Retained Earnings as a Determinant of Firm Value:An Empirical Analysis of Indian Firms

Abstract

This study examines and compares the effect of retention per share and dividend per share on the market value of Indian firms, using the Tobin Q ratio as a measure of market value. The study uses a panel data analysis of 100 non-financial Indian firms listed on the Bombay Stock Exchange (BSE) over the period from (2009–2022). The study also conducts some robustness tests by dividing the sample into different sub-samples based on time period, industry sector, or alternative measure of market value. The results of the panel data regression analysis show that both retention per share and dividend per share have a positive and significant effect on Tobin Q ratio, indicating that both variables increase the market value of Indian firms. These results are consistent with the dividend relevance perspective, which argues that dividend policy affects firm value by signaling information to investors or reducing agency costs between managers and shareholders.