Effect of Capital Structure on Dividend Pay-Out of Select Indian IT Companies: An Empirical Evidence

Abstract

Capital structure and dividend policy are two vital concepts in corporate finance. Capital structure refers to the use of debt and equity to finance company's operational activities. On the contrary, dividend policy refers to the guidelines on quantum and timing of distribution of dividends to shareholders. Therefore, the management has to take appropriate decision on these two issues keeping in view the wealth maximization of the firm. The objective of the study is to examine the relationship between capital structure and dividend pay-out and effect of capital structure on dividend pay-out of select IT companies in India. For this purpose, nineteen sample IT companies were selected for the study. The data for the study were collected from annual reports of the sample companies covering the period from 2008-09 to 2019-20. The data were analyzed by statistical tools namely correlation and regression analysis. The result of the study revealed that there is negative relationship between capital structure and dividend pay-out. Moreover, the study also revealed that capital structure has no effect on dividend pay-out of sample companies. Conversely, analysis on individual company disclosed that capital structure has significant effect on dividend pay-out of few companies.