Firm’s Life Cycle Spurs the Dividend Payments: A Fallacy or an Actuality?

Abstract

The study aims at testing the predictive power of life cycle proxies during the five life cycle stages in performing the accurate prognosis of dividend decisions of Indian companies. S&P BSE 500 companies have been selected for the study, and the sample period of 11 years commencing from 1 January 2005 to 31 December 2015 is taken. Life cycle of the firm is classified into five stages—introduction, growth, maturity, shake-out and decline phase. Cash flow patterns form the premise of such classification. All the four independent variables—size of company, proportion of cumulative retained profits as of total equity, total equity to total asset ratio and return on total assets (ROA)—turn out to be significant contributors in professing the occurrence of dividend payment event at the maturity stage of the firms’ life cycle.