State Ownership and Dividend Decisions: Economic Versus Political Determinants

This paper integrates the effect of state ownership and political influence on dividend decisions. Dilution of state ownership in state owned enterprises is associated with admittance of private owners, weaker political influence and better corporate governance compliance—consequently, leading to higher dividend payouts. Studying the state owned enterprises (250 firms) in India between 2007 and 2016, we use instrumental variable regression models to account for the endogeneity between dividend decisions and state ownership. We find that dividend possibility and amount is negatively associated with state ownership. We also find that dividends are paid more frequently and in large amounts just ahead of elections. Finally, state ownership has a stronger effect on how election cycles affects dividend decisions. Our results are robust to a series of tests.