Are Share Repurchases Substitutes for Dividend Payments in India?
The study examines the dividend substitution effect of share repurchase decisions of firms in India. According to dividend substitution hypothesis, firms use funds ordinarily meant for dividend payment to buy back shares. The year-wise analysis of dividends reveals that dividends are not lower in the year of buyback declaration in India. The statistical model employed generates a positive relationship between dividend forecast error and repurchase activity, contradicting the dividend substitution hypothesis. The Indian firms pay more dividends for every 1 spent on buyback in the announcement year. The Chief Finance Officers of repurchasing companies disagree to the proposition of dividend substituting effect of repurchases. The high-levered small-sized firms with higher cash balances and lower valuations engage in share repurchase in India but not at the expense of dividends.
Year of publication: |
2013
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Authors: | Hyderabad, Raju L |
Published in: |
The IUP Journal of Applied Finance. - IUP Publications. - Vol. 19.2013, 1, p. 27-50
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Publisher: |
IUP Publications |
Saved in:
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