What are the main determinants of dividend policy in a corporate enterprise?

Determinants of Dividend Policy Legal/Regulatory aspects: Dividend policy of a company is derived by prevailing legal/regulatory regime like Companies Act, LODR provisions etc. The purpose of legal/regulatory restriction is to ensure that the payment of dividend may not cause insolvency. Financial aspects: There are financial constraints to Dividend Policy. A firm can pay dividend only to the extent that it has cash to disburse; a firm can't pay dividend when its earnings are in accounts receivables or firm does not have adequate liquidity. Economic aspects: Besides, there are economic constraints also. The question arise, does the value of dividend affects the value of the firm. If the answer to it is yes then there must be some optimum level of dividend, which maximises the market price of the firm's stock. Nature of business conducted by a Company: A company having a business of the nature which gives regular earnings may like to have a stable and consistent dividend policy. Industries manufacturing consumer/consumer durable items have a stable dividend policy. Existence of the Company: The length of existence of the company affects dividend policy. With their long standing experience, the company may have a better dividend policy than the new companies. Type of Company Organisation: The type of company organisation whether a private limited company or a public limited company affects dividend decisions. In a closely held company, a view may be taken towards acquiescence of a conservative policy may be followed but for a public limited company with wide spread of shareholder, a more progressive and promising dividend policy will be the better decision. Financial Needs of the Company: Needs of the company for additional capital affects the dividend policy. The extent to which the profits are required to be invested in the company for business growth is the main consideration in dividend decisions. Working capital position of a company is an important condition that affects the dividend policy as no company would declare a dividend to undermine its financial strength and threaten its solvency. Market Conditions: Business cycles, boom and depression, affects dividend decisions. In a depressed market, higher dividend declaration are used to market securities for creating a better image of the company. During the boom the company may like to save more, create reserves for growth and expansion or meeting its working capital requirements. Financial Arrangement: In case of financial arrangements being entered into or being planned like merger or amalgamation with another company, liberal policy of dividend distribution is followed to make the share stock more attractive. Change in Government Policies: Changes in Government Policies particularly those affecting earnings of the company are also taken into consideration in settling dividend decisions. For example, higher rate of taxation will definitely affect company earnings and carry impact on dividend decisions. Besides, fiscal, industrial, labour, industrial policies do affect in different magnitude the dividend decisions of individual corporate enterprises.