Impact of Dividend Policy on Capital Structure: A Study of Select Indian Companies (BSE 30)

Abstract

This research paper examines the relationship between dividend policy and capital structure (financial leverage) of 30 companies listed on Bombay Stock Exchange during the period 2008 to 2019. Panel data was used in this study. The study made use of secondary data from annual reports of the selected companies and Prowess CMIE data base. Debt-Equity ratio was used as the Dependent variable whereas Dividend Payout ratio had taken as independent variable in the study. Few variables such as Profitability, Size, Current Ratio, Investment opportunity and Business Risk had been taken as proxy variables in the selected model to study the impact of Dividend policy on Capital Structure of the firm. At first, descriptive analysis was used to identify the preliminary relationship among the selected variables, followed by multiple regression analysis. The sample size was divided into two sub categories: Banking & Financial Sectors and Other Sectors (Remaining companies). The results of the study revealed that there is a significant impact of Dividend policy on Capital structure of the selected firms (BSE 30). All the hypotheses were evaluated at 5% level of significance. The research paper recommended that companies must focus on Dividend payout ratio along with other proxy variables while deciding the capital structure of the firm.