FUNDS REQUIREMENT: It’s a key factor influencing the payout ratio of a firm is its requirement of funds in the foreseeable in future.

LIQUIDITY: Dividends entail cash payment. Hence, liquidity of the firm has a bearing on its dividend decision.

ACCESS TO EXTERNAL SOURCES OF FINANCING

Firms which has easy access to external sources of financing may feel less constrained in its dividend decision.

SHAREHOLDER PREFERENCE: The preference of shareholders may

influence the dividend payout ratio of the firm.

The cost difference between external equity and retained earnings has effect on external equity and retained earnings used by the firm.

CONTROL: The new shareholders will have to share

their control over the existing shareholders.TAXES: From 97-98 onwards dividends in the

hands of individual shareholders have been exempted from tax.