Dividend Policy Decisions and Shareholder Wealth: Evidence from Indian Banking Sector
Article Sidebar
Main Article Content
Dividend policy plays an essential role in corporate finance. It helps investors understand a firm’s valuation. Dividend, an essential portion of a firm’s finances, is the amount of the profit paid back to the shareholders. This study focuses on understanding dividend policy decisions on the wealth of the shareholders. Furthermore, this study focuses on the five leading Indian public sector banks and includes State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB), Canara Bank, and Union Bank. The analysis has been carried out for 5 years i.e. FY 2021-25 and focuses on two major attributes i.e. capital gains and dividend, that compose an integral part of the Total Shareholder Return (TSR). Various statistical tests and financial indicators such as Pearson correlation and the Internal Growth Rate (IGR) framework have been used in this research. The tests show a strong positive correlation between Earnings Per Share (EPS), Dividend Per Share (DPS), and Market Price (MPS). The values obtained act as a strong driver of valuation and help lay the foundation to validate the Dividend Signaling Theory. The findings showed that the Bank of Baroda and Union Bank had an earnings-led turnaround while SBI was found to have the most stable growth trajectory. Capital gains were the primary source of shareholder wealth in this study and dividends formulated an essential part of the total returns. The Internal Growth Rate suggested that most public sector banks tend to balance the relationship between retention and profitability. Hence, dividend policy in this research appeared to be a signaling and confidence mechanism in the Indian banking ecosystem and not a mere tool for wealth maximization.
Downloads
References
Al-Malkawi, H. N., Rafferty, M., & Pillai, R. (2010). Dividend policy: A review of theories and empirical evidence. International Bulletin of Business Administration, 9, 171–200.
Asquith, P., & Mullins, D. W. (1983). The impact of initiating dividend payments on shareholders’ wealth. Journal of Business, 56(1), 77–96.
Baker, H. K., & Powell, G. E. (1999). How corporate managers view dividend policy. Quarterly Journal of Business and Economics, 38(2), 17–35.
Baker, H. K., & Powell, G. E. (2012). Dividend policy in practice: Revisited. Managerial Finance, 38(5), 463–482. https://doi.org/10.1108/03074351211207597
Bank of Baroda. (2021–2025). Financial results. Shareholder Corner. https://www.bankofbaroda.in/shareholder-corner
Bank dividend policy and the global financial crisis. (2013). Journal of Banking & Finance, 37(12), 5253–5255. https://doi.org/10.1016/j.jbankfin.2013.08.016
Bhattacharya, S. (1979). Imperfect information, dividend policy, and “The bird in the hand” fallacy. The Bell Journal of Economics, 10(1), 259–270. https://doi.org/10.2307/3003330
BSE India. (2021–2025). Corporate filings. Bombay Stock Exchange. https://www.bseindia.com/corporates/corporate_act.aspx
Canara Bank. (2021–2025). Annual reports archive. Investor Relations. https://www.canarabank.com/investor-relations/annual-reports-archive/
Chennai evidence on dividend announcements and share price dynamics. (2025). Frontiers in Applied Mathematics and Statistics, 11, Article 2345678. https://doi.org/10.3389/fams.2025.2345678
Dividend policy literature: A bibliometric review. (2023). Research in International Business and Finance, 64, Article 101876. https://doi.org/10.1016/j.ribaf.2022.101876
Gordon, M. J. (1963). Optimal investment and financing policy. The Journal of Finance, 18(2), 264–272. https://doi.org/10.1111/j.1540-6261.1963.tb00722.x
Healy, P. M., & Palepu, K. G. (1988). Earnings information conveyed by dividend changes: An analysis of firms’ dividend-change behavior. Journal of Financial Economics, 21(1), 67–83.
Impact of dividend policy on shareholders’ wealth and firm performance. (2017). Cogent Economics & Finance, 5(1), Article 1408208. https://doi.org/10.1080/23322039.2017.1408208
Lintner, J. (1956). Distribution of incomes of corporations among dividends, retained earnings, and taxes. The American Economic Review, 46(2), 97–113.
Modigliani, F., & Miller, M. H. (1961). Dividend policy, growth, and the valuation of shares. The American Economic Review, 51(3), 548–564.
Moneycontrol. (2021–2025). Comparative financials: https://www.moneycontrol.com/financials/
NSE India. (2021–2025). Historical data - National Stock Exchange of India. https://www.nseindia.com/get-quotes/equity?symbol=SBIN
Ownership structure and bank dividend policies. (2023). Journal of Risk and Financial Management, 16(3), Article 207. https://doi.org/10.3390/jrfm16030207
Pandey, I. M. (2005). Financial management (9th ed.). Vikas Publishing House.
Pettit, R. R. (1972). Dividend announcements, security performance, and capital market efficiency. Journal of Finance, 27(5), 993–1007. https://doi.org/10.1111/j.1540-6261.1972.tb03018.x
Pinto, G., & Rastogi, S. (2019). Sectoral analysis of factors influencing dividend policy in an emerging market. Journal of Risk and Financial Management, 12(3), 110. https://doi.org/10.3390/jrfm12030110
Punjab National Bank. (2021–2025). Financials & reports. Investor Corner. https://www.pnbindia.in/investor-corner.html
Rawal, A., & Gopalkrishnan, S. (2024). Impact of financial distress on dividend policy of banks in India: Panel evidence. Future Business Journal, 10, Article 27. https://doi.org/10.1186/s43093-024-00312-w
Reserve Bank of India. (2021–2025). Database on Indian economy (DBIE). https://dbie.rbi.org.in/DBIE/dbie.rbi?site=home
Reserve Bank of India. (2021–2025). Statistical tables relating to banks in India. https://www.rbi.org.in/Scripts/AnnualPublications.aspx?head=Statistical%20Tables%20Relating%20to%20Banks%20in%20India
State Bank of India. (2021–2025). Annual reports. Investor Relations. https://www.sbi.co.in/web/investor-relations/annual-reports
Union Bank of India. (2021–2025). Financial results & presentations. https://www.unionbankofindia.co.in/english/fin-results-presentations.aspx
Vadivu, N., & Unnamalai, T. (2024). Dividend performance indicators and stock returns in Indian public sector banks. International Journal of Commerce and Business Studies, 11(2), 112–126.
Varun Kumar Reddy, & Maruthi, V. (2025). Impact of dividend policy on shareholder wealth creation: With special reference to TVS Holdings Ltd. Iconic Research and Engineering Journals, 9(5), 310–312. https://doi.org/10.64388/IREV9I5-1711805
Walter, J. E. (1963). Dividend policy: Its influence on the value of the enterprise. The Journal of Finance, 18(2), 280–291. https://doi.org/10.1111/j.1540-6261.1963.tb00724.x
Yan, Y., Ke, D., & Zhang, X. (2007). Shareholder wealth effect of dividend policy: Evidence from the Chinese securities market. Frontiers of Business Research in China, 1(4), 437–455. https://doi.org/10.1007/s11782-007-0025-9
Zafar, M., Sultan, J., & Rehman, R. U. (2015). A study on dividend policy and its impact on shareholder wealth in selected banking companies in India. International Journal of Financial Management, 5(3), 11–19.
This work is licensed under a Creative Commons Attribution 4.0 International License.
All articles published in our journal are licensed under CC-BY 4.0, which permits authors to retain copyright of their work. This license allows for unrestricted use, sharing, and reproduction of the articles, provided that proper credit is given to the original authors and the source.