An empirical investigation of corporate dividend pay-out behaviour in an emerging market

The Lintner model of aggregate corporate dividend pay-out behaviour is applied to firms in the private sector in a developing country, India. The findings are that an augmented Lintner model which includes external finance as an explanatory variable explains aggregate dividends better. Possible reasons for this finding are discussed both in the context of India and developing countries in general. Finally, the paper tests to see whether dividend pay-out behaviour can be characterized as rational. While it appears that dividend pay-out behaviour is not rational, which is contrary to recent evidence from the US and Japan, a deeper understanding of the institutional environment in which firms operate suggests that when viewed in that context the observed irrationality may indeed be rational.