5555 factors affecting dividend decision -...
TRANSCRIPT
168
5555
FACTORS AFFECTING DIVIDEND DECISIONFACTORS AFFECTING DIVIDEND DECISIONFACTORS AFFECTING DIVIDEND DECISIONFACTORS AFFECTING DIVIDEND DECISION
Dividend is a widely researched arena but still its fathom has to be explored as numerous
questions remains unanswered. The question of “Why do corporations pay dividends?”
has puzzled researchers for many years. Despite the extensive research devoted to solve
the dividend puzzle, a complete understanding of the factors that influence dividend
policy and the manner in which these factors interact is yet to be established. Allen et al.
(2000)1 stated that:
“Although a number of theories have been put forward in the literature
to explain their pervasive presence, dividends remain one of the
thorniest puzzles in corporate finance.”
The dividend decision is taken after due considerations to number of factors like legal as
well as financial. This is so because one set of dividend policy cannot be evolved that can
be applied to all firms rather the dividend decision vary from firm to firm in light of the
firm specific considerations. Lintner (1956)2 suggested that dividend depends in part on
the firm's current earnings and in part on the dividend for the previous year. He found
that major changes in earnings with existing dividend rates were the most important
determinants of the firm's dividend policy. Ramcharran (2001)3 observed that:
169
“…dividend policy in the equity emerging markets from a corporate
finance perspective has not been empirically examined to
date…Continuing financial reforms in emerging markets, together with
the validity of more published data, will encourage further research on
other determinants of dividend policy, including the impact of agency
costs, information, and taxes as well as the capital structure of firms”.
This suggested that much more research needed to be undertaken on dividend policy in
developing economies.
5.1 FACTORS AFFECTING DIVIDEND DECISION
Dividend decision, one of the important aspects of company’s financial policy, is not an
independent decision. Rather, it is a decision that is taken after considering the various
related aspects and factors. There are various factors influencing a firm's dividend policy.
For example, some studies suggest that dividend policy plays an important role in
determining firm capital structure and agency costs. Many studies have provided
arguments that link agency costs with the other financial activities of a firm. Easterbrook
(1984)4 argued that firms pay out dividends in order to reduce agency costs. Dividend
payout keeps firms in the capital market, where monitoring of managers is available at
lower cost. If a firm has free cash flows, it is better to share them with shareholders in the
form of dividend in order to reduce the possibility of these funds being wasted on
unprofitable (negative net present value) projects (Jensen, 1986)5.
170
Crutchley and Hansen (1989)6 examined the relationship between ownership, dividend
policy, and leverage and concluded that managers make financial policy tradeoffs to
control agency costs in an efficient manner. More recently, researchers have attempted to
establish the link between firm dividend policy and investment decisions. Smith and
Watts (1992)7 investigated the relations among executive compensation, corporate
financing, and dividend policies and concluded that a firm's dividend policy is affected
by its other corporate policy choices. Also, Jensen, Solberg and Zorn (1992)8 linked the
interaction between financial policies and insider ownership to informational
asymmetries between insiders and external investors. Despite this rich literature, most
prior work recognizes differences in determinants of financial decisions between different
firms.
5.1.1 Basic Factors Affecting Dividend Decision
Theoretically, over the past number of years, it has been believed by the academicians
that the dividend decision is influenced by number of factors. Some of the factors that
affect the dividend decision of a firm are listed as follows:
1. Legal Provisions: Indian Companies Act, 1956 has given the guidelines regarding
legal provisions as to dividends. Such guidelines are required to be followed by
the companies whenever the dividend policy is to be formulated. As per the
guidelines, a company is required to transfer a certain percentage of profits to
reserves in case the dividend to be paid is more than 10 percent. Further, a
171
company is also required to pay dividend only in cash but only with the exception
of bonus shares.
2. Magnitude of Earnings: Another important aspect of dividend policy is the
extent of company’s earnings. It serves as the introductory point for framing the
dividend policy. This is so because a company can pay dividends either from the
current year’s profit or the past year’s profit. So, if the profits of a company
increase, it will directly influence the dividend declaration as the latter may also
increase. Thus, the dividend is directly linked with the availability of the earnings
with the company.
3. Desire of Shareholders: The decision to declare the dividends is taken by Board
of Directors but they are also required to consider the desire of the shareholders,
which depend on the latter’s economic condition. The shareholders, who are
economically weak, prefer regular dividend policy while the rich shareholders
may prefer capital gains as compared to dividends. However, it is very difficult
for the board to reconcile the conflicting interests of different shareholders yet the
dividend policy has to be framed keeping in view the interest of all the interested
parties.
4. Nature of Industry: The nature of industry in which a company is operating,
influences the dividend decision. Like the industries with stable demand
172
throughout the year are in a position to have stable earnings, thus, should have the
stable dividend policy and vice-versa.
5. Age of the Company: A company’s age also determine the quantum of profits to
be declared as dividends. A new company should restrict itself to lower dividend
payment due to saving funds for the expansion and growth as compared to the
already existing companies who can pay more dividends. Grullon et al. (2002)9
suggested that as firms mature, they experience a contraction in their growth
which results in a decline in their capital expenditures. Consequently, these firms
have more free cash flow to pay as dividends. Similarly, Brav et al. (2005)10
suggested that more mature firms are more likely to pay dividends. In contrast,
younger firms need to build up reserves to finance the future growth
opportunities, thus, making them to retain the earnings.
6. Taxation Policy: The tax policy of a country also influences the dividend policy
of a company. The rate of tax directly influences the amount of profits available
to the company for declaring dividends.
7. Control Factor: Yet another factor determining dividend policy is the threat to
loose control. If a company declares high rate of dividend, then there is the
possibility that a company may face liquidity crunch for which it has to issue new
shares, resulting in dilution of control. Keeping this threat in view, a company
173
may go for lower level of dividend payments and more ploughing back of profits
in order to avoid any such threat.
8. Liquidity Position: A company’s liquidity position also determines the level of
dividend. If a company does not have sufficient cash resources to make dividend
payment, then it may go for issue of bonus shares.
9. Future Requirements: A company while faming dividend policy should also
consider its future plans. If it foresees some profitable investment opportunities in
near future then it may go for lower dividend and vice-versa.
10. Agency Costs: The separation of ownership and control results in agency
problems. Agency costs can be reduced by distributing dividends (Rozeff, 198211,
Easterbrook, 198412, Jensen et al., 199213). In this stratum, dividends are paid out
to stockholders in order to prevent managers from building unnecessary empires
to be used in their own interest. In addition, dividends reduce the size of internally
generated funds available to managers, forcing them to go to the capital market to
obtain external funds (Easterbrook, 198414). As explained in Rozeff (1982)15,
firms with a larger percentage of outside equity holdings are subject to higher
agency costs. The more widely spread is the ownership structure, the more acute
the free rider problem and the greater the need for outside monitoring. Hence,
these firms should pay more dividends to control the impact of widespread
ownership.
174
11. Business Risk: Business risk is a potential factor that may affect dividend policy.
High levels of business risk make the relationship between current and expected
future profitability less certain. Consequently, it is expected that firms with higher
levels of business risk will have lower dividend payments. Many researchers
argued that the uncertainty of a firm’s earnings may lead it to pay lower dividends
because volatile earnings materially increase the risk of default. In addition, field
studies using survey data (e.g., Lintner, 195616) reported compelling evidence that
risk can affect dividend policy. In these surveys, managers explicitly cited risk as
a factor that influences their dividend choice.
5.1.2 Financial Factors Affecting Dividend Decision
The above mentioned factors are not limited and many more can be there that affect the
determination of dividend. Keeping in view the above-mentioned factors and the review
of literature, some variable has been identified within the arena of the theoretical factors.
Those variables include both the dependent and independent variables. However, their
interpretation depends upon their measurement. The present study covers the following
set of variables:
1. DPS to Face Value: This ratio evaluates the relationship between dividend per
share and face value of the share. It is calculated as:
Dividend Yield ratio= Dividend per share/Face value per share
175
2. DPS to Market Value (Yield ratio): This ratio evaluates the relationship between
dividend per share and market value of the share. It is calculated as:
Dividend Yield ratio= Dividend per share/Market value per share
3. Dividend Payout Ratio: It indicates the extent to which the earnings per share
have been retained by a company. It enables the company to plough back the
profits which will result in more profits in future and hence, more dividends. It is
calculated as:
Dividend Pay-Out Ratio= Dividend per equity share/Earnings per
share
The higher the ratio, lower is the dividend payment and vice-versa.
4. Current Ratio: It is a measure of firm’s liquidity and is basically used for
measuring the short-term financial position or liquidity of the firm. It indicates the
ability of the firm to meet its current liabilities. It is calculated as:
Current Ratio= Current assets/Current liabilities
A high ratio indicates that firm’s liquidity position is good and it has the ability to
honor its obligations while a low ratio implies that firm’s liquidity position is not
176
so good so as to honor all its obligations. However, a ratio of 2:1 is considered
satisfactory. The expected relation between current ratio and dividend payment is
positive.
5. Net Profit Ratio: This ratio establishes the relation between net profits and sales
and indicates the management’s efficiency. It is calculated as:
Net Profit ratio= (Net Profit/Net sales)*100
As dividends are declared from the net profits of a firm, so higher the net profit
ratio, higher will be the expected dividend payment.
6. Net Profit to Net worth: This ratio indicates the relation between net profits earned
by a company and the net worth which is represented by shareholder’s capital. It
is composed of equity share capital, preference share capital, free reserves and
surpluses, if any. It is also referred to as return on investment and is calculated as:
Return on shareholder’s investment= Net Profit/Net Worth
This ratio is an indication of company’s ability to earn profits. If the earning
capacity of the company is more, more dividend payment can be expected and
vice-versa.
177
7. Debt Equity Ratio: This ratio measures the claims of outsiders and owners
against the firm’s assets. It indicates the relation between outsider funds and
shareholders funds. It is calculated as:
Debt-equity ratio= Outsiders funds/Shareholders funds
This ratio tells the solvency position of the firm. Higher the ratio, better will be
the solvency as well as the ability of firm to pay dividends. The vice-versa will
hold true in case of low ratio.
8. Lagged Profits: The dividend is not only influenced by the past year’s dividend but
also by the past year’s profits. This is so because a company can follow the stable
dividend policy if it has sufficient current year’s profit or the past year’s profit.
9. Behavior of Share Prices: The prevailing share prices also influence the
dividend payment by a company. If the share prices of a company are
unfavorable, then it may increase the dividend in order to boost up the share
prices. It can be calculated as:
Behavior of share prices= Higher share price - Lower share price
Higher share price + Lower share price
10. Growth in Earnings: If the earnings of a company increase, then the chances of
178
increase in dividend payment are also there. Growth is must for the survival of a
company. This ratio can be calculated as:
Growth in Earnings= EPSt- EPSt-1 / EPSt-1
Where, EPSt= Current earnings per share
EPSt-1= Previous earnings per share
12. Growth in Working Capital: This ratio indicates increase in the working capital
of a company.
Growth in Working Capital= WCt- WCt-1 / WCt-1
Where, WCt= Current working capital
WCt-1= Previous working capital
Higher ratio indicates the increase in the capacity of a company to pay dividends
but this is interrelated with other factors also. Like, if a company has increase the
working capital to match the increased level of operations, then this ratio will not
be useful in studying the impact on the dividend payments.
179
14. Lagged Dividends: A company may consider the past year’s dividend as a
benchmark. If a company prefers stability of dividend payments, it may consider
the past year’s dividend rate and can act accordingly.
15. Tobin’s Q: This variable represents the investment opportunities for a company.
It is measured as
(MV of equity-BV of equity +Total Assets)/Total Assets
16. Investment Opportunity Set (Market to Book Value): It represents the
availability of investment opportunities to the company and generally is believed
to have negative relationship with dividend payout.
17. Free Cash Flow: This variable is used to measure the availability of cash with the
company. It is calculated as
(Cash flow from Operations-Cash flow from investment activities)/Total assets
18. Cash Holdings: It is another financial variable to analyse the liquidity position of
the firm. It is calculated as
(Cash + Short-term investment)/Total assets
180
19. Uncertainty in Earnings: It refers to the variation in the earnings from one year
to another. Some companies might witness irregular earnings and thus, may not
have stable dividend policy. Uncertainty in earnings can be measured as
σ = √ (∑x2/N)
A small value of standard deviation means high degree of uniformity in the
earnings and vice-versa.
20. Solvency Ratio: This ratio is a small variant of equity ratio. It indicates the
relationship between total liabilities to outsiders to total assets of a firm. It can be
calculated as:
Solvency ratio= Total Liabilities to Outsiders/Total Assets
21. Return on Net worth: This ratio is also termed as return on investment. This ratio
indicates the relationship between net profits (after interest and tax) and the
shareholders funds. It can be calculated as
Net profit (after interest and taxes)/Shareholders funds
22. Return on Capital Employed: This ratio establishes the relationship between
profits and capital employed. It can be calculated as
181
(Adjusted Net Profits/Gross Capital Employed)*100
or
(Adjusted Net Profits/Net Capital employed)*100
5.2 DATA ANALYSIS AND INTERPRETATIONS
In the present chapter, the Principal Component Analysis approach has been used in order
to obtain a set of variables pertaining to dividends. The major emphasis was in deriving
the exclusive cluster of the aforesaid group of variables for each of the four industrial
groups: Engineering, FMCG, Information Technology and Textiles; and for the combined
group of all the four industries separately for the years 2007and 2008.
For the same purpose, the following financial variables have been used: DPS to Face
Value, DPS to Market Value, Payout Ratio, Lagged Dividend, Lagged Profits, Current
Ratio, Solvency Ratio, Debt-Equity Ratio, Free Cash Flow, Cash Holdings, Share Price
Behavior, Growth in EPS, Growth in Working Capital, Return on Capital Employed,
Return on Net worth, Age of the Company, Net Profit to Net worth, Net Profit ratio,
Market to Book value, Tobin’s Q and Uncertainty in EPS. The analysis has been made
carried out with the help of Factor Analysis. The following steps were followed in order
to extract the factors.
The principal component analysis using VARIMAX rotation of twenty one variables
pertaining to Engineering, FMCG, IT and Textiles industrial sector has led to the
182
extraction of numerous factors. After a meaningful set of variables have been obtained,
the next task is to group the variables under particular factor and label them in order to
assign some meaning to the factor loadings. Variables with higher loadings are
considered more important and have greater influence on the label selected to represent
the factor. For this purpose, the sampling adequacy tests have been conducted to know
that whether the sample is adequate or not. KMO recommends accepting value greater
than .5 as barely acceptable (value below this leads either to collect more data or to
rethink which variable should be included or excluded). And Bartlett recommends the
accepting value less than .05. Bartlett’s test finds that the correlations, when taken
collectively are significant at .0001 level whereas measure of sampling adequacy looks at
the patterns between the variables.
Derivation of the factors is based on the perusal of correlation matrix results in retaining
only those components that fulfill the same criteria. The decision to choose the factor
loadings has been based on the criteria of sample size (factor loading between .3-.4 if the
sample ranges between 150 and 350). Since the sample size for the current study is 172,
so only the loadings above .30 have been considered for the study. For obtaining the
rotated factor matrix, Orthogonal rotation method viz. VARIMAX rotation has been used
which shows factor loadings for each variable onto each factor. In this matrix, only the
main factors have been displayed which are reliable & whose value is more than .3 and
the rest have been eliminated. After identifying the significant factor loadings, next step
is to study the communalities of the variables, representing the amount of variance
accounted for by the factor solution for each variable. It is generally assumed that
183
variable with communalities> .50 should be retained for the study. In the present analysis,
no variable could be found having communality <.50. Hence, finally, the structure of the
factors for the variables has been well-defined and the significant factors have been
selected and grouped together for labeling.
5.2.1) FACTOR ANALYSIS RESULTS FOR INDIVIDUAL INDUS TRIAL
SECTORS FOR THE YEAR 2007
A) Engineering Industry
For the Engineering industrial sector, the overall MSA value falls in the acceptable range
(above .50) with a value of .656 for KMO and .000 for Bartlett’s test (less than .5), these
measures indicate that the set of variables are appropriate for factor analysis.
Table 5.1: KMO and Bartlett's Test for Engineering Industry
Kaiser-Meyer-Olkin Measure of Sampling Adequacy .656
Approx. Chi-Square 1069.090
df 210 Bartlett's Test of Sphericity
Sig. .000
Factor analysis has yielded eight factors for Engineering Industry which represented
82.815% of the variance, of 21 variables deemed sufficient in terms of total variance
explained (solution should account for >60% variance). Table 5.2 summarises the
orthogonal solution resulting from VARIMAX rotation of the original twenty one
measures for Engineering industrial sector for the year 2007.
184
Table 5.2: Factor Analysis for Factors Affecting Dividend in Engineering Industry
for the Year 2007
Factors Factor Loadings
Eigen Value Percentage of Variance Explained
Cumulative Variance
Profitability and Investment Set
5.150 21.110 21.110
Net Profit Ratio .864 Return on Net worth .961 Return on Capital Employed
.871
Market to Book Value .650 Free Cash flow .549 Net Profit to Net worth Ratio
.956
Dividend Rate 3.781 17.862 38.972 Dividend Per Share .952 Dividend Per Share to Market Value
.876
Dividend Per Share to Face value
.930
Dividend Payout .948 Financial Soundness 2.307 12.460 51.431 Current Ratio .828 Debt Equity Ratio .725 Cash Holding .713 Solvency Ratio .858 Liquidity 1.524 7.555 58.986 Growth in Working Capital
.785
Company’s Age 1.306 6.678 65.664 Age .892 Earnings and Share Price Behavior
1.215 6.275 71.939
Share Price Behavior .694 Profit After Tax .569 Growth in EPS .512 Investment Opportunity 1.098 5.521 77.460 Tobin’s Q .893 Risk and Uncertainty 1.009 5.355 82.815 EPS Uncertainty .814
The factor 1 variables: “Net Profit Ratio”, “Return on Net worth”, “Return on Capital
Employed”, “Market to Book Value”, “Free Cash Flow” and “Net profit to Net worth
ratio” are interpreted under the construct “Profitability and Investment Set”. Factor 2 was
named as “Dividend Rate” and includes the variables “Dividend per Share”, “Dividend
185
Per share to Market Value”, “Dividend per share to Face Value” and “Dividend Payout”.
Factor 3 was named as “Financial Soundness” and includes variables “Current Ratio”,
“Debt Equity”, “Cash Holding” and “Solvency Ratio”. Factor 4 was named as “Liquidity”
and includes variables “Growth in Working Capital”. Factor 5 was named as “Company’s
Age” and includes variables “Age”. Factor 6 was named as “Earnings and Share Price
Behavior” and includes variables “Share Price Behavior”, “Profit after Tax” and “Growth
in Earnings per Share”. Factor 7 was named as “Investment Opportunity” and includes
variables “Tobin’s Q”. Factor 8 was named as “Risk and Uncertainty” and includes
variables “Earnings per Share Uncertainty”.
B) FMCG Industry
For the FMCG industrial sector, the overall MSA value falls in the acceptable range
(above .50) with a value of .504 for KMO and .000 for Bartlett’s test (less than .5), these
measures indicate that the set of variables are appropriate for factor analysis.
Table 5.3: KMO and Bartlett's Test for FMCG Industry
Kaiser-Meyer-Olkin Measure of Sampling Adequacy .504
Approx. Chi-Square 517.791
df 210 Bartlett's Test of Sphericity
Sig. .000
Factor analysis has yielded seven factors for FMCG sector which represented 75.5% of
the variance, of 21 variables deemed sufficient in terms of total variance explained
(solution should account for >60% variance). Table 5.4 summarises the orthogonal
186
solution resulting from VARIMAX rotation of the original twenty one measures for
FMCG industrial sector for the year 2007.
Table 5.4: Factor Analysis for Factors Affecting Dividend in FMCG Industry for
the Year 2007
Factors Factor Loadings
Eigen Value Percentage of Variance Explained
Cumulative Variance
Profitability and Investment Set
5.336 22.481 22.481
Net Profit Ratio .538 Return on Net worth .944 Return on Capital Employed
.955
Market to Book Value .797 Free Cash flow .688 Net Profit to Net worth Ratio
.939
Dividend Rate 2.732 11.211 33.691 Dividend Per Share .551 Dividend Per Share to Market Value
.536
Dividend Per Share to Face value
.911
Dividend Payout .544 Financial Soundness 2.182 11.182 44.874 EPS Uncertainty .855 Age .611 Debt-Equity Ratio .735 Profit After tax .710 Growth in Working Capital .527 Solvency Ratio .718 Investment Opportunity 1.690 8.291 53.164 Tobin’s Q .905 Liquidity 1.548 8.089 61.253 Current Ratio .542 Cash Holdings .836 Growth Rate 1.267 7.375 68.628 Growth in EPS .822 Share Price Movement 1.099 6.872 75.500 Share Price Behavior .525
The factor 1 variables: “Net Profit Ratio”, “Return on Net worth”, “Return on Capital
Employed”, “Market to Book Value”, “Free Cash Flow” and “Net profit to Net worth
Ratio” are interpreted under the construct “Profitability and Investment Set”. Factor 2
187
was named as “Dividend Rate” and includes the variables “Dividend per Share”,
“Dividend Per share to Market Value”, “Dividend per share to Face Value” and
“Dividend Payout”. Factor 3 was named as “Financial Soundness” and includes variables
“EPS Uncertainty”, “Age”, “Debt Equity”, “Profit after Tax”, “Growth in Working
Capital” and “Solvency Ratio”. Factor 4 was named as “Investment Opportunity” and
includes variable “Tobin’s Q”. Factor 5 was named as “Liquidity” and includes variables
“Current Ratio” and “Cash Holdings”. Factor 6 was named as “Growth Rate” and
includes variables “Growth in EPS”. Factor 7 was named as “Share Price Movement” and
includes variables “Share Price Behavior”.
C) IT Industry
For the IT industrial sector, the overall MSA value falls in the acceptable range (above
.50) with a value of .554 for KMO and .000 for Bartlett’s test (less than .5), these
measures indicate that the set of variables are appropriate for factor analysis.
Table 5.5: KMO and Bartlett's Test for IT Industry
Kaiser-Meyer-Olkin Measure of Sampling Adequacy .554
Approx. Chi-Square 632.765
df 210 Bartlett's Test of Sphericity
Sig. .000
Factor analysis has yielded seven factors for IT sector which represented 80.392% of the
variance, of 21 variables deemed sufficient in terms of total variance explained (solution
should account for >60% variance). Table 5.6 summarises the orthogonal solution
188
resulting from VARIMAX rotation of the original twenty one measures for IT industrial
sector for the year 2007.
Table 5.6: Factor Analysis for Factors Affecting Dividend in IT Industry for the
Year 2007
Factors Factor Loadings
Eigen Value Percentage of Variance Explained
Cumulative Variance
Profitability Position 5.475 22.637 22.637 Net Profit Ratio .940 Return on Net worth .629 Return on Capital Employed .670 Free Cash Flow .846 Net Profit to Net worth Ratio .650 Growth in Working Capital .778 Dividend Rate 3.274 11.999 34.636 Dividend Per Share .494 Dividend Per Share to Market Value
.419
Dividend Per Share to Face value
.852
Dividend Payout .418 Financial Soundness 2.365 11.179 45.815 Current Ratio .836 Cash Holding .746 Debt Equity .873 Solvency Ratio .593 Company’s Age 1.984 10.036 55.851 Age .764 Investment Opportunity 1.571 9.853 65.704 Market Value to Book Value .846 Tobin’s Q .891 Share Prices and Uncertainty
1.169 7.415 73.119
EPS Uncertainty .505 Share Price Behavior .720 Earnings and Growth Rate 1.044 7.273 80.392 Profit After Tax .864 Growth in EPS .898
The factor 1 variables: “Net Profit Ratio”, “Return on Net worth”, “Return on Capital
Employed”, “Market to Book Value”, “Free Cash Flow” , “Net profit to Net worth ratio”
and “Growth in Working Capital” are interpreted under the construct “Profitability
Position”. Factor 2 was named as “Dividend Rate” and includes the variables “Dividend
189
per Share”, “Dividend Per share to Market Value”, “Dividend per share to Face Value”
and “Dividend Payout”. Factor 3 was named as “Financial Soundness” and includes
variables “Current Ratio”, “Cash Holding”, “Debt Equity” and “Solvency Ratio”. Factor
4 was named as “Company’s Age” and includes variables “Age”. Factor 5 was named as
“ Investment Opportunity” and includes variables “Market Value to Book Value” and
“Tobin’s Q”. Factor 6 was named as “Share Prices and Uncertainty” and includes
variables “EPS Uncertainty” and “Share Price Behavior”. Factor 7 was named as
“Earnings and Growth Rate” and includes variables “Profit after Tax” and “Growth in
Earnings per Share”.
D) Textile Industry
For the Textiles industrial sector, the overall MSA value falls in the acceptable range
(above .50) with a value of .546 for KMO and .000 for Bartlett’s test (less than .5), these
measures indicate that the set of variables are appropriate for factor analysis.
Table 5.7: KMO and Bartlett's Test for Textiles Industry
Kaiser-Meyer-Olkin Measure of Sampling Adequacy .546
Approx. Chi-Square 655.154
df 210 Bartlett's Test of Sphericity
Sig. .000
Factor analysis has yielded seven factors for Textiles sector which represented 86.306%
of the variance, of 21 variables deemed sufficient in terms of total variance explained
(solution should account for >60% variance). Table 5.8 summarises the orthogonal
190
solution resulting from VARIMAX rotation of the original twenty one measures for
Textiles industrial sector for the year 2007.
Table 5.8: Factor Analysis for Factors Affecting Dividend in Textiles Industry for
the Year 2007
Factors Factor Loadings
Eigen Value Percentage of Variance Explained
Cumulative Variance
Profitability Position 5.109 23.449 23.449 Return on Net worth .928 Return on Capital Employed .851 Net Profit to Net worth Ratio .905 Profit After Tax .880 Growth in EPS .666 Financial Soundness 4.103 16.11 39.559 Growth in Working Capital .820 Net Profit Ratio .947 Cash Holdings .826 Solvency ratio .958 Investment and Risk 3.096 13.427 52.986 EPS Uncertainty .886 Tobin’s Q .762 Market Value to Book value .943 Dividend Rate 2.220 11.953 64.938 Dividend Per Share .890 DPS to Market Value .811 DPS to Face Value .713 Dividend Payout .780 Capital Structure and Share Price Behavior
1.317 8.000 72.938
Debt Equity .743 Share Price Behavior .754 Company’s Age 1.262 7.114 80.052 Age .798 Liquidity Position 1.110 6.254 86.306 Current Ratio .732 Free Cash Flow .581
The factor 1 variables “Return on Net worth”, “Return on Capital Employed”, “Net Profit
to Net worth”, “Market to Book Value”, “Profit after Tax” and “Growth in Earnings per
Share” are interpreted under the construct “Profitability Position”. Factor 2 was named as
“Financial Soundness” and includes the variables “Growth in Working Capital”, “Net
191
profit Ratio”, “Cash Holdings” and “Solvency Ratio”. Factor 3 was named as “Investment
and Risk” and includes variables “EPS Uncertainty”, “Tobin’s Q” and “Market Value to
Book Value”. Factor 4 was named as “Dividend Rate” and includes variables “Dividend
per Share”, “Dividend to Market Value”, “Dividend to Face Value” and “Dividend
Payout”. Factor 5 was named as “Capital Structure and Share Price Behavior” and
includes variables “Debt Equity Ratio” and “Share Price Behavior”. Factor 6 was named
as “Company’s Age” and includes variables “Age”. Factor 7 was named as “Liquidity
Position” and includes the variables “Current Ratio” and “Free Cash Flow”.
5.2.2) FACTOR ANALYSIS RESULTS FOR GROUPED DATA FOR THE YEAR
2007
The sampling adequacy tests have been conducted to know that whether the sample is
adequate or not. For the grouped data, the overall MSA value falls in the acceptable range
(above .50) with a value of .648 for KMO and .000 for Bartlett’s test (less than .5), these
measures indicate that the set of variables are appropriate for factor analysis.
Table 5.9: KMO and Bartlett's Test for Grouped Data
Kaiser-Meyer-Olkin Measure of Sampling Adequacy .648
Approx. Chi-Square 1982.956
df 210 Bartlett's Test of Sphericity
Sig. .000
Factor Analysis has resulted in retaining seven factors for the grouped data which
retained represented 68.771% of the variance, of 21 variables deemed sufficient in terms
of total variance explained (solution should account for >60% variance). Table 5.10
192
summarises the orthogonal solution resulting from VARIMAX rotation of the original
twenty one measures for the grouped data for the year 2007.
Table 5.10: Factor Analysis for Factors Affecting Dividend for Grouped Data for
the Year 2007
Factors Factor Loadings
Eigen Value Percentage of Variance Explained
Cumulative Variance
Profitability and Investment Set 4.037 17.519 17.519 Return on Net worth .956 Return on Capital Employed .887 Market Value to Book Value .644 Net Profit to Net worth Ratio .946 Profit After Tax .356 Dividend Rate 3.018 13.740 31.259 Dividend Per Share .902 Dividend per Share to Market Value
.735
Dividend per Share to Face Value .735 Dividend Payout .916 Financial Soundness 2.403 9.365 40.624 Net Profit Ratio .917 Current Ratio .730 Cash Holdings .622 Free Cash Flow .553 Solvency Ratio .926 Share Price Movement 1.465 8.229 48.853 Share Price Behavior .728 Capital Structure and Investment Opportunity
1.343 6.790 55.642
Debt-Equity Ratio .569 Tobin’s Q .709 Growth Rate 1.126 6.616 62.259 Growth in EPS .829 Growth in Working Capital .414 Company’s Age and Uncertainty 1.049 6.512 68.771 EPS Uncertainty .614 Age .769
The factor 1 variables “Return on Net worth”, “Return on Capital Employed”, “Market to
Book Value”, “Net Profit to Net worth” and “Profit after Tax” are interpreted under the
construct “Profitability and Investment Set”. Factor 2 was named as “Dividend Rate” and
includes variables “Dividend per Share”, “Dividend to Market Value”, “Dividend to Face
193
Value” and “Dividend Payout”. Factor 3 was named as “Financial Soundness” and
includes the variables “Net profit Ratio”, “Current Ratio”, “Cash Holdings”, “Free Cash
Flow” and “Solvency Ratio”. Factor 4 was named as “Share Price Movement” and
includes variables “Share Price Behavior”. Factor 5 was named as “Capital Structure
and Investment Opportunity” and includes variables “Debt-Equity Ratio” and “Tobin’s
Q”. Factor 6 was named as “Growth Rate” and includes the variables “Growth Rate in
EPS” and “Growth Rate in Working Capital”. Factor 7 was named as “Company’s Age
and Uncertainty” and includes the variables “EPS Uncertainty” and “Age”.
5.2.3) FACTOR ANALYSIS RESULTS FOR INDIVIDUAL INDUS TRIAL
SECTORS FOR THE YEAR 2008
A) Engineering Industry
For the Engineering industrial sector, the overall MSA value falls in the acceptable range
(above .50) with a value of .671 for KMO and .000 for Bartlett’s test (less than .5), these
measures indicate that the set of variables are appropriate for factor analysis.
Table 5.11: KMO and Bartlett's Test for Engineering Industry
Kaiser-Meyer-Olkin Measure of Sampling Adequacy .671
Approx. Chi-Square 770.271
df 210 Bartlett's Test of Sphericity
Sig. .000
Factor analysis has yielded six factors for Engineering sector which represented 68.679%
of the variance, of 21 variables deemed sufficient in terms of total variance explained
(solution should account for >60% variance). Table 5.12 summarises the orthogonal
194
solution resulting from VARIMAX rotation of the original twenty one measures for the
Engineering sector for the year 2008.
Table 5.12: Factor Analysis for Factors Affecting Dividend in Engineering Industry
for the Year 2008
Factors Factor Loadings
Eigen Value Percentage of Variance Explained
Cumulative Variance
Profitability Position 5.209 18.222 18.222 Net Profit Ratio .876 Return on Net worth .873 Return on Capital Employed
.785
Free Cash flow .649 Net Profit to Net worth Ratio
.907
Financial Soundness 3.163 14.316 32.538 Current Ratio .885 Debt Equity Ratio .613 Cash Holding .854 Growth in Working Capital
.582
Solvency Ratio .910 Dividend Rate 1.982 11.825 44.363 Dividend Per Share .818 Dividend Per Share to Market Value
.768
Dividend Per Share to Face value
.734
Dividend Payout .462 Company’s Age and Profitability
1.696 10.312 54.675
Age .623 Profit After Tax .488 Investment Opportunity 1.259 8.427 63.102 Market Value to Book Value
.776
Tobin’s Q Earnings and Share Price Behavior
1.114 5.578 68.679
Share Price Behavior .489 Growth in EPS .467
The factor 1 variables: “Net Profit Ratio”, “Return on Net worth”, “Return on Capital
Employed”, “Free Cash Flow” and “Net profit to Net worth ratio” are interpreted under
195
the construct “Profitability Position”. Factor 2 was named as “Financial Soundness” and
includes variables “Current Ratio”, “Debt Equity”, “Cash Holding”, “Growth in Working
Capital” and “Solvency Ratio”. Factor 3 was named as “Dividend Rate” and includes the
variables “Dividend per Share”, “Dividend Per share to Market Value”, “Dividend per
share to Face Value” and “Dividend Payout”. Factor 4 was named as “Company’s Age
and Profitability” and includes variables “Age” and “Profit after Tax”. Factor 5 was
named as “Investment Opportunity” and includes variable “Market Value to Book Value”
and “Tobin’s Q”. Factor 6 was named as “Earnings and Share Price Behavior” and
includes variables “Share Price Behavior”, and “Growth in Earnings per Share”.
B) FMCG Industry
For the FMCG industrial sector, the overall MSA value falls in the acceptable range
(above .50) with a value of .556 for KMO and .000 for Bartlett’s test (less than .5), these
measures indicate that the set of variables are appropriate for factor analysis.
Table 5.13: KMO and Bartlett's Test for FMCG Industry
Kaiser-Meyer-Olkin Measure of Sampling Adequacy .556
Approx. Chi-Square 514.505
df 210 Bartlett's Test of Sphericity
Sig. .000
Factor analysis has yielded eight factors for FMCG sector which represented 80.717% of
the variance, of 21 variables deemed sufficient in terms of total variance explained
(solution should account for >60% variance). Table 5.14 summarises the orthogonal
196
solution resulting from VARIMAX rotation of the original twenty one measures for the
FMCG sector for the year 2008.
Table 5.14: Factor Analysis for Factors Affecting Dividend in FMCG Industry for
the Year 2008
Factors Factor Loadings
Eigen Value Percentage of Variance Explained
Cumulative Variance
Profitability and Investment Opportunity
4.723 20.505 20.505
Net Profit Ratio .612 Return on Net worth .947 Return on Capital Employed .950 Market to Book Value .763 Net Profit to Net worth Ratio .951 Capital Structure and Risk 2.830 10.531 31.036 Debt-Equity Ratio .839 Solvency Ratio .771 Liquidity 2.319 10.069 41.105 Current Ratio .710 Cash Holding .758 Growth in Working Capital .850 Dividend Rate 2.027 9.757 50.862 Dividend Per Share .594 Dividend Per Share to Market Value
.698
Dividend Per Share to Face value
.911
Dividend Payout .907 Earnings and Uncertainty 1.539 9.205 60.067 EPS Uncertainty .830 Profit After tax .789 Company’s Age and Risk 1.355 8.439 68.506 Age .513 Tobin’s Q .908 Financial Soundness 1.109 6.262 74.768 Free Cash Flow .448 Growth in EPS .862 Share Price Movement 1.048 5.949 80.717 Share Price Behavior .552
The factor 1 variables: “Net Profit Ratio”, “Return on Net worth”, “Return on Capital
Employed”, “Market to Book Value” and “Net profit to Net worth Ratio” are interpreted
under the construct “Profitability and Investment Opportunity”. Factor 2 was named as
197
“Capital Structure and Risk” and includes the variables “Debt-Equity Ratio”, “Solvency
Ratio”, “Dividend per share to Face Value” and “Dividend Payout”. Factor 3 was named
as “Liquidity” and includes variables “Current Ratio”, “Cash Holdings” and “Growth in
Working Capital. Factor 4 was named as “Dividend Rate” and includes the variables
“Dividend per Share”, “Dividend Per share to Market Value”, “Dividend per share to
Face Value” and “Dividend Payout”. Factor 5 was named as “Earnings and Uncertainty”
and includes variables “EPS Uncertainty” and “Profit after Tax”. Factor 6 was named as
“Company’s Age and Risk” and includes variables “Age” and “Tobin’s Q”. Factor 7 was
named as “Financial Soundness” and includes variables “Free Cash Flow” and “Growth
in EPS”. Factor 8 was named as “Share Price Movement” and includes variables “Share
Price Behavior”.
C) IT Industry
For the IT industrial sector, the overall MSA value falls in the acceptable range (above
.50) with a value of .616 for KMO and .000 for Bartlett’s test (less than .5), these
measures indicate that the set of variables are appropriate for factor analysis.
Table 5.15: KMO and Bartlett's Test for IT Industry
Kaiser-Meyer-Olkin Measure of Sampling Adequacy .616
Approx. Chi-Square 535.094
df 210 Bartlett's Test of Sphericity
Sig. .000
Factor analysis has yielded seven factors for IT sector which represented 75.881% of the
variance in IT sector, of 21 variables deemed sufficient in terms of total variance
198
explained (solution should account for >60% variance). Table 5.16 summarises the
orthogonal solution resulting from VARIMAX rotation of the original twenty one
measures for the IT sector for the year 2008.
Table 5.16: Factor Analysis for Factors Affecting Dividend in IT Industry for the Year 2008
Factors Factor
Loadings Eigen Value Percentage of
Variance Explained Cumulative
Variance Profitability Position 5.249 19.166 19.166 Net Profit Ratio .954 Return on Net worth .912 Return on Capital Employed .729 Free Cash Flow .581 Net Profit to Net worth Ratio .901 Dividend Rate 2.945 11.166 30.332 Dividend Per Share .735 Dividend Per Share to Market Value
.897
Dividend Per Share to Face value .821 Dividend Payout .637 Liquidity 2.135 10.485 40.817 Cash Holding .921 Financial Soundness 1.857 10.456 51.273 Current Ratio .879 Growth in Working Capital .559 Solvency Ratio .518 Leverage and Risk 1.354 9.760 61.033 EPS Uncertainty .921 Debt Equity .572 Earnings and Investment Opportunity
1.264 8.010 69.043
Tobin’s Q .730 Market Value to Book Value .610 Growth in EPS .799 Share Prices and Profits 1.131 6.839 75.881 Share Price Behavior .685 Profit After Tax .778
The factor 1 variables: “Net Profit Ratio”, “Return on Net worth”, “Return on Capital
Employed”, “Free Cash Flow” and “Net profit to Net worth Ratio” are interpreted under
the construct “Profitability Position”. Factor 2 was named as “Dividend Rate” and
includes the variables “Dividend per Share”, “Dividend Per share to Market Value”,
199
“Dividend per share to Face Value” and “Dividend Payout”. Factor 3 was named as
“Liquidity” and includes variable “Cash Holding”. Factor 4 was named as “Financial
Soundness” and includes variables “Current Ratio”, “Growth in Working Capital” and
“Solvency Ratio”. Factor 5 was named as “Leverage and Uncertainty” and includes
variables “Debt-Equity Ratio” and “EPS Uncertainty”. Factor 6 was named as “Earnings
and Investment Opportunity” and includes variables “Tobin’s Q”, “Market Value to Book
Value” and “Growth in Earnings per Share”. Factor 7 was named as “Share Prices and
Profits” and includes variables “Share Price Behavior” and “Profit after Tax”.
D) Textile Industry
For the Textile industrial sector, the overall MSA value falls in the acceptable range
(above .50) with a value of .512 for KMO and .000 for Bartlett’s test (less than .5), these
measures indicate that the set of variables are appropriate for factor analysis.
Table 5.17: KMO and Bartlett's Test for Textile Industry
Kaiser-Meyer-Olkin Measure of Sampling Adequacy .512
Approx. Chi-Square 499.187
df 210 Bartlett's Test of Sphericity
Sig. .000
Factor analysis has yielded seven factors for Textile sector which represented 68
84.604% of the variance, of 21 variables deemed sufficient in terms of total variance
explained (solution should account for >60% variance). Table 5.18 summarises the
orthogonal solution resulting from VARIMAX rotation of the original twenty one
measures for the Textile sector for the year 2008.
200
Table 5.18: Factor Analysis for Factors Affecting Dividend in Textiles Industry for
the Year 2008
Factors Factor Loadings
Eigen Value Percentage of Variance Explained
Cumulative Variance
Company’s Age and Profitability Position
6.305 26.809 26.809
Net Profit Ratio .956 Return on Net worth .932 Return on Capital Employed .756 Age .810 Net Profit to Net worth Ratio .923 Profit After Tax .911 Financial Soundness 3.289 13.759 40.568 Current Ratio .807 Debt-Equity Ratio .622 Solvency Ratio .882 Dividend Rate 2.346 13.525 54.094 Dividend Per Share .926 DPS to Market Value .590 DPS to Face Value .919 Dividend Payout .593 Liquidity Growth 2.052 8.176 62.269 Growth in Working Capital .854 Earnings and Uncertainty 1.664 8.007 70.276 EPS Uncertainty .809 Growth in EPS .627 Liquidity Position 1.067 7.563 77.838 Cash Holding .645 Free Cash Flow .830 Investment Opportunity and Share Price Movement
1.044 6.766 84.604
Share Price Behavior .908 Market Value to Book Value .651 Tobin’s Q .535
The factor 1 variables “Net Profit Ratio”, “Return on Net worth”, “Return on Capital
Employed”, “Age”, “Net Profit to Net worth” and “Profit after Tax” are interpreted under
the construct “Company’s Age and Profitability Position”. Factor 2 was named as
“Financial Soundness” and includes the variables “Current ratio”, “Debt-Equity Ratio”,
and “Solvency Ratio”. Factor 3 was named as “Dividend Rate” and includes variables
“Dividend per Share”, “Dividend to Market Value”, “Dividend to Face Value” and
201
“Dividend Payout”. Factor 4 was named as “Liquidity Growth” and includes variable
“Growth in Working Capital”. Factor 5 was named as “Earnings and Uncertainty” and
includes variables “EPS Uncertainty” and “Growth in EPS”. Factor 6 was named as
“Liquidity Position” and includes the variables “Cash Position” and “Free Cash Flow”.
Factor 7 was named as “Investment Opportunity and Share Price Movement” and
includes the variables “Share Price Behavior”, “Market Value to Book Value” and
“Tobin’s Q”.
5.2.4) FACTOR ANALYSIS RESULTS FOR GROUPED DATA FOR THE YEAR
2008
The principal component analysis using VARIMAX rotation of twenty one variables
pertaining to the grouped data for the four industrial sectors viz. Engineering, FMCG, IT
and Textiles, has led to the extraction of numerous factors. The tests of sampling
adequacy have been conducted to know that whether the sample is adequate or not. For
the grouped data, the overall MSA value falls in the acceptable range (above .50) with a
value of .703 for KMO and .000 for Bartlett’s test (less than .5), these measures indicate
that the set of variables are appropriate for factor analysis.
Table 5.19: KMO and Bartlett's Test for Grouped Data
Kaiser-Meyer-Olkin Measure of Sampling Adequacy .703
Approx. Chi-Square 1458.408
df 210 Bartlett's Test of Sphericity
Sig. .000
202
Factor Analysis has resulted in retaining seven factors for the grouped data which
represented 64.072% of the variance, of 21 variables deemed sufficient in terms of total
variance explained (solution should account for >60% variance). Table 5.20 summarises
the orthogonal solution resulting from VARIMAX rotation of the original twenty one
measures for the grouped data for the year 2008.
Table 5.20: Factor Analysis for Factors Affecting Dividend for Grouped Data for
the Year 2008
Factors Factor Loadings
Eigen Value Percentage of Variance Explained
Cumulative Variance
Profitability Position 4.487 18.251 18.251 Net Profit Ratio .656 Return on Net worth .899 Return on Capital Employed .823 Net Profit to Net worth Ratio .909 Financial Soundness 2.465 11.515 29.765 Current Ratio .850 Debt-Equity Ratio .487 Cash Holding .791 Solvency Ratio .808 Dividend Rate and EPS 1.855 9.948 39.713 EPS Uncertainty .689 Dividend Per Share .694 Dividend per Share to Market Value
.790
Dividend per Share to Face Value .546 Dividend Payout .623 Investment Opportunity 1.428 6.758 46.471 Market Value to Book Value .557 Tobin’s Q .724 Liquidity 1.147 6.555 53.025 Free Cash Flow .558 Growth in Working Capital .321 Share Price Movement 1.057 5.645 58.670 Share Price Behavior .750 Growth in EPS .795 Company’s Age and Profitability 1.017 5.401 64.072 Age .511 Profit After Tax .733
203
The factor 1 variables “Return on Net worth”, “Return on Capital Employed”, “Net Profit
to Net worth” and “Profit after Tax” are interpreted under the construct “Profitability
Position”. Factor 2 was named as “Financial Soundness” and includes the variables “Net
profit Ratio”, “Current Ratio”, “Debt-Equity Ratio”, “Cash Holdings” and “Solvency
Ratio”. Factor 3 was named as “Dividend Rate and EPS” and includes variables “EPS
Uncertainty”, “Dividend per Share”, “Dividend to Market Value”, “Dividend to Face
Value” and “Dividend Payout”. Factor 5 was named as “Investment Opportunity” and
includes variables “Market Value to Book Value” and “Tobin’s Q”. Factor 5 was named
as “Liquidity” and includes the variables “Free Cash Flow” and “Growth Rate in
Working Capital”. Factor 6 was named as “Share Price Movement” and includes
variables “Share Price Behavior”. Factor 7 was named as “Company’s Age and
Profitability” and includes the variables “Age” and “Profit after Tax”.
5.3 MAIN FINDINGS
The results of the study presented above show that the determinants of dividend
identified in the literature apply equally to Indian industries under study. More
importantly, the results are an important first step in consolidating our understanding of
the factors affecting dividend decision of industries in India in general. The
“Profitability” factor is related to the extent of profits that accrue to the industry in order
to take a decision on declaration of dividend. Further, it also influences the opportunities
for future investments. The “Dividend Rate” factor is related to the dividend declared by
the companies. The determinants in this group include the dividend per share, dividend
payout, and relationship of dividend with market value and face value of shares. The
204
“Financial Soundness” factor is related with the creditworthiness of the industries which
is influenced by solvency position and cash position. Further “Liquidity” factors are also
one of the major factors affecting dividend in terms of free cash holdings and current
ratio. An important factor “Share Price Movement” also influences the dividend decision
in terms of the relationship of dividend with behavior of the share prices. Further,
“ Investment Opportunity” factor also has emerged as an important factor presenting the
trade-off between the dividend declaration and the future investment opportunities set.
The key implication of these findings is that the Indian industries decision of dividend is
influenced by these factors.
REFERENCES
1 Allen, F., Bernardo, A. and Welch, I., 2000, “A Theory Of Dividends Based On Tax
Clienteles”, Journal of Finance, Vol. 55, pp. 2499-2536
2 Lintner, J., 1956, “Distribution of Income of Corporation among Dividends Retained
Earning and Taxes”, American Economic Review, Vol. 46, pp. 97-133
3 Ramcharran, H., 2001, “An Empirical Model of Dividend Policy in Emerging
Equity Markets”, Emerging Markets Quarterly, Vol. 5, pp. 39-49
4 Easterbrook, F.H., 1984, “Two Agency-Cost Explanations of Dividends”, American
Economic Review, Vol. 74, Issue-4, pp. 650-659
5 Jensen, M., 1986, “Agency Costs of Free Cash Flow, Corporate Finance, and
Takeovers”, American Economic Review, Vol. 76, pp. 323-329
6 Crutchley, C. E. and Hansen, R., 1989, “A Test of Agency Theory of Managerial
Ownership, Corporate Leverage, and Corporate Dividends”, Financial Management,
Vol. 18, No. 4
7 Smith, C. W., and Watts, R., "The Investment Opportunity Set and Corporate
Financing, Dividend, and Compensation," Journal of Financial Economics, Vol. 32,
205
pp. 263-292
8 Jensen, G., Donald, R., Solberg, P., and Zorn, T. S., 1992, “Simultaneous
Determination of Insider Ownership, Debt and Dividend Policies”, Journal of
Financial and Quantitative Analysis, Vol. 27, Issue-2, pp. 247-263
9 Grullon, G., Michaely, R. and Bhaskaran S., 2002, “Are Dividend Changes a Sign of
Firm Maturity?” Journal of Business, Vol. 75, Issue-3, pp. 387-424
10 Brav, A., Graham, J., Harvey, C. and R. Michaely, 2005, “Payout Policy in the 21st
Century”, Journal of Financial Economics, Vol. 77, pp. 483-527
11 Rozeff, M.S., 1982, “Growth, Beta And Agency Costs As Determinants Of
Dividend Payout Ratios”, Journal of Financial Research, Vol. 5, Issue-3, pp. 249-
259
12 Easterbrook, F.H., 1984, op.cit.
13 Jensen, G., Donald R., Solberg, P., and Zorn, T. S., 1992, op.cit.
14 Easterbrook, F.H., 1984, op.cit.
15 Rozeff, M.S., 1982, op.cit.
16 Lintner, J., 1956, op.cit.