Macroeconomic resilience to socioeconomic challenges and corporate stability in the automotive industry: impact on dividend policy

Abstract

The study explains the relationship between macroeconomic and firm-affecting variables with dividend payout policy in the Indian automobile firms. A comprehensive dataset covering 18 Indian automobile manufacturing companies listed on the Bombay Stock Exchange (BSE) Auto Index spanning from March 2015 to March 2024, covering a ten-year period, is being analyzed. The study employs a panel data regression model to investigate the socioeconomic challenges with determinants of dividend payout. The study applies Ordinary Least Squares (OLS) as a baseline model and employs advanced econometric techniques — Two-Stage Least Squares (2SLS) and the Generalized Method of Moments (GMM) — which checks potential endogeneity with improvement in the robustness of the results. In addition to the above methods, Tobin’s Q is applied to check the dividend payout being impacted by firm value. Model validity is ensured through various tests: Wald test (joint significance) and Hansen J-test (instrument validity). To check multicollinearity, autocorrelation, and heteroskedasticity, the following tests are used respectively: Variance Inflation Factor (VIF), Durbin-Watson test, Breusch-Pagan test, and later AR (2) test in GMM to check second-order autocorrelation. Robust standard errors are used to enhance inference reliability. The research findings highlighted the various socioeconomic challenges that affect the profitability, ownership, and macroeconomic stability and how significantly they influence dividend payout, with the GMM model offering the most consistent results. The research findings guide various policymakers, the automobile industry body, climate researchers, the governments, the central banks, auto manufacturers, investors, shareholders, and financial practitioners, helping in appropriate financial decision-making.