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Are Dividend Payouts Linked To Equity Ownership Pattern – A Case Of The Drugs And Pharmaceutical Industry

1474 words - 6 pages


Dividend payouts are on of the most comprehensively researched areas in Finance . Dividends are used in signalling the future prospects. It’s the manager duty to increase the shareholder wealth , but with separation of management and ownership many conflict of interest arise leading to the Agency Problem. Maximizing the dividend in a in-perfect market , a sentiment is shared that is laced with positive outlook. The signal is for bright future prospects , and dividends are paid even if there exists opportunities for profitable investment opportunities which drives up the value of the share value ,Bonus-issuing firms yielded greater returns to their shareholders than those that ...view middle of the document...

In such a case an investor should prefer to get less dividends paid and earnings to be retained by firm, as they can always get the amount by selling the shares in equity market, in form of ‘home made dividend.

Indian Pharmaceutical Industry
Early after Independence industry growth started with MNC’s exporting low priced generics and few speciality items that were priced higher. Indigenous development of drugs was later encouraged by the government in the 1960’s. Currently it’s an US $21.04 billion industry which is expected to touch US $ 45 Billion by 2020. There are about 250 large units and about 8000 Small Scale Units, which form the major empire of pharmaceutical industry in India (including 5 Central Public Sector Units). These units produce the large range of pharmaceutical formulations, like medicines ready for consumption by patients and about 350 bulk drugs, including chemicals having therapeutic value and used for production of pharmaceutical formulations. The Indian pharmaceutical industry meets around 70% of the domestic demand for bulk drugs, drug intermediates, and pharmaceutical formulations. Indian Pharmaceutical industry is highly fragmented with around 20,000 players. The 250 pharmaceutical leading companies control 70% of the market with market leader holding nearly 7% of the market share. It is an extremely fragmented market with severe price competition and government price control. Due to the de-licensing policy, most of the drugs and pharmaceutical products got exemption. Manufacturers are free to produce any drug duly approved by the Drug Control Authority. Totally self-reliant and technologically strong, the pharmaceutical industry in India has low costs of production, innovative scientific manpower, low R&D costs, strength of national laboratories and an increasing balance of trade.

Terms Related to Dividend Payouts
Agency Costs - A type of internal cost that arises from, or must be paid to, an agent acting on behalf of a principal.
Dividend Irrelevance Theory – Purports that the firms dividend policy has no effect on either it’s value or cost of capital. Investors value dividends and value equally.
Payout Date – The date of which dividend is actually distributed to the shareholders.

Factors Affecting Dividend payouts –
• Stability of earnings
• Extent of share distribution
• Trade Cycles
• Need for Additional Capital
• Taxation
• Legal Requirements


The payment of dividend is associated with profitability position of the firm and is influenced by internal and external factors. The Indian pharmaceutical industry currently tops the chart amongst India's science-based industries with wide ranging capabilities in the complex field of drug manufacture technology, Our study is based on dividend policies of select pharmaceutical companies with respect to their ownership structure.

Dr.T.Sobha Rani and Mr. S.Patha Sarathi published an article “Determinants of Dividends in Indian Pharmaceutical...

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