Exploring the Moderating Role of Leverage in the Relationship Between Dividend Policies and Firm's Growth

Abstract

To fill a significant need in the literature, this research examines the moderating effect of financial leverage on the dividend-growth model's treatment of capital structure dynamics.  The main goal is to examine the effect of leverage on the dividend-growth nexus and its direction and strength across different financial strategy businesses. The study takes a quantitative approach, using panel data from 64 publicly listed Indian enterprises from 2018 to 2020.  It employs SPSS and STATA for moderation analysis, multiple linear regression, and descriptive statistics.

According to the results, dividend policy has a favorable correlation with company growth and leverage has a negative influence on its own. The fact that leverage reduces the beneficial effect of dividend policy on company development is suggested by the considerably negative interaction term (Dividend × Leverage), which is the most crucial finding.   According to the findings of this study, businesses that face a high risk of financial trouble and a lot of debt have a harder time converting dividend signals into actual growth.

The study found that the best capital structure is necessary to align dividend policy with growth objectives. It advises growth-oriented businesses, in particular, to proceed with caution when taking out debt. In order to generalize results across larger settings, future research may explore industry-specific dynamics and use international databases.