Market Value per share/Earning per share
Dividend/Net Income
Total liabilities/Shareholders equity
Earnings before interest and tax-Depreciation – Corporate Tax
Earnings before interest and tax/Total assets
Tax/profit before tax
Net income/Number of share

ISSN 1943-023X 142