Indian firms return lowest earnings as cash to shareholders: Aswath Damodaran

Aswath Damodaran, a professor of finance at New York University.

In his latest analysis of global cash return policies, Damodaran found that Indian firms distributed just 31.1% of their earnings in the form of dividends and stock buybacks—far lower than their global peers. While one can argue that this signals a strong reinvestment cycle fueling long-term expansion, it can also be seen as a symptom of weak shareholder rights and management’s reluctance to part with excess cash.

Damodaran noted that among global markets, Indian companies stand out for their reluctance to distribute earnings to shareholders, with payouts trailing significantly behind other regions. «With the benign explanation being that they are reinvesting for growth and the not-so-benign reason being poor corporate governance,» he wrote. He pointed out that in publicly traded firms, management decides how much cash to return, and «in the absence of shareholder pressure, they, not surprisingly, hold on to cash, even if they do not have no need for it.»

Reinvestment or retention?

Damodaran acknowledged that some firms may be holding back cash to fund future growth. “A healthy market is built on cash being returned by some businesses (older, lower growth) and being plowed back into growth businesses that need that capital,” he noted.

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