Impact of IFRS 16 on dividend payout: evidence from India

PurposeThe study aims to investigate how the adoption of IFRS 16 has influenced firms' dividend payout policies and how this relationship is impacted by varying levels of debt and ownership concentration.Design/methodology/approachGiven the phased manner implementation of IFRS 16 in India, the authors employed Difference-in-Differences (DiD) methodology for examining the issue on the sample of 29,870 Indian firms' observations over a period of six years commencing from 2017. Robustness checks are conducted using alternative measurement methodologies, including entropy balancing techniques.FindingsOur results exhibit the fact that dividend payout ratios of Indian firms have been increased after the adoption of IFRS 16, indicating a reduction in information asymmetry. Further, the impact of IFRS 16 on dividend payouts is more pronounced for lease-intensive firms, aligning with our methodology's focus on lease intensive firms. High-leverage firms exhibit a contrasting trend, where dividend payouts decrease significantly supporting capital structure theory, which emphasizes maintaining a balance between debt and equity. In addition, we find that ownership concentration in few hands dominates this relationship, as we find that relative to non-family firms, the positive impact of IFRS 16 on dividend payout is more pronounced among family firms, indicating that increased transparency under the new standard empowers minority shareholders.Originality/valueThis research contributes to the literature by providing empirical evidence on the impact of IFRS 16 adoption on dividend policies within the Indian context. Specifically, it highlights how accounting reforms affect shareholder wealth by showing how firms change dividend policies, particularly in lease-intensive industries. These findings are particularly valuable for shareholders and academics in assessing how financial reporting changes influence corporate payout strategies. In addition, the study highlights the economic consequences of change in accounting standards, offering critical insights into how these changes affect shareholder value and corporate financial management.