The decision to distribute dividends is one of the most studied topics in corporate finance. The boards of directors recommend the payment of dividends. Since the dividend payout policy is strict, companies tend to follow conservative dividend payout policies and only change decisions when the outlook for future profitability changes. The Indian economy has undergone significant macroeconomic changes in recent years, most notably the demonetization of 2016. This has created a situation of weaker economic growth and, consequently, lower expectations of future performance due to a heightened economic uncertainty, information asymmetry and increasing uncertainty about expected future cash flows (Dasgupta 2017; Daya and Mader 2018). In addition, it had an impact on current liquidity and companies were forced to look for options to finance their capital spending in the post-macroeconomic shock period. The hypothesis is that to meet these requirements, companies reduce dividends to increase internal funding, instead of relying on external funding as predicted by pecking order theory (Myers and Majluf 1984). Firms rely more on their internal funds to reduce or omit dividends than to raise new capital from external sources in times of macroeconomic uncertainty (Oliner and Redebusch 1996; Ranajee et al 2018). Additionally, in information dark businesses, there may be a preference to keep funds internal rather than external, as costs may be different. After the macroeconomic shock, companies would like to forgo dividend payments to create a financial slock to fund future investment strategies and reduce or omit dividend distribution if short-term cash flow projections cannot. not support the policy.

The objective of the study is to examine the impact of the macroeconomic shock on the dividend distribution behavior of Indian companies during the pre and post-demonetization periods. The rest of this article is organized as follows. After a review of the literature, the article presents the hypothesis and develops the empirical framework. Then the data and methodology are discussed, followed by empirical results and concluding remarks.