*2.4. Institutional Background*

Major economic reforms in 1991 led the Indian economy towards economic liberalization and globalization. The major changes include the lowering of import tariffs and taxes, the deregulation of markets, and a rise in foreign investment. Also, since the formation of the Securities and Exchange Board of India (SEBI) in 1992, there has been an increase in the overall development, regulation, and supervision of the Indian stock market. As a result of significant improvements in the capital market regulations in India since the last two decades, companies can now issue shares using the book-building process, and raise funds through foreign capital. Indian companies thus have access to many alternative sources of finance, instead of relying on retained earnings. All of this has led to a change in their shareholding pattern. Accordingly, this will influence their dividend policy.

Furthermore, the Indian stock market consists of stocks covering the entire gamut—financial, industrial, and energy—thus providing exposure to a wide range of sectors. Another distinctiveness of the Indian stock market1 is that more than 55% of the equity market is held by promoters, thereby reducing the overall free float of the stock. In order to address this peculiarity, the SEBI mandated all listed companies to raise public shareholdings to 25% by mid-2013. In the framework of this transformed economic setting, the objective of this study is to evaluate the factors influencing the dividends of companies in India across sixteen industrial sectors.

<sup>1</sup> Further details on Indian stock market are available under https://www.nseindia.com/.
