Review Reports - Impact of Financial Distress on the Dividend Policy of Banks in India

Round 1

Reviewer 1 Report

Dears, first of all it was a pleasure to reading your paper. Financial Distress is an interesting topic in any economy, especially considering its relationship with dividend policy.

On the other hand, the relationship between dividend policy and financial distress has been studied since the 1990s. In this regard, I could not find any explicit reason in your introduction in order to make the reader understand how your paper can contribute to the state of the art on the topic.

According to the authors, “it is necessary to conduct research by investigating the dividend distribution policy's association with financial distress by involving the Indian banking sector” because “all the existing studies conducted among different countries may have adopted different strategies, leading to different outcomes” and “the Indian economy is currently thought to be the one with the fastest rate of growth worldwide”. However, this argument is not valid to sustain the construction of a paper for the purpose of delivering relevant contributions to existing literature.

I'm not saying that the paper does not present relevant contributions. I'm just saying that the way it's being presented suggests it. In my opinion, the way it is formatted should be modified. In the introduction, all the focus should be on shareholder activism, because this is the element that has the potential to contribute to what already exists in the literature on this theme (regardless of being in different countries, in different sectors and with different methodologies). We already know that financial distress impacts the distribution of dividends since DeAngelo and DeAngelo (1990). That’s my point.

The same I say for section 2. There's nothing new in H1. The restructuring of the text should be all upon H2, so that H1 is secondary throughout the paper context.

In methodological terms, I believe that robustness tests need to be carried out using alternative models of financial distress, other than Altman’s. There are several in the literature. If the results are supported by other models, the findings will become more robust. In addition, it is mandatory to expand the methodology by making clear not only the calculation references but also how to calculate each variable (e.g. how sha_index was calculated? Using which database? What makes up this index?).

Regarding to your results, I can find some outliers. Considering that the authors do not comment on this, I think that there may be bias in the coefficients.

You can take the t statistic out of table 4. The asterisks are enough. The way it is differs from the international standard (or without t statistics, or with the statistic below the coefficient number). I suggest that the authors use *, ** and *** for 10%, 5% and 1% significance level in the tables. Tables will become more informative and aligned with the international standard.

I also see another relevant limitation: there is no fixed effect control for variation in time. Considering that the sample includes 10 years, I would expect the effect of time to influence the variance of the dependent variable.

Considering that the Zscore coefficients (1 and 2) are practically equal to zero, I think you should explain in footnote that those coefficients are very low and close to zero because of the way the dependent variable is measured (also with numbers close to zero).

I liked the robustness tests and, as I said, it might be interesting for you to include models other than the Altman’s model.

The discussion section practically does not discuss the results in the light of the state-of-the-art literature. It appears to be more of a generic paragraph that repeats the results presented in the previous section than a robust discussion itself, which in turn should: i) position shortly what exists in the previous literature; ii) include the paper findings in this context; iii) discuss the implications of the findings, considering what exists so far on the topic. This section can also improve a lot. The same I can say for the conclusions. In both cases, as well as in much of the paper, the text appears to be an adjustment of a master's or doctorate dissertation.

Author Response

Reviewer -1

Reviewer Comment

English language and style are fine/minor spell check required

Author Response

Thank you very much for your valuable suggestion to improve the manuscript.

Reviewer Comment

Does the introduction provide sufficient background and include all relevant references? - MUST BE IMPROVED

Author Response

We have now updated the Introduction according to the reviewer’s suggestion.

Reviewer Comment

Are all the cited references relevant to the research? - MUST BE IMPROVED

Author Response

We have now updated the literature according to the reviewer’s suggestion.

Reviewer Comment

Is the research design appropriate? - MUST BE IMPROVED

Author Response

We have now added the conceptual model to demonstrate the research design and also rearranged the manuscript to clearly understand it.

Reviewer Comment

Are the methods adequately described? - CAN BE IMPROVED

Author Response

We have now updated the data and methodology sections (section 3).

Reviewer Comment

Are the results clearly presented? - MUST BE IMPROVED

Author Response

We have now updated the results sections (section 4).

Reviewer Comment

Are the conclusions supported by the results? - MUST BE IMPROVED

Author Response

We have now updated the conclusion (section 6).

Reviewer Comment

Dears, first of all it was a pleasure to reading your paper. Financial Distress is an interesting topic in any economy, especially considering its relationship with dividend policy.

Author Response

Thank you for pointing this out. We agree with you that there exists numerous studies on examining the the relationship between dividend policy and financial distress. However, the researches on their relationship considering the moderating effect of shareholders’ activisms rarely exists particularly in Indian banks context. Therefore, we believe that the current study notably contributes to the existing literature through its novel evidence on the relationship between dividend policy and financial distress.

Reviewer Comment

Author Response

Thank you for highlighting this issue. Banks in India or in any other country are the backbone of the economy. Banks handle majority of India’s financial system. If financial distress exists for financial firms particularly banks and if it leads to bank failure, this situation will not only affect the bank, but it can drastically impact the whole financial system of the economy. Moreover, the dividend policy of banks has a key importance for maintaining its reputation among the investors. In addition, the shareholders activism is shareholders participation to affect the operation of an organization. SHA can influence both the operations of banks and the dividend distribution policy (Rastogi et al., 2022). However, the role of SHA on the association of FD and dividend policy is not yet investigated in Indian context. Therefore, a connection between banks financial stability and dividend policy needs to be explored particularly under the influence of SHA. Hence, we believe that this study serves the purpose of delivering relevant contributions to existing literature by considering banks in India.

Reviewer Comment

The same I say for section 2. There's nothing new in H1. The restructuring of the text should be all upon H2, so that H1 is secondary throughout the paper context.

Author Response

Thank you very much for your valuable suggestion. We have now updated Introduction and Literature Review as per your suggestion.

Reviewer Comment

Author Response

Thank you very much for the suggestion. For the robustness test , we have followed multi model approach following Kanoujiya et al. (2022). This includes two variants of Altman Zscores which are quite different in calculation (discussed in appendix). Both Zscores have different coefficients for the financial ratios in their multi discriminant models. Apart from having two distress scores, the linear, nonlinear, and interaction effects are observed to find the association of div and FD. Hence, we have a total of six models. Hence, we believe that two variants are sufficient to test the robustness of the results. Furthermore, we believe that including other distress score may create more confusion in the the study.

Reviewer Comment

Regarding to your results, I can find some outliers. Considering that the authors do not comment on this, I think that there may be bias in the coefficients.

I liked the robustness tests and, as I said, it might be interesting for you to include models other than the Altman’s model.

Author Response

Thank you for pointing this out. We have performed all the required diagnostics test for consistency of specifiefied models. We have taken demean values of the main explanatory variables to deal with outlier biasedness. Therefore, we believe the results are unbiased.

We have improved the tables accordingly.

We have applied Hausman test to ensure the best fit model out of fixed effect and random effect. In all cases , we have found fixed effect model is suitable and the results are estimated accordingly.

Thank you for your suggestion we have put the note in the table 4 mentioning the same.

Thank you very much for the suggestion. For the robustness test , we have followed multi model approach following Kanoujiya et al. (2022). This includes two variants of Altman Zscores which are quite different in calculation (discussed in appendix). Both Zscores have different coefficients for the financial ratios in their multi discriminant models. Apart from having two distress scores, the linear, nonlinear, and interaction effects are observed to find the association of div and FD. Hence, we have a total of six models. Hence, we believe that two variants are sufficient to test the robustness of the results. Furthermore, we believe that including other distress score may create more confusion in the the study.

Reviewer Comment

Author Response

Thank you very much for your valuable suggestion. We have now improved the Discussion (section 5) and Conclusion (section 6) in the manuscript.

Author Response File: Author Response.pdf

Reviewer 2 Report

1. This paper takes India as the research object, and repeatedly emphasizes the rapid growth of the Indian economy. I would like to see more background information and statistics about it. In particular, the development and importance of the banking industry in India should be further addressed.

2. The table format in the paper needs improvements. For example, the number of decimal points should be uniform, and some text formats are inconsistent.

3. Please rewrite the regression equations with an Equation Editor in word.

4. The case of some journal names in the reference is inconsistent. Please check.

Author Response

Reviewer - 2

Reviewer Comment

English language and style are fine/minor spell check required

Author Response

Thank you very much for your valuable suggestion to improve the manuscript.

Reviewer Comment

Does the introduction provide sufficient background and include all relevant references? - YES

Author Response

Thank you for this.

Reviewer Comment

Are all the cited references relevant to the research? - YES

Author Response

Thank you for this.

Reviewer Comment

Is the research design appropriate? – YES

Author Response

Thank you for this.

Reviewer Comment

Are the methods adequately described? – YES

Author Response

Thank you for this.

Reviewer Comment

Are the results clearly presented? – Can be improved

Author Response

Thank you for your valuable suggestion. We have updated the Results section (Section 4) accordingly.

Reviewer Comment

Are the conclusions supported by the results? – YES

Author Response

Thank you for this.

Reviewer Comment

This paper takes India as the research object, and repeatedly emphasizes the rapid growth of the Indian economy. I would like to see more background information and statistics about it. In particular, the development and importance of the banking industry in India should be further addressed.

Author Response

Thank you for your valuable suggestion. We have updated the Introduction accordingly.

Reviewer Comment

The table format in the paper needs improvements. For example, the number of decimal points should be uniform, and some text formats are inconsistent.

Author Response

Thank you for your valuable suggestion. We have updated the tables accordingly.

Reviewer Comment

Please rewrite the regression equations with an Equation Editor in word.

Author Response

Thank you for your valuable suggestion. We have now written the equations in Equation editor.

Reviewer Comment

The case of some journal names in the reference is inconsistent. Please check.

Author Response

Thank you for pointing this out. We have now improved the citations and references in the manuscript.

Author Response File: Author Response.pdf

Reviewer 3 Report

Referee´s report on “Impact of Financial Distress on the dividend policy of banks in India”

January 9, 2023

The submitted paper assesses the impact of financial distress on the dividend policy of a sample of banks in India between 2010 and 2019, and examines the relationship between financial distress and dividend policy under the influence of shareholder activism. To do this, the paper uses static panel data models.

· At the beginning of the abstract, it should say “The present study primarily examines the impact of financial distress (FD) on the dividend policy of 33 banks working in the Indian economy from 2010 to 2019.

· Mention in the Introduction why this work is relevant and highlight how it differs from the current literature on the subject

· The following reference is incorrect

Ph, Y. H. K., Rhim, J. C., & Friesner, D. L. 2007. Interrelationships among capital structure, dividends, and ownership: evidence from South Korea. Multinational Business Review 15: 25-42.

It should be

Kim, Y. H., Rhim, J. C., & Friesner, D. L. 2007. Interrelationships among capital structure, dividends, and ownership: evidence from South Korea. Multinational Business Review 15: 25-42

Check all references in the Bibliography.

· Instead of writing “As per the values presented in table 3, the correlation coefficients amongst the variables are not high.”, it should be written “According to the values presented in table 3, the correlation coefficients amongst the variables are not high.”.

· Provide insight into why quadratic models are proposed.

· Mention the econometric software being used.

· Omit initial in names in references. For instance, instead of writing “(Joshi, 2012; Sanan, N.K., 2019; Ph YHK et al., 2007; Chughtai et al., 2014, and many more)”, it should be s (Joshi, 2012; Sanan, 2019; KIM et al., 2007; Chughtai et al., 2014, and many more). Check all references throughout the paper.

· Tables 5 and 6 need more explanation about the empirical findings.

· The first paragraph after section 3.3 on Descriptive Statistics and Correlation Matrix is somewhat confusing, a clearer explanation is needed.

· Expand the explanation in the Conclusions on the fact that the influence of the shareholder activism is significant in the association between FD and dividends.

Author Response

Reviewer -3

Reviewer Comment

Moderate English changes required

Author Response

Thank you very much for your valuable suggestion to improve the manuscript.

Reviewer Comment

Does the introduction provide sufficient background and include all relevant references? - Can be improved

Author Response

We have now updated the Introduction according to the reviewer’s suggestion.

Reviewer Comment

Are all the cited references relevant to the research? - YES

Author Response

Thank you for this.

Reviewer Comment

Is the research design appropriate? – Can be improved

Author Response

We have now added the conceptual model to demonstrate the research design and also rearranged the manuscript to clearly understand it.

Reviewer Comment

Are the methods adequately described? – Can be improved

Author Response

We have now updated the data and methodology sections (section 3).

Reviewer Comment

Are the results clearly presented? – Can be improved

Author Response

We have now updated the results sections (section 4).

Reviewer Comment

Are the conclusions supported by the results? – Can be improved

Author Response

We have now updated the conclusion (section 6).

Reviewer Comment

Author Response

We have used static panel data model after having supporting evidence on applying several diagnostics tests.

Reviewer Comment

the beginning of the abstract, it should say “The present study primarily examines the impact of financial distress (FD) on the dividend policy of 33 banks working in the Indian economy from 2010 to 2019.

Author Response

Thank you for pointing this out. We have now improved it accordingly.

Reviewer Comment

Mention in the Introduction why this work is relevant and highlight how it differs from the current literature on the subject

Author Response

We have now updated the Introduction.

Reviewer Comment

following reference is incorrect

Ph, Y. H. K., Rhim, J. C., & Friesner, D. L. 2007. Interrelationships among capital structure, dividends, and ownership: evidence from South Korea. Multinational Business Review 15: 25-42.

It should be

Kim, Y. H., Rhim, J. C., & Friesner, D. L. 2007. Interrelationships among capital structure, dividends, and ownership: evidence from South Korea. Multinational Business Review 15: 25-42

Check all references in the Bibliography.

Author Response

Thank you very much for pointing out this. We have now improved it accordingly.

Reviewer Comment

Instead of writing “As per the values presented in table 3, the correlation coefficients amongst the variables are not high.”, it should be written “According to the values presented in table 3, the correlation coefficients amongst the variables are not high.”.

Author Response

Thank you very much for your valuable suggestion. According to the reviewer’s suggestion, we have now improved it.

Reviewer Comment

Provide insight into why quadratic models are proposed.

Author Response

The quadratic model is an extension of linear model which exhibits clearer picture to understand the relationship between two variables. Hence, we have also employed quadratic model to ensure robust results.

Reviewer Comment

Mention the econometric software being used.

Author Response

We have used STATA for econometric analysis.

Reviewer Comment

Omit initial in names in references. For instance, instead of writing “(Joshi, 2012; Sanan, N.K., 2019; Ph YHK et al., 2007; Chughtai et al., 2014, and many more)”, it should be s (Joshi, 2012; Sanan, 2019; KIM et al., 2007; Chughtai et al., 2014, and many more). Check all references throughout the paper.

Author Response

Thank you very much for your valuable suggestion. According to the reviewer’s suggestion, we have now improved it.

Reviewer Comment

Tables 5 and 6 need more explanation about the empirical findings.

Author Response

Thank you very much for your valuable suggestion. According to the reviewer’s suggestion, we have now improved it.

Reviewer Comment

The first paragraph after section 3.3 on Descriptive Statistics and Correlation Matrix is somewhat confusing, a clearer explanation is needed.

Author Response

Thank you very much for your valuable suggestion. According to the reviewer’s suggestion, we have now improved it.

Reviewer Comment

Expand the explanation in the Conclusions on the fact that the influence of the shareholder activism is significant in the association between FD and dividends.

Author Response

Thank you very much for your valuable suggestion. According to the reviewer’s suggestion, we have now updated the conclusion.

Author Response File: Author Response.pdf

Round 2

Reviewer 1 Report

Authors followed most requests. However, important outliers on the two main dependent variables remain. I leave to the editor the decision to approve or not under these conditions.

Author Response

Reviewer -1 Comment

English language and style are fine/minor spell check required

Response from authors

Thank you very much for your valuable suggestions. We have now improved it.

Reviewer -1 Comment

Does the introduction provide sufficient background and include all relevant references? - YES

Response from authors

Thank you for your kind and encouraging words.

Reviewer -1 Comment

Are all the cited references relevant to the research? - YES

Response from authors

Thank you for your kind and encouraging words.

Reviewer -1 Comment

Is the research design appropriate? - Can be Improved

Response from authors

We have updated Data and research methodology section (section 3) accordingly.

Reviewer -1 Comment

Are the methods adequately described? - Can be Improved

Response from authors

We have updated Data and research methodology section (section 3) accordingly.

Reviewer -1 Comment

Are the results clearly presented? - Can be Improved

Response from authors

We have updated Results section (section 4) accordingly.

Reviewer -1 Comment

Are the conclusions supported by the results?

Response from authors

- Not Applicable

Reviewer -1 Comment

Authors followed most requests. However, important outliers on the two main dependent variables remain. I leave to the editor the decision to approve or not under these conditions.

Response from authors

Thank you very much for highlighting this point. We understand your concern on this and agree with you. We have already explored various literature to handle this issue. According to Dhakal (2017), Osborne & Overbay (2004) and Sweet & Martin (2012), if outliers are coming accidently or due to unusual phenomena then it should be deleted. If outliers come from regular phenomena, then they are not a big issue and should be included in the regression. We have taken care while applying regression analysis and projected robust estimates for consistent results. However, we accept it as a limitation of the study and mentioned it in conclusion.

Reference:

Dhakal, C. P. (2017). Dealing with outliers and influential points while fitting regression. Journal of Institute of Science and Technology, 22(1), 61-65.

Sweet. S. and Martin. K. (2012). Data Analysis with SPSS: A First Course in Applied Statistics (4th ed.), p 181. Pearson Education Inc., Publishing as Allyn and Bacon, USA.

Osborne, J. W. and Overbay, A. (2004). The Power of Outliers (and why researchers Should always check for them). Practical Assessment, Research & Evaluation, 9 (6). North Carolina State University. Retrieved from pareonline.net/getvn.asp?v=9&n=6 Accessed on 10.7.2013

Author Response File: Author Response.pdf

Reviewer 3 Report

I agree with all changes

Author Response

Does the introduction provide sufficient background and include all relevant references? - YES

Response from authors