Impact of DDT

CORPORATE FINANCE II END TERM PROJECT
Impact of Dividend
Distribution Tax (DDT)
on Dividend Payout Ratio
(DPR)
Submitted to: Prof Himanshu Joshi 2010
Submitted By
Radhika Gupta (91041)

Shivi Aggarwal (91051)
Sweta Agarwal (91059)
Saket Kumar Singh (91046)
Madhusudan Partani (91029)
GROUP 3- FMG 18A

Contents
Acknowledgement .................................................................................................................................. 2
Executive Summary................................................................................................................................. 3
Objectives ............................................................................................................................................... 4
Methodology........................................................................................................................................... 5
Data Collection .................................................................................................................................... 5
Classification ....................................................................................................................................... 5
Adjustments ........................................................................................................................................ 6
Statistical Tools ................................................................................................................................... 6
Scope ....................................................................................................................................................... 7
Limitations: ......................................................................................................................................... 7
Introduction ............................................................................................................................................ 8
Dividend Tax considered to be Double Taxation ................................................................................ 8
Historical Background On Dividend Taxation ....................................................................................... 11
Introduction of Corporate Dividend Tax ............................................................................................... 12
Main Provisions Relating to Corporate Dividend Tax ........................................................................... 14
Review of Literature.............................................................................................................................. 15
Irrelevance of Dividends ................................................................................................................... 15
Relevance of Dividends ..................................................................................................................... 16
Payout Trend of Each Sector ................................................................................................................. 19
Empirical Findings (using T-Test) .......................................................................................................... 27
Payout Trend – Size Wise ...................................................................................................................... 30
Empirical Findings (using T-Test) .......................................................................................................... 33
Conclusion ............................................................................................................................................. 36
Endnotes ............................................................................................................................................... 36
References ............................................................................................................................................ 36
Appendix .............................................................................................................................................. 38
I.List of Different Sectors before clubbing ........................................................................................ 38

II.Details on Composition of Final 12 Sectors ................................................................................... 39
III.List of those 211 Companies ......................................................................................................... 40
Corporate Finance II END Term Project | Group 3- FMG 18A

Acknowledgement
We take this opportunity to acknowledge & express our profound sense of gratitude and
respect to all those who helped us and hence contributed significantly to the completion of
this project.
We would like to offer a sincere thanks to Prof. Himanshu Joshi, Faculty at FORE School of
Management, New Delhi, for his support and guidance for the fulfillment of this term paper.
Thank you.
Group-3
Radhika Gupta
Shivi Aggarwal
Sweta Agarwal
Saket Kumar Singh
Madhusudan Partani

Executive Summary
This study examines the dividend trends of 215 Indian companies over the period 1995-2009
of almost all the sectors like METAL & MINING, AUTO, CAPITAL GOODS, CONSUMER
DURABLES, FINANCE, FMCG, IT, OIL & GAS, POWER, HEALTHCARE etc listed on BSE for which
there was no missing financial information over the period of the study. Thereafter we have
studied the impact of Dividend Distribution Tax (DDT) on dividend policy, specifically on
Dividend Payout Ratio (DPR). Analysis was done for the immediate three years before and
after the tax regime change in 1997 and also for immediate two years before and after
increase in DDT in 2007. For the purpose of this study, the sample was classified on the basis
of industry and size (according to market capitalization). According to tax preference or
trade-off theory, favourable dividend tax should lead to higher payouts. The Union Budget of
1997 made dividends taxable in the hands of the company paying them and not in the hands
of the investors receiving them. The corporate dividend tax aimed at improving the economic
growth and flexibility by eliminating the tax bias against equity-financed investments
thereby promoting saving and investment. The new system aimed at reducing the tax bias
against capital gains in the earlier tax system, encouraging investment, and enhancing the
long-term growth potential of the Indian economy. As compared to the earlier tax regime
where the recipient shareholder paid the tax on the dividend received primarily on the basis
of marginal tax slab rate applicable to him/her (varying between 0% to 30%), in the current
structure of corporate dividend tax, the dividend paying companies pay dividend tax at a flat
rate of 12.5 per cent as of financial year 2005-06. Implicitly, the present corporate dividend
tax regime can be termed as a more favourable tax policy. The analysis of influence of
changes in the tax regime on dividend behaviour reveals the following:
 Though the results are somewhat mixed, it can be largely inferred that there is a
significant difference in average dividend payout ratio in the two different tax
regimes for medium sized companies
 There are wide industry-wise and size-wise variations in empirical findings visible
over the period of study.
 As a result of the introduction of DDT in the year 1997, two sectors namely “Metal
and Mining” and “Finance” had significant change in the average DPR. This may be
because Metal and Mining sector is primarily controlled by the public sector
undertakings wherein there is large employee and management ownership of shares
and preference for dividends. After introducing DDT, the management cadre who fall
in the high income group benefitted from lower tax on their dividend income. For the
finance sector it can be reasoned that the East Asia crisis of 1997 may a played some
3 role. Finance companies might be trying to restore the confidence of HNIs who
benefit from the introduction of DDT more than investors in lower income brackets.

Objectives
The primary Objectives of the study are
To study the impact of implementation of Dividend Distribution Tax in the year 1997
on Payout Policy of Indian companies
To study the impact of an increase in Dividend Distribution Tax to 15% in the year
2007 on the payout policies of Indian companies.
The secondary Objectives are:
To study payout behaviour of different sector over the years

To study the impact of DDT on differently sized firms namely-small, medium and
large

Methodology
Data Collection
For studying the impact of Dividend Distribution Tax on the trend of Payout Ratios of Indian
corporate sector, we have collected data on the Payout Ratios of some selected companies
for which data was available.
For the study, from all the companies listed in BSE, the companies which are part of Sensex,
BSE TECk, BSE-PSU, Sectoral, Bankex, BSE-Midcap were taken for further consideration.
Initially, we had 512 companies. After deleting the companies which reoccurred, being part
of more than one index, 345 Companies belonging to various sectors were shortlisted.
For the shortlisted companies, data on Dividend Payout Ratio from the year 1995 to 2009
was collected. For the purpose of study only the data from 1995 to 2000 and from 2006 to
2009 was used (DPR for year ending March 2009 is regarded as 2009). Also the Market
Capitalization as on 24th February, 2010 was collected. Finally, 211 companies were
selected. The companies for which the data was not available even for a single year were
rejected.
Classification
Since, a sector wise analysis is being done, the sector of each selected company was found
out. There were a total of 38 different sectors. For ease of calculation and analysis, sectors
which had less than 5 companies were clubbed under one common head. Finally 12 sectors
were arrived at. The sector heads before and after clubbing and the composition of each
sector after clubbing are provided in appendix.
The objective of the study also includes determining the impact of DDT on different sizes of
firms namely-small, medium and large. The Market Capitalisation as on 24 th February 2010
5 was used as sorting criteria. The companies having M-Cap less than Rs.5000 crore were
termed as small sized companies, between Rs.5000 Crore and Rs.20000 Crore termed as
medium sized and more than Rs.20000 Crore are termed as large sized companies.

Adjustments
For certain companies the Financial Year was changed from year ending December to year
ending March, but this doesn’t need adjustment in DPR since DPR available is annualised.
𝐷𝑃𝑆
In certain cases DPR arrives at negative figure, since the formula used is DPR = . In
𝐸𝑃𝑆
certain cases Companies tend to pay Dividends even though they have made losses. Thus,
even though DPS is positive, EPS turns out to be negative and finally DPR turns out to be
negative. In this case absolute value of DPR has been taken ignoring the sign.
Statistical Tools
For analysing the impact of introduction and enhancement of DDT on the DPR, it is
necessary to use some scientific methods and tools. The implementation of DDT, making
dividend taxable in hands of companies, will change the behaviour of companies and their
dividend payout policy. Thus to validate its influence, Paired T-test (Student’s test) has been
used. The test has been used twice, once, to study the impact of the implementation of DDT
in the year 1997 and secondly to study the influence of an increase in DDT to 15% in the
year 2007. Thus, the Null Hypothesis is that there is no change in DPR i.e. payout policy of
selected companies due to Implementation of DDT and also due to increase of DDT. Thus
H0: Average DPR for the years 1995, 1996 and 1997 and Average DPR for years 1998, 1999
and 2000 are same. (DPR1=DPR2)
H1: Average DPR for the years 1995, 1996 and 1997 and Average DPR for years 1998, 1999
and 2000 are not same. (DPR1≠DPR2)
Also,
H0: Average DPR for the years 2006 and 2007 and Average DPR for years 2008 and 2009
are same. (DPR1=DPR2)
H1: Average DPR for the years 2006 and 2007 and Average DPR for years 2008 and 2009
are not same. (DPR1≠DPR2)
6
The level of Confidence is at 90%

Scope
The period of study is from the year 1995 to 2000 and from 2006 to 2009. The data related
to year ending March 1995 (December 1994 in some cases) to year ending March 2009
(December 2008 in some cases) has been taken. The scope was restricted to the companies
listed on the BSE (Bombay Stock Exchange). The study is done for a total of 215 companies
belonging to 38 different Industries (sectors) and for ease of study the number of sectors
was reduced to 12, and rest were clubbed into related sectors or “Others”.
Limitations:
The use of paired t-Test will just depict whether there was significance difference in
payout trend o companies before and after introduction of DDT, but the positive
impact or negative impact cannot be determined. Thus Graphs are used to depict the
same.
Many companies which are though significant for study were ignored on the basis of
non-availability of data.

Introduction
Dividend decision has been a subject of enquiry for the financial analysts, academicians, and
researchers for about five decades now. The objective of such a decision is to determine the
extent to which the earnings of a company should be distributed as ‘dividend’ among the
shareholders and thereby also ascertain the retained earnings. The dividend decision is an
integral part of a company’s financial decision-making as it is explicitly related to the other
two major decisions — investment and financing decision.
Corporate taxation influences the dividend decision in more than one way. On the one
hand, it influences the net income-after-tax of the company, which, in turn, determines the
capacity of the company to pay dividends, and, on the other hand, it may have implications
for the net value received by the shareholders. In this sense, the structure and the rate of
corporate tax play an important role in determining the dividend policy.
Corporate tax is levied on the income of the company and corporate dividend tax, which is a
form of corporate tax, is levied on the amount of dividend declared, distributed or paid by
the company. In most of the countries, corporate tax has been in the form of tax levied on
net profits/earnings of the company. However, in India, tax is also levied on the dividend
paid by the company or what is termed as dividend tax. A zero-dividend payout is not
uncommon for young rapidly growing companies with good investment opportunities
(Hindustan Times, 2003).
Dividend Tax considered to be Double Taxation
On an average, dividend payout in the US1 has decreased to 30 per cent at present from 60
per cent 30 years ago. However, companies may also be discouraged from paying higher
dividends when these are doubly taxed once in the hands of the company and again in the
8 hands of the shareholders. Tax exemption is desirable on both dividends and capital gains
that reflect primarily the retained earnings of the company.

There is a school of thought that argues for tax exemption for dividend income. The basis of
their argument is that taxation of dividend income amounts to double taxation. The
rationale behind this claim is that corporate profits are subject to corporate tax. Since
dividends are paid out of profits, the argument is that the personal income tax paid on
dividend income amounts to a second tax on corporate profits.
This logic is challenged on two grounds. First, there is a legal and logical distinction between
the corporation as an entity and the individual shareholders who own the company. Second,
the tax rates currently in place were set with the knowledge that there was taxation both at
the corporate and the individual level. This means that if there was a moral objection to
‘double taxation,’ then, the remedial action would also require an increase in the corporate
tax rate.
On the first point, a corporation is an entity apart from its shareholders for reasons that
have historically been quite important. The law has, in effect, recognized corporations as
legal entities that are distinct from the individuals who happen to own its stock. This is an
important privilege granted by the government for many reasons. First, the limited liability
provided to shareholders means that a corporation might end up imposing damage to
others in pursuit of profit without the individual shareholders being held accountable.
Without the privilege of limited liability granted by the government, every shareholder
could be held fully responsible for all claims against the company.
A second important benefit associated with the corporate form is that the corporation can
act as a legal individual without directly involving its owners. This can be advantageous to
individuals who may wish to earn profit from activities that they would prefer not to be
publicly associated with such as manufacturing guns, selling tobacco, etc. The corporate
form allows individuals to profit from actions that may be viewed by some as otherwise
questionable while preserving their anonymity.
9
There are other benefits associated with the legal privilege of incorporation but the best
evidence of the value to the individual shareholders of having corporations as separate
entities is the fact that corporations exist. Individuals choose to set up corporations (with

full knowledge of the tax laws) because they view the benefits as outweighing the costs. The
shareholders who feel that the corporate tax is too great a burden have the option of
choosing a partnership or a sole proprietary form of business set-up. In this case, their
income would only be subject to personal income tax. The decision to create a corporation
is a proof of the fact that the benefits associated with this status outweigh the costs in
having corporate income subject to taxation.
Since the corporation is legally and logically a separate legal entity from its shareholders,
there is no logic in the claim that the taxation of dividends amounts to double taxation. The
corporation is subject to taxation in exchange for the privileges granted to it by the
government. The shareholders are subject to tax on their dividend income just as
employees are subject to tax on their salary income. The same income— that is, income to
the same people or entity — is not being taxed twice. Beyond this logical point on double
taxation, there is the obvious practical point that while setting the corporate tax rate, the
government has been well aware of the fact that dividends are subject to taxation. In other
words, the corporate tax rate was set at its current level with the expectation that the
portion of profits paid out as dividends would also be subject to taxation. If there is a
concern now that the taxation of dividends is an inappropriate form of double taxation,
then the remedy should include raising the corporate tax rate. If the purpose of a cut in the
tax rate on dividends was simply to eliminate the ‘double taxation’ of dividends, then it
would be coupled with an increase in the corporate tax rate. If there is no accompanying
increase in the corporate tax rate, then the intention must be to increase the amount of
money going to the relatively small number of families who have a significant dividend
income.
Thus, the claim that dividends are subject to double taxation is questionable. In the Indian
context, the imposition of corporate dividend tax on companies making payment of
dividends has in a way resulted in the increase of the corporate tax rate on that portion of
the corporate profit which is distributed among the shareholders. In other words, corporate
10
profits which are retained are subjected to a lower rate of corporate tax as compared to the
corporate profits that are distributed.

Historical Background On Dividend Taxation
Till the year 1958-59, an imputation system of taxation was followed in India with respect to
dividends. According to this system, the dividend received by the shareholders was included
in their income after being grossed up and the shareholders were granted credit with
respect to the amount deemed to have been paid by the company on their behalf. In other
words, shareholders had to pay tax on dividend at the rate applicable to them but the
government credited the tax paid by the company on this part of income to the investors.
Thus, that part of the corporate earnings, which was declared as dividend, was taxed only in
the hands of investors. This system of single taxation on dividend was abolished in 1959-601
and dividends were taxed for the second time separately in the hands of shareholders. Over
the years, the investors and the corporate sector complained to the government against
double taxation of income and the government eventually provided a partial relief to
shareholders having low amount of dividend income in the form of deduction under Section
80L from the year 1968-69. As per Section 80L2 of the Income Tax Act, 1961, non-corporate
individual shareholders were granted relief on dividend and certain other income like
interest received from government securities, bank deposits, etc., subject to a ceiling. The
limit, which was increased from time to time, stood at Rs. 12,000 in 1997. In this way, small
investors whose income included income from different eligible savings including
investments in shares were not required to pay any tax on their income if the total income
from all such savings was below Rs. 12,000. Dividend income in excess of this limit was
taxed under the normal rate applicable to the investors. The rate of tax ranged from 15 per
cent to 40 per cent as of 1997 (10% to 30% from 1998 to 2004) depending on the tax
bracket in which the income of the investor fell.3 Companies having dividend income also
enjoyed relief in the form of Section 80M from the financial year 1968-69. According to this
section, in case a company received dividend income from another company and also
declared dividend to its shareholders, the positive difference between the dividend inflow
and the dividend outflow alone was recognized as an income for the company. In other
words, if the amount of dividends paid by a company exceeded its dividend income, the
11
dividend income was exempted from tax. To summarize, till 1997, dividend income was
taxed in the hands of the shareholders subject to a small relief available to the small
investors.

Introduction of Corporate Dividend Tax
Both the investors and the corporate sector were expecting the abolition of double taxation
on dividend income ever since the Government of India had initiated financial reforms in
1991. In the budget of 1997, the Finance Minister announced the abolition of tax on
dividend income in the hands of the shareholders. However, the budget proposed a new tax
on the companies when they declared, distributed or paid dividend. While proposing this
new ‘corporate dividend tax,’ or dividend distribution tax, the government had stated that
the objective of this tax was to discourage companies from increasing the dividend outflow
significantly leading to lower capital formation. While the new tax system exempted the
investors from direct payment of any tax on dividend, it required an indirect payment of tax
on dividend at a prescribed rate. It is difficult to determine whether the tax department
collected a higher amount from dividend distribution tax compared to the earlier regime.
There is no published data available on the amount raised by the government through tax
on dividend income when the recipient shareholders paid tax on it. But, because of the
exemption limits for tax payers in the lower income levels and poor personal tax
administration, the revenue under the earlier system of taxation would be lower than that
collected under the new system. Since the new tax system shifted the responsibility of
paying tax to the companies, administration of the tax on dividend has now become more
efficient and effective. While double taxation of dividends is pervasive, partial to full relief
from this is prevalent in some countries. In most countries, the shareholders have to pay
taxes on the dividends received. The corporate dividend tax aimed to improve economic
growth and flexibility by eliminating the tax bias against equity-financed investments
thereby promoting saving and investment. The new system aimed at reducing the tax bias
against capital gains in the earlier tax system encouraging investment and enhancing the
long term growth potential of the Indian economy. Dividend exclusion, combined with the
elimination of the double taxation of retained earnings, 5 provides an important step
toward reducing tax-based distortions of economic decisions. The change in dividend
12
taxation has implications for dividend payout policy, debt versus equity financing,
organizational form (including corporate governance), and current versus future
consumption (i.e., saving). A neutral tax policy toward dividends would also provide

important benefits for corporate governance. Reducing tax barriers to dividend payments
would help provide investors with improved information about the corporate prospects and
reduce the tax-motivated build-up of cash left to the managers’ discretion. Recognition of
the desirability of providing relief from double tax on corporate income is not new. The
impetus behind the past proposals to integrate the individual and the corporate taxes was
to reduce the economic distortions created by the double tax on corporate income.
In addition, higher investment due to the lower tax on capital income would promote higher
wages in the long run. The proposal would also be expected to enhance near-term
economic growth. While the earlier policy called for tax payments to be made by investors
based on the marginal tax rates applicable to them, the new policy taxed the dividends of
the companies at a uniform rate. The investors now received their dividends ‘tax-free’ in the
sense that they need not declare their income from dividends in their tax returns or pay a
tax on them. In fact, the investors are implicitly paying a tax since the company pays the
dividend tax and this reduces the amount of funds available for dividend payment by the
company.
13

Main Provisions Relating to Corporate Dividend Tax
The following are the salient features of corporate dividend tax as per Section 115-0 of the
Income Tax Act, 1961:
 Corporate dividend tax is in addition to the corporate tax paid by the company on its
profits.
 Such taxes are levied on any amount declared, distributed or paid by the domestic
company (in India by way of dividends in cash).
 The dividend may be declared out of current or accumulated profits.
 Corporate dividend tax is payable even if no corporate tax is payable by a company
or its income.
 The principal officer of the domestic company and the company shall be liable to pay
the tax on distributed profits to the credit of the central government within 14 days
from the date of declaration, distribution or payment of any dividend whichever is
the earliest.
 The tax on distributed profits so paid by the company shall be treated as the final
payment of tax in respect of the amount declared, distributed or paid as dividends
and no further credit, therefore, shall be claimed by the company or by any other
person in respect of the amount of tax so paid.
 No deduction under any other provision of Income Tax Act, 1961, shall be allowed to
the company or a shareholder in respect of the amount which has been charged to
tax or the tax thereon.
Thus, the above provisions are mandatory and binding on the companies in order to
avoid payment of penal interest and other stringent aspects of law.
14

Review of Literature
There are variations in the tax codes across countries. In many countries, the corporate
source of income (dividend and capital gains) is subjected to double taxation. The double
taxation of corporate income has been criticized on the following grounds:
• It distorts the allocation of capital and other resources between corporate and non-
corporate forms of business (Harberger, 1962; Ballentine and McLure, 1980).
• It encourages high profit retention and thus avoids the test of marketplace (Poterba,
1987).
• It encourages debt over equity financing (Litzenberger and Van Horne, 1978).
• It increases the cost of equity financing and thus reduces investment and capital formation
(Poterba and Summers, 1985).
There are primarily two views on dividend taxation. As per one view, the dividend policy
including the tax factor is irrelevant, i.e., it has no influence on the value of the company.
The alternate view holds that dividend decision is, in fact, relevant and does affect the
shareholders’ wealth.
Irrelevance of Dividends
In a world with no taxes, the Miller and Modigliani (1961) proposition suggests that dividend
policy is irrelevant to the value of the company. However, when personal taxes are
introduced with a capital gains rate, which is less than the rate on ordinary income, the
picture changed. Friend and Puckett (1964) use cross section data to test the effect of
dividend payout on share value and find that the value of the company is independent of
dividend yield. The Black and Scholes (1974) study presents strong empirical evidence that
the before tax returns on common stocks are unrelated to corporate dividend payout policy.
They adjust for risks by using the capital asset pricing model (CAPM) and come up with a
strong conclusion that it is not possible to demonstrate, even by using the best empirical
15
methods that the expected returns on high yield common stocks differ from the expected
returns on low yield common stocks either before or after taxes.

Miller and Scholes (1977) argue that even with the existing laws (where the tax on ordinary
personal income is greater than the capital gains tax), there is no need for the individuals
ever to pay more than the capital gains rate on dividends. The implication is that individuals
could be indifferent towards payments in the form of dividends or capital gains (if the
company decides to repurchase shares). Thus, the companies’ value will be unrelated to its
dividend policy. Both the Friend and Puckett (1964) and Black and Scholes (1974) studies
tend to support the conclusion that the value of the company is independent of the
dividend yield.
Relevance of Dividends
Before 1997, there was double taxation of profit earned by the companies once in the hands
of the company through corporate tax and then in the hands of the investors in the form of
income tax. In such a case, the investor should prefer to get less dividend paid and the
earnings to be retained by the company as they can always get the amount by selling the
shares in the equity market in the form of ‘home made dividend’ (Black, 1976). Taking this
argument, the taxation policy is considered a key determinant of dividend payout in the
developed countries and the dividend decision is a relevant decision (Short, Keasey and
Duxbury, 2002).
Three important studies (Bhattacharya, 1979; Miller and Rock, 1985; and John and William,
1985) focusing on the relationship between dividend payout and corporate tax questioned
the rationale of the old view that dividend taxation affects the shareholders’ optimal
dividend payout ratios. Dividend results in an immediate tax liability for shareholders. These
studies emphasized the need to distribute dividend even if it leads to higher tax liabilities for
shareholders. The primary explanation for this was that dividend sends a signal to the
shareholders about the future prospects of the company. Another study (Hakansson, 1982)
strengthened the view that “the raising and lowering of dividends communicates
16 information (to shareholders) over and beyond what is provided by earnings reports,
forecasts, and other announcements.” However, no study seems to have any explanation as
to why dividends are better (and more expensive!) signals regarding future prospects (Black

and Scholes, 1974; Black, 1976; and Ambarish, et al., 1987). Another rationale behind
dividend distribution in spite of tax implication is provided by the view that shareholders are
not sufficiently well informed about whether or not management is acting in their best
interests (Crockett and Friend, 1988). Dividend distribution is further justified in the study by
Easterbrook (1984). He observed that dividend payouts ensure that companies go to the
capital markets to seek funds for new capital requirements. Market mechanisms ensure that
managers are acting in the best interests of shareholders. Ofer and Thakor (1987) offer
another explanation for dividend distribution: If managers are shareholders, they personally
prefer dividends to share repurchases since most companies forbid managers from
tendering their shares. Thus, the only way managers can get cash disbursement from their
shares is through dividends and they may be willing to impose a tax cost on other
shareholders (and themselves) to get the cash. Perhaps the most widely tested explanation
of dividends is known as the clientele hypothesis (Gordon and Bradford, 1980). Some
important groups of shareholders may prefer dividends to capital gains because dividends
provide cash flow and, for these shareholders, there is little or no tax advantage from
capital gains. The most important group comprises the non-taxable institutions but
individuals with low marginal tax rates and other corporate shareholders are also in the
‘low-tax clientele.’ These shareholders will own stocks in the companies with high dividend
payout ratios while other shareholders (the ‘high-tax clientele’) will invest in companies with
low payout ratios. Empirical evidence regarding the clientele hypothesis has been mixed.
Studies that find clientele effects include Pettit (1977), Gordon and Bradford (1980), and
Scholz (1989). The studies providing contradictory evidence include Long (1978),
Litzenberger and Ramaswamy (1979, 1982), Hess (1982), Auerbach (1983), Poterba and
Summers (1984), Poterba (1987), and Blume and Friend (1987). The contemporary literature
on dividend policy offers evidence of irrelevance of dividend tax in dividend policy. It is
argued that dividend taxes get capitalized into the value of the company (King, 1977 and
Bradford, 1981). The major drawback in this theory is that it fails to deal adequately with
the possibility of periodic share repurchases. However, contradictory empirical evidence is
provided by the study of Poterba and Summers (1985). The controversy between these
17
views continues to be the main focus of research on dividend taxation. In India, this issue
has not received adequate attention of researchers so far. It is Lintner’s model (1956) which

has been the focus of empirical studies in the Indian context. Much work does not seem to
have been carried out on other aspects of dividend policy in India.
However, a few studies have been carried out including those of Majumdar (1959), Nigam
and Joshi (1961), Purnanandam (1966), Rao and Sharma (1971), Gupta (1973),
Krishnamurthy and Shastry (1975), Dhameja (1976), Murty (1976), Bhat and Pandey (1994),
Ojha (1978), Khurana (1980), and Mishra and Narender (1996). Most of these studies have
primarily focused on identifying the factors influencing dividend payouts in the Indian
corporate sector and only indirect references have been made to the impact of tax on
dividend policy. However, Narasimhan and Asha (1997) discuss the impact of dividend tax
on dividend policy of companies. They observe that the uniform tax rate of 10 per cent on
dividend as proposed by the Union Budget, 1997-98, alters the demand of investors in
favour of high payouts rather than low payouts as the capital gains are taxed at 20 per cent
in the said period. A study by Reddy (2002) has shown that the trade-off or tax preference
theory does not appear to hold true in the Indian context. Another study by Narasimhan
and Krishnamurti (2004) finds no clear evidence that companies altered their dividend
payout policy in response to the introduction of corporate dividend tax in India. Being able
to precisely spell out the relation between corporate tax and dividend policy would be
advantageous to most of the diverse groups which are likely to be affected in the process.
For instance, the shareholders may be able to understand the dividend behaviour of a
company in response to any proposed change in corporate taxation. In addition, the
shareholders may be able to anticipate the amount which they are likely to receive as
dividend. It will also help the management in identifying and evaluating potential growth
strategies, expansion opportunities or prepare a defence against possible future adverse
developments. As far as the policy-makers are concerned, the study may provide the much
needed respite that introduction of corporate dividend tax in India in 1997 has contributed
positively towards the declaration of dividends. The change in tax policy with respect to
dividends can be considered as an interesting experiment in corporate finance with few
parallels. The policy change may have a bearing on the wealth of investors on the one hand
18
and the cost of equity of the companies on the other. This may, in turn, influence dividend
payout policy and capital structure of the companies.

Payout Trend of Each Sector
Of the total 211 Companies selected for the study, these have been divided into 12 sectors,
namely Auto, Capital Goods, Consumer Durables, Finance, FMCG, Health care, IT, Metal and
Mining, Oil and Gas, Others, Power and Realty. The composition of each sector is as follows
Sector Composition
Power, 6 Realty, 9
Auto,
15 Capital
Others, 50 Goods, 31 Consumer
Durables, 6
Finance, 34
IT, 9 FMCG, 14
Oil & Gas, 11
Metal &
Mining, 12
Healthcare, 14
The “Others” Sector has 50 companies because many sectors are clubbed into that. The
details of clubbing are provided in appendix.
19

Auto
50%
40%
30%
20%
DPR(%)
10%
0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
The average Dividend payout ratio in this sector is between 25% and 40%. Since there are
many capital expenses and also availability of growth opportunities, payment of dividend is
low which minimises the DPR. There has been a steep rise in average DPR of the sector in
the year 2002 because Escorts Ltd, which was a non payer earlier, started paying dividends
and also Maruti Suzuki, which used to pay around 8% DPR, has now moved to 40%. The
steep increase in the year 2002 and minor fall in the 2003 could be due to Abolishment of
DDT in 2002 and reintroduction of the same in 2003.
Capital Goods
50%
40%
30%
20%
DPR(%)
10%
0%
1996
1995
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
One of the basic features of capital goods sector is that it has large growth opportunities.
Thus The DPR seems to be in a range of 18% to maximum of 47% in year 2002. The steep
increase is due to special dividends declared by Shree Cements. This has lead to increase in
DPR to 644%. This implies the company has paid 6.44 times the earnings it has actually
made, as dividends to its shareholders. This signifies that there was no investment
20 opportunity, so the management decided to go for huge dividends. Also abolishment of DDT
could also be the reason.

Consumer Durables
70%
60%
50%
40%
30%
DPR(%)
20%
10%
0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
The DPR trend has been more or less constant. The increase in the year 2001 is because of
recession. During the recession, the companies go for dividends payout so that the interest
of shareholders can be retained and the morale can be boosted. Also the absence of
investment opportunities makes the management to go for dividend payout. In the year
2002 Tata Communications had the DPR of 209% further leading to increase in median DPR.
Finance
140%
120%
100%
80% DPR-Large
60%
DPR-Medium
40%
20% DPR-Small
0%
2009
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
The average DPR in all the three sectors is more or less consistent at 20%. There has been
steep increase in Large Companies DPR; this is because of IFCI paying out 557% as its DPR.
Also in the case of Medium companies, the steep increase in DPR in the year 2003 is
21 because of JM Financials paying 1037% of its earnings as dividends.

If Inter-size comparison is made, in the year 1997, when the DDT i.e. Dividend Distribution
Tax was implemented making dividends taxable for companies paying them, the payment of
dividend fell for medium and small companies. But this trend was not visible in dividend
payout ratio of large companies. But in the year 2003 and 2007, where the DDT was re-
introduced at 12.5% and further 15%, respectively, there has been no influence in payout
ratio and the trend.
FMCG
60%
50%
40%
30%
DPR(%)
20%
10%
0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
The average DPR of this sector, unlike other sectors like Capital goods, Auto etc, is high. The
reason is simple that, the FMCG is not a growth sector and also the capital investment
requirement is low. Thus the average DPR is in range of 37% to 57%. In the year 2001, FMCG
firms were regarded as the top dividend paying firms. Companies like Nestle India Ltd,
Colgate Palmolive (India) Ltd. paid DPR of as high as 118% and 219% respectively.
22

Healthcare
45%
40%
35%
30%
25%
20%
DPR(%)
15%
10%
5%
0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
The average DPR for Healthcare sector is ranging between 20% and 40%. It is observable
that the dividends are very much fluctuating, which implies that the industry takes dividend
as passive, and the dividends are paid only when there is no investment opportunities. Thus
the DPR ranges from as high as 114% to as low as 6%. The continuous fall after 2007 may be
because of increase in DDT to 15% and also investment opportunities in R&D.
IT
250%
200%
150%
100% DPR(%)
50%
0%
2004
1995
1996
1997
1998
1999
2000
2001
2002
2003
2005
2006
2007
2008
2009
Information Technology, which is regarded as one of the growing sector with very attractive
investment opportunities, has a very low average DPR. This is also visible from the DPR of
23 the companies. It is in the range of 6% to 34%. In the year 2006, there has been steep
increase in the DPR. This is because Moser Bear had DPR of 359%, GTL had 486% and
TechMahindra also had a DPR of 500%. Thus, leading to an overall sector average of 200%.

Metal and Mining
30%
25%
20%
15%
10% DPR(%)
5%
0%
1996
1995
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
There have been no steep increases or falls. The DPR has been consistent and ranging from
15% to 25%. This signifies that the fixed dividend payout policy is in practice. But the
implementation of DDT has no impact on the sector. In fact no other sector has the impact.
The fall in the year 2003 could be credited to the fact that the DDT after its abolishment in
2002 was re-introduced by Finance Act, 2003.
Oil&Gas
35%
30%
25%
20%
15%
DPR(%)
10%
5%
0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
No steep increases in this sector. The range of DPR is 13% to 28%. Since there is necessity to
24 maintain reserves for unseen uncertainties, these companies prefer paying low dividends
and have a high retention ratio.

Others
70%
60%
50%
40%
30%
DPR(%)
20%
10%
0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Since many sectors like Textile, Agriculture, Plastic goods, Diversified are part of this sector,
no conclusion can be made out of this DPR trend. But the DPR had risen in the year 1999
because of Century Textiles which had payout of 1037% and in the year 1999, the increase is
credited to Kesoram cements which paid 1700% of its EPS as DPS.
Power
40%
35%
30%
25%
20%
15% DPR(%)
10%
5%
0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Being a high growth sector, the DPR of this sector is ranging between 18% and 36%. But in
this sector too there has been no impact of either implementation of DDT and increase in
25
DDT rate.

Realty
40%
35%
30%
25%
20%
15% DPR(%)
10%
5%
0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
The realty sector saw a transition from low growth sector to a very high growth sector. The
DPR trend too depicts the same. The DPR in the year 1995 was at 34% and then it kept on
falling and reached to 10% in the year 2009. The companies in this sector retain the earnings
and reinvest the same in the business instead of paying it out. The actual rate of return on
investments is more than the opportunities cost to the shareholder.
26

Empirical Findings (using T-Test)
For 1997(Introduction of DDT)
To determine the impact of the introduction of the Dividend Distribution Tax in the Union
Budget of 1997, the paired sample T-test was conducted on 211 firms categorized in 12
sectors. On the basis the comparison between the calculated and the critical T-values, any
significant impact of Dividend Distribution Tax on the Dividend Payout Ratio (DPR) can be
seen.
Significance Level is 90%. Accordingly, α = 0.10
General rule:
If P-value>α; Accept the null hypothesis
If P-value<α; Reject the null hypothesis
P-
Sector 1997 N Mean SD T-value T-value(critical) value
Before 15 25.63 13.54 -1.761 to
Auto -0.82 0.426
After 15 29.09 20.6 +1.761
Before 31 24.31 13.15 -1.697 to
Capital Goods -1.03 0.312
After 31 30.04 29.28 +1.697
Consumer Before 6 23.6 21.6 -2.015 to
-1.64 0.162
Durables After 6 34.3 36.9 +2.015
Before 34 17.82 15.37 -1.694 to
Finance -1.83* 0.076*
After 34 27.56 31.85 +1.694
Before 14 39.29 23.18 -1.771 to
FMCG -0.15 0.882
After 14 39.91 26.86 +1.771
Before 14 22 13.49 -1.771 to
Healthcare -1.55 0.145
After 14 33.96 25.5 +1.771
Before 9 22.44 18.96 -1.860 to
IT 0.73 0.654
After 9 18.74 25.1 +1.860
Before 12 16.55 9.12 -1.796 to
Metal n Mining -1.94* 0.079*
After 12 20.72 11.76 +1.796
Before 11 15.1 11.47 -1.812 to
O&G -1.81 0.101
After 11 18.94 10.03 +1.812
Before 50 36.6 50.6 -1.676 to
Others -0.74 0.464
After 50 47.2 86.4 +1.676
Before 6 25.03 8.47 -2.015 to
Power 0.63 0.559
After 6 21.89 16.6 +2.015
27
Before 9 29.51 21.7 -1.860 to
Realty 0.75 0.474
After 9 23.74 10.73 +1.860

For all the 10 sectors we find that the P-value>α. Therefore, we accept the null hypothesis
that there is no significant change in the average DPR Before due to the change in the tax
regime policy in 1997.
For the 2 sectors namely, “Metal and Mining” and “Finance” the P-value<α. Therefore, we
reject the null hypothesis and accept the alternate hypothesis i.e. there is significant
difference in the average DPR before and after the 1997 tax regime change.
The above conclusion is also corroborated by comparing the calculated T- value with the
critical T- value. For “Metal and Mining” the calculated value (-1.94) is outside the
permissible range (-1.796 to +1.796) at significance level of 90%. Similarly for, “Finance” the
calculated value (-1.83) lies outside the critical range (-1.694 to +1.694).
For 2007(Increase in DDT to 15%)
T-
Sector 2007 N Mean SD T-value value(critical) P-value
Before 15 25.65 14.91 -1.761 to
Auto -0.75 0.464
After 15 27.92 21.25 +1.761
Before 31 22.98 14.71 -1.697 to
Capital Goods 0.51 0.611
After 31 21.82 11.32 +1.697
Consumer Before 6 24.31 17.58 -2.015 to
-0.38 0.723
Durables After 6 25.09 16.05 +2.015
Before 34 22.42 10.08 -1.694 to
Finance -0.01 0.988
After 34 22.44 15.26 +1.694
-1.771 to
FMCG Before 14 49.46 24.29 -0.49 +1.771 0.629
After 14 51.5 26.99
Before 14 33.57 33.22 -1.771 to
Healthcare 1.2 0.25
After 14 23.68 14.28 +1.771
Before 9 106.8 105.3 -1.860 to
IT 2.31* 0.05*
After 9 27.4 16.4 +1.860
Before 12 19.36 11.81 -1.796 to
Metal n Mining 1.36 0.202
After 12 15.44 8.21 +1.796
Before 11 26.82 13.68 -1.812 to
O&G 2.36* 0.04*
After 11 20.13 12.71 +1.812
Before 50 29.76 21.64 -1.676 to
Others -0.39 0.7
After 50 31.12 34.44 +1.676
28 Before 6 32.7 30.2 -2.015 to
Power -0.82 0.448
After 6 35.6 37.7 +2.015
Before 9 14 9.01 -1.860 to
Realty 1.3 0.23
After 9 10.65 10.65 +1.860

For 10 sectors where the P-value > alpha, we can say that the null hypothesis is accepted,
i.e. there is no significant change in the average DPR after the introduction of dividend
distribution tax. But, in IT and O&G sector, we see that P-value< alpha, so we reject the null
hypothesis, i.e. there is significant difference in the average DPR after the introduction DDT.
IT sector: The Return on equity of IT sector is very high compared to other sectors of Indian
economy. Before 2003 the profitability of the IT firms was scanty and consequently this
sector was at the bottom of the list in terms of dividend payment. The average payout of
the IT sector during this period was 21.53%.This can be attributed two factors .Firstly, the
industry presented immense growth opportunities for the companies hence the managers
were of opinion that they can provide the investors better returns if they plough back the
earnings into business. Secondly, most firms in Industry were facing volatile earnings stream
which deterred them from paying more dividends. After 2003, there was a substantial spurt
in dividend payout ratios of the IT companies. Infosys Technologies, Wipro Technologies,
HCL Technologies were among the highest dividend paying companies. Infosys Technologies
paid as high dividend as 2590% in the year 2004.This surge in dividend can be attributed to
high profitability and subsequently high liquidity of IT companies.
IT sector is a human intensive sector and do not require huge capital asset base like
manufacturing companies for their operations. The major asset of this sector is manpower.
Therefore the funds required for recruitment and retention of manpower is comparatively
less than funds required for purchasing capital assets. So these firms can easily release funds
for payment of dividends. Thus, we can conclude that IT firms in India have high liquidity
and it is an important determinant of dividend payout ratio. Since the profitability of the
companies is also very high so even if there is year to year variability in the earnings of the
firms they can easily pay huge dividends.
29

Payout Trend – Size Wise
Size-wise Composition
Large, 41
Small, 113
Medium, 57
The shortlisted companies which are further divided into large sized segment, medium sized
segment and small sized segment based the Market capitalization criteria. The companies
with less than Rs 5000 Crs. were sorted as Small size, with market capitalization of Rs. 20000
Crs as large size and rest into medium size.
30

Large
40%
35%
30%
25%
20%
15% Large
10%
5%
0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
The Companies in this sector have the market capitalisation of more than Rs. 20000 Crores.
The DPR of these is more or less constant in between the range of 19% to 37%. There has
been increase in Dividends payment and DPR in the year 2001. This is because of downturn
faced during that time. The companies prefer paying the dividends because of lack of
investment opportunities and also to boost up the morale of investors. The DPR is also high
because of low denominator in the form of Earnings but the numerator in form of dividends
is either constant or increases.
Also there has been no impact of Introduction of DDT in the year 1997 and increase in DDT
rate in the year 2007. In fact there has been increase in payout in the year 1997 and
onwards. The Increase in DPR Trend in the year 2002 is because of abolishment of DDT i.e.
Dividends are taxable in hands of investors and not the company. There is fall in Payout
trend in the year 2003; this could be due to re-introduction of DDT by Finance Act 2003.
31

Medium
60%
50%
40%
30%
Medium
20%
10%
0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
The range of Dividend Payout ratio for this sector, which has companies with market
capitalisation in between Rs. 5000 Crores and Rs.20000 Crores, is between 25% and 48%.
Small
40%
35%
30%
25%
20%
15% Small
10%
5%
0%
1996
1995
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
The companies with market capitalization less than Rs. 5000 crores are comprised in this
segment. The Payout trend of these firms is very much fluctuating. This is because the
companies are characterised by low cash reserves and there is high co-relation between
Cash profits and dividends of the companies. Thus this leads to fluctuating payout ratio. In
the year 1997, the fall can be credited to the account of introduction of Dividend
Distribution Tax, making the dividends taxable in the hands of companies paying them. In
32 the year 2001, where large and medium sized firms preferred paying dividends, the small
firms paid low dividends because of non availability of cash profits.

Empirical Findings (using T-Test)
For 1997(Introduction of DDT)
Sector 1997 N Mean SD T-value P-value

Before 41 20.67 14.83
Large -2.97* 0.005*
After 41 26.85 19.87
Before 57 26.74 18.58
Medium -2.14* 0.036*
After 57 32.53 25.23
Before 113 27.88 36.22
Small -0.16 0.87
After 113 29.02 62.79
From the results of t-Test it is clearly visible that there has been no influence in Payout ratio
of Small sized companies due to introduction of DDT. Since the p-Value of large sized and
Medium sized companies are less than α (0.1), this implies that the null hypothesis of there
is no significant influence of DDT on DPR is rejected. Thus we can infer that there has been
significant influence of DDT on the Payout trend of these companies.
For 2007(Increase in DDT to 15%)
Sector 2007 N Mean SD T-value P-value

Before 41 29.79 19.15
Large 1.03 0.311
After 41 28.75 22.44
Before 57 36.85 37.66
Medium 1.81* 0.076*
After 57 28.64 19.71
Before 113 27.2 33.89
Small 1.07 0.288
After 113 23.56 26.33
From the Table of results of T-test, it is clearly noticeable that the p-value of Medium sized
companies is less than 0.1 (α). This entails that there was significant influence of increase in
DDT to 15% on the payout trend of these companies. Also there was no impact of the same
33
on payout trend of large and small sized companies.

Conclusion
Successive Finance Ministers have realised that measured spraying of DDT - Dividend
Distribution Tax - in Budgets is like providing a huge tax net over an entire corporate sector.
DDT is a tax on distributed dividend and not exactly on income. Since its introduction in
1997, DDT has been in the thick of controversy. After exempting dividend income in the
hands of shareholders, the loss in revenue is being made good by collecting DDT from
companies. A shareholder would prefer his overall tax liability computed after taking all
aspects into account rather than be taxed under the thumb-rule, that is, DDT.
Otherwise, one sector which is perennially cash-strapped is made to pay DDT, when, in fact,
it need not pay. The profit-making government-owned companies declare dividends and pay
the same to the Government. As the Government is not a taxable entity, no tax is deducted
at source when dividend income is distributed (when dividend income was taxable). Since
DDT is a measure consequent to the exemption of dividend income from taxation, to offset
the revenue loss, the measure should have been confined to dividend distributed among
taxable shareholders.
To make the public sector pay, DDT on dividend distributed to the Government is
unreasonable and illogical. Public sectors companies, such as Bank of India, Canara Bank,
State Bank of India, ONGC, VSNL, MTNL, IOC and HAL, have been made to shell out huge
sums as DDT. For obvious reasons, these companies will not protest.
Moreover, after the amendments introduced by the Finance (No.2) Act, 2004, as far as a
shareholder is concerned, he is indifferent between equity dividend income and long-term
capital gains on equity shares as both are exempt in his hands. However, from the
company’s point of view, retentions are still better as in such a scenario the company can
avoid payment of Corporate Dividend Tax. One of the strongest arguments in the favour of
DDT is that it doesn’t let shareholders having huge stakes in the company go off without
paying taxes on their incomes.
34

Thus we can conclude that, though the Dividends were made taxable in the hands of
companies paying the dividends, thus has no impact on the payout trend of the companies.
Only few sectors had the impact of the same. Thus the tax-Preference theory which states
that companies and also share holders prefer to have capital gain instead of dividends.
Because the capital gains on equity shares are exempted from Taxes whereas dividends are
taxable at 15%.
The argument extended against DDT is that it leads to double taxation. First, as income tax
on the profits earned by the companies, then secondly, as DDT on dividends which is paid
out of profits lest after paying the income tax. The profits of a company are supposed to be
the income of shareholders. This way they, as part owners i.e. the shareholders, have
already been taxed.
Under the current Taxation system, when a subsidiary company pays dividend to its parent
company, it pays dividend distribution tax. When the parent company pays dividend to its
shareholders, probably utilizing all of its dividend receipts, it further pays dividend
distribution tax again on the same funds. This leads to double taxation, which should have
been resolved by taxing dividend in the hands of the shareholder. The worst hit is the group
companies or the chain investment companies, which will be subject to DDT more than once
to distribute its profits to the ultimate shareholders. It is important that shareholders get
fair returns on their equity holdings in a company. Otherwise they would prefer to choose
investing through other alternative means. Moreover, it creates a bias in favor of
undistributed profits against distributed profits. India needs to reduce the overall incidence
so as to make Indian companies competitive in the international market. DDT encourages
retention of profits in the hands of the company. It severely effects the capital formation
and development in a country where capital is scarce and liquidity is one of the essential
requirements of an economy. But it is equally important that shareholders get fair return on
their equity holdings. Also keeping in mind the present policy of globalization, high
corporate tax and less investment will make Indian companies suffer in the international
market.
35

Endnotes
1. Sections 67 and 68 of Part B of the Union Budget 1959-60 of the Government of India.
2. Section 80L was inserted by the Finance (No.) 2 Act, 1967 with effect from assessment
year 1968-69.
3. Even if the dividend income along with other qualified income exceeds Rs. 12,000, for
individual investors, whose income from all sources including dividend income is equal to or
below Rs. 60,000, no tax is levied and these small investors thus escape from any tax on
dividend income.
References
1. Monica Singhania (2006), “Taxation and Corporate Payout Policy”, Vikalpa (Volume
31 No. 4).
2. Monica Singhania (2005),”Trends in Dividend Payout, Journal of Management
Research (Volume 5, No. 3).
3. Bhat, R and Pandey, I M (1994). “Dividend Decision: A Study of Managers’
Perceptions,” Decision, 21(1/2), 67-86.
4. Hindustan Times (2003). “Dividend Taxation Slows Corporate Growth,” January 20.
5. The Economic Times (2010). “Should dividends be taxed in investors' hands?”
January 28.
6. Business Standard (2010), “A case for withdrawal of dividend distribution tax”
February 25.
7. Baker, H. Kent, E.T. Veit and G.E. Powell (2001), Factors Influencing Dividend Policy
Decisions of Nasdaq Firms, The Financial
8. Review 36(3): 19-38.
9. Narasimhan, M S and Krishnamurti (2004). “The Role of Personal Taxes and
Ownership Structure on Corporate Dividend Policy,” unpublished paper.
36
10. Reddy, Y Subba (2002). “Dividend Policy of Indian Corporate Firms: An Analysis of
Trends and Determinants,” NSE Research Initiative, Serial No.19.
11. Dividend Tax, “Wikipedia.com”

12. Ebscohost.com
13. Capitaline.com
14. http://www.thehindubusinessline.com/2007/03/09/stories/2007030901060900.htm
15. http://www.thehindubusinessline.com/2000/04/01/stories/120164su.htm
16. http://www.legalserviceindia.com/article/l187-Does-Dividend-Distribution-Tax-
amount-to-Double-taxation.html
37

Appendix
I. List of Different Sectors before clubbing

Sector No. of Sector No. of
Companies Companies
Agriculture 1 Logistics 2
Agro Chem 2 Media and 4
Entertainment
Auto 13 Metal 8
Auto Ancillary 1 Mining 4
Banks 3 Misc. 5
Capital Goods 22 Oil & Gas 10
Cement 2 Others 8
Chemicals 5 Packaging 1
Consumer Durables 3 Paints 2
Diversified 5 Petrochemicals 1
Edible Oil 1 Pharma 5
Fertilizers 5 Plastic products 1
Finance 33 Power 8
FMCG 14 Realty 8
Gas Distribution 1 Retail 1
Healthcare 14 Shipping 1
Hotels 3 Steel 1
Housing related 2 Telecom 3
IT 10 Transport 2
38

II. Details on Composition of Final 12 Sectors
Assigned Sector Actual Sector Assigned Actual Sector
Sector
Auto Auto Others Agriculture
Auto ancillaries-Electrical Agro Chemicals

Chemicals
Capital Goods Capital Goods Diversified
Cement Edible Oil
Housing Related Fertilizers
Steel Gas Distribution
Transport Services Hotels
Logistics
Consumer Durables Consumer Durables Media &
Entertainment
Telecom Miscellaneous
Others
Finance Banks Packaging
Finance Paints
Petrochemicals
FMCG FMCG Pharma
Plastic Products
Healthcare Healthcare Retail
Shipping
IT Information Technology
Power Power
Metal & Mining Metal
Metal, Metal Products & Realty Realty
Mining
Oil & Gas Oil & Gas

39

III. List of those 211 Companies
Sr. No Code Name Sector
1 523204 Aban Offshore Ltd. Oil & Gas

2 500002 ABB Ltd. Power
3 500410 ACC Ltd. Capital Goods
4 505885 Alfa Laval (India) Ltd. Capital Goods
5 532480 Allahabad Bank Finance
6 520077 Amtek Auto Ltd. Auto
7 532418 Andhra Bank Finance
8 500013 Ansal Properties & Infrastructure Ltd Realty
9 508869 Apollo Hospitals Enterprises Ltd. Healthcare
10 500877 Apollo Tyres Ltd. Auto
11 500477 Ashok Leyland Ltd. Auto
12 531847 Asian Star Co. Ltd. Others
13 506820 Astrazeneca Pharma Ltd. Others
14 526991 Atlas Copco (India) Ltd. Capital Goods
15 524804 Aurobindo Pharma Ltd. Healthcare
16 500674 Aventis Pharma Ltd. Others
17 532215 AXIS Bank Ltd. Finance
18 500032 Bajaj Hindustan Ltd. Others
19 500490 Bajaj Holdings & Investment Ltd. Auto
20 500038 Balrampur Chini Mills Ltd. Others
21 532134 Bank of Baroda Finance
22 532149 Bank Of India Finance
23 532525 Bank of Maharashtra Finance
24 500041 Bannari Amman Sugars Ltd. Others
25 506285 Bayer Cropscience Ltd. Others
26 500048 BEML Ltd. Capital Goods
27 509480 Berger Paints India Ltd. Others
28 503960 Bharat Bijlee Ltd. Capital Goods
29 500049 Bharat Electronics Ltd. Capital Goods
30 500493 Bharat Forge Ltd. Auto
31 500103 Bharat Heavy Electricals Ltd. Capital Goods
32 500547 Bharat Petroleum Corp. Ltd. Oil & Gas
40
33 500055 Bhushan Steel Ltd. Capital Goods
34 526853 Bilcare Ltd. Healthcare
35 500335 Birla Corporation Ltd. Capital Goods

36 526612 Blue Dart Express Ltd Others
37 500067 Blue Star Ltd. Consumer Durables
38 523457 BOC India Ltd. Others
39 500530 Bosch Ltd. Auto
40 500825 Britannia Industries Ltd. FMCG
41 532483 Canara Bank Finance
42 500870 Castrol India Ltd. Others
43 500040 Century Textiles & Industries Ltd. Others
44 500084 CESC Ltd. Power
45 500085 Chambal Fertilisers & Chemicals Ltd. Others
46 500110 Chennai Petroleum Corporation Ltd. Oil & Gas
47 500087 Cipla Ltd. Healthcare
48 500830 Colgate Palmolive (India) Ltd. FMCG
49 531344 Container Corporation of India Capital Goods
50 506395 Coromandel International Ltd. Others
51 532179 Corporation Bank Finance
52 500092 CRISIL Ltd. Others
53 500093 Crompton Greaves Ltd. Power
54 500480 Cummins India Ltd. Auto
55 500096 Dabur India Ltd. FMCG
56 532121 Dena Bank Finance
57 532868 DLF Ltd. Realty
58 500124 Dr Reddy's Laboratories Ltd. Healthcare
59 523618 Dredging Corporation of India Capital Goods
60 500125 E.I.D. Parry (I) Ltd. Others
61 500840 EIH Ltd. Others
62 505700 Elecon Engineering Co. Ltd. Capital Goods
63 531162 Emami Ltd. FMCG
64 532178 Engineers India Ltd. Others
65 530323 Era Infra Engineering Ltd. Realty
66 500495 Escorts Ltd. Auto
67 500134 Essar Oil Ltd Oil & Gas
68 500086 Exide Industries Co. Ltd. Auto
69 500469 Federal Bank Ltd. Finance
41
70 526881 Financial Technologies (I) Ltd. IT
71 532155 Gail (India) Ltd. Oil & Gas
72 509550 Gammon India Ltd. Capital Goods

73 500676 GlaxoSmithKline Consumer Healthcare FMCG
74 500660 GlaxoSmithKline Pharmaceuticals Ltd. Healthcare
75 500163 Godfrey Phillips India Ltd FMCG
76 500164 Godrej Industries Ltd. Others
77 500300 Grasim Industries Ltd. Others
78 500620 Great Eastern Shipping Co. Ltd. Others
79 500160 GTL Ltd. IT
80 500173 Gujarat Fluorochemicals Ltd Others
81 523477 Gujarat Gas Company Ltd. Others
82 532181 Gujarat Mineral Development Corp. Metal & Mining
83 500670 Gujarat Narmada Val Fer Co. Ltd. Others
84 517354 Havells India Ltd. Capital Goods
85 500010 HDFC Finance
86 500180 HDFC Bank Ltd. Finance
87 500182 Hero Honda Motors Ltd. Auto
88 500183 Himachal Futuristic Comm. Consumer Durables
89 500440 Hindalco Industries Ltd. Metal & Mining
90 500185 Hindustan Construction Co Ltd Realty
91 500186 Hindustan Oil Exploration Co. Ltd. Oil & Gas
92 500104 Hindustan Petroleum Corp Ltd. Oil & Gas
93 500696 Hindustan Unilever Ltd. FMCG
94 500188 Hindustan Zinc Ltd. Metal & Mining
95 500193 Hotel Leela Venture Ltd. Others
96 500710 ICI India Ltd. Others
97 532174 ICICI Bank Ltd. Finance
98 500106 IFCI Ltd. Finance
99 530005 India Cements Ltd. Capital Goods
100 500850 Indian Hotels Co. Ltd. Others
101 530965 Indian Oil Corporation Ltd. Oil & Gas
102 532388 Indian Overseas Bank Finance
103 532187 IndusInd Bank Ltd. Finance
104 500116 Industrial Dev Bank of India Finance
105 500209 Infosys Technologies Ltd. IT
106 531807 ING Vysya Bank Ltd. Finance
42
107 524494 Ipca Laboratories Ltd. Healthcare
108 500875 ITC Ltd. FMCG
109 530773 IVRCL Infrastructures & Projects Ltd. Realty

110 512237 Jai Corp Ltd. Metal & Mining
111 500219 Jain Irrigation Systems Ltd Others
112 500378 Jindal Saw Ltd. Metal & Mining
113 523405 JM Financial Ltd Finance
114 500228 JSW Steel Ltd Metal & Mining
115 530019 Jubilant Organosys Ltd. Others
116 513250 Jyoti Structures Ltd. Capital Goods
117 526209 K.S.Oils Ltd. Others
118 522287 Kalpataru Power Transmission Capital Goods
119 500165 Kansai Nerolac Paints Ltd. Others
120 532652 Karnataka Bank Ltd. Finance
121 502937 Kesoram Industries Ltd. Others
122 500241 Kirloskar Brothers Ltd. Capital Goods
123 500243 Kirloskar Oil Engines Ltd. Capital Goods
124 500247 Kotak Mahindra Bank Ltd. Finance
125 500252 Lakshmi Machine Works Ltd. Capital Goods
126 500510 Larsen & Toubro Limited Capital Goods
127 500253 LIC Housing Finance Ltd Finance
128 500257 Lupin Ltd. Healthcare
129 500260 Madras Cements Ltd. Capital Goods
130 500108 Mahanagar Telephone Nigam Ltd. Consumer Durables
131 500265 Maharashtra Seamless Ltd. Capital Goods
132 500520 Mahindra & Mahindra Ltd. Auto
133 500109 Mangalore Refinery & Petro Ltd. Oil & Gas
134 531642 Marico Limited. FMCG
135 532500 Maruti Suzuki India Ltd. Auto
136 500271 Max India Ltd. Others
137 513377 MMTC Ltd. Others
138 524084 Monsanto India Ltd. Others
139 517140 Moser-Baer (India) Ltd. IT
140 517334 Motherson Sumi Systems Ltd. Auto
141 526299 Mphasis Ltd. IT
142 500290 MRF Ltd. Auto
143 500294 Nagarjuna Construction Co Ltd. Realty
43
144 500075 Nagarjuna Fertiliser & Chem. Ltd. Others
145 532234 National Aluminium Co. Ltd. Metal & Mining
146 500790 Nestle India Ltd. FMCG

147 500304 NIIT Ltd. IT
148 500308 Nirma Ltd. FMCG
149 526371 NMDC Ltd. Metal & Mining
150 500672 Novartis India Ltd. Others
151 532555 NTPC Ltd. Power
152 500312 ONGC Ltd. Oil & Gas
153 532466 Oracle Financial Services Software Ltd. IT
154 524372 Orchid Chemicals Pharmaceuticals Healthcare
155 500315 Oriental Bank of Commerce Finance
156 523574 Pantaloon Retail (India) Ltd. Others
157 531120 Patel Engineering Ltd. Realty
158 503031 Peninsula Land Ltd. Realty
159 500680 Pfizer Ltd. Healthcare
160 500331 Pidilite Industries Ltd. Others
161 500302 Piramal Healthcare Ltd. Healthcare
162 532898 Power Grid Corporation of India Ltd. Power
163 522205 Praj Industries Ltd. Capital Goods
164 500459 Procter & Gamble Hygiene & Health FMCG
165 532461 Punjab National Bank Finance
166 531500 Rajesh Exports Ltd. Consumer Durables
167 500359 Ranbaxy Laboratories Ltd. Healthcare
168 524230 Rashtriya Chem & Fert. Ltd. Others
169 523445 Reliance Industrial Infrastructure Ltd. Capital Goods
170 500325 Reliance Industries Ltd. Oil & Gas
171 500390 Reliance Infrastructure Ltd. Power
172 500366 Rolta India Ltd. IT
173 500368 Ruchi Soya Industries Ltd. FMCG
174 500295 Sesa Goa Ltd. Metal & Mining
175 523598 Shipping Corp. Of India Ltd. Capital Goods
176 500387 Shree Cements Ltd. Capital Goods
177 532498 Shriram City Union Finance Ltd. Finance
178 511218 Shriram Transport Fin Co. Ltd. Finance
179 500550 Siemens Ltd Power
180 523838 Simplex Infrastructure Limited Realty
44
181 502742 Sintex Industries Ltd. Others
182 500472 SKF India Ltd. Capital Goods
183 501061 State Bank of Bikaner & Jaipur Finance

184 500112 State Bank of India Finance
185 532200 State Bank of Mysore Finance
186 532191 State Bank of Travancore Finance
187 512531 State Trading Corporation of India Others
188 500113 Steel Authority of India Ltd. Metal & Mining
189 512299 Sterling Biotech Ltd. Healthcare
190 500900 Sterlite Industries Ltd. Metal & Mining
191 524715 Sun Pharmaceutical Inds Ltd. Healthcare
192 500770 Tata Chemicals Ltd. Others
193 500483 Tata Communications Ltd. Consumer Durables
194 501301 Tata Investment Corporation Ltd. Finance
195 500570 Tata Motors Ltd. Auto
196 500400 Tata Power Co. Ltd. Power
197 500470 Tata Steel Ltd. Metal & Mining
198 500800 Tata Tea Ltd. FMCG
199 532755 Tech Mahindra Ltd. IT
200 532299 Television Eighteen India Ltd. Others
201 500411 Thermax Ltd. Capital Goods
202 500413 Thomas Cook (India) Ltd. Others
203 500114 Titan Industries Ltd. Consumer Durables
204 500420 Torrent Pharma Ltd. Others
205 532477 Union Bank of India Finance
206 507878 Unitech Ltd. Realty
207 512070 United Phosphorus Ltd. Others
208 517146 Usha Martin Ltd. Capital Goods
209 532401 Vijaya Bank Finance
210 500575 Voltas Ltd. Others
211 507410 Walchandnagar Industries Ltd. Capital Goods
45

Impact of DDT

Transféré par

Informations du document

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Impact of DDT

Transféré par

Droits d'auteur :

Formats disponibles

CORPORATE FINANCE II END TERM PROJECT

Submitted to: Prof Himanshu Joshi 2010

Radhika Gupta (91041)

GROUP 3- FMG 18A

I.List of Different Sectors before clubbing ........................................................................................ 38

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

The secondary Objectives are:

To study payout behaviour of different sector over the years

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Dividend Tax considered to be Double Taxation

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

For 1997(Introduction of DDT)

Significance Level is 90%. Accordingly, α = 0.10

Corporate Finance II END Term Project | Group 3- FMG 18A

For 2007(Increase in DDT to 15%)

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

For 1997(Introduction of DDT)

Sector 1997 N Mean SD T-value P-value

For 2007(Increase in DDT to 15%)

Sector 2007 N Mean SD T-value P-value

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

I. List of Different Sectors before clubbing

Corporate Finance II END Term Project | Group 3- FMG 18A

Auto ancillaries-Electrical Agro Chemicals

Oil & Gas Oil & Gas

Corporate Finance II END Term Project | Group 3- FMG 18A

1 523204 Aban Offshore Ltd. Oil & Gas

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A

Corporate Finance II END Term Project | Group 3- FMG 18A