...IMPACT OF DIVIDEND POLICY ON SHAREHOLDERS’ VALUE: A STUDY OF INDIAN FIRMS Synopsis of the Thesis to be submitted in fulfillment of the requirements for the Degree of DOCTOR OF PHILOSOPHY In MANAGEMENT By Sujata Kapoor Enrollment No: 064009053 Date of Registration: July 2006 Under the Guidance of Supervisor: Dr Kanwal Anil Co-Supervisor: Dr Naseem Abidi Jaypee Institute of Information Technology, Noida A-10, SECTOR 62, NOIDA, INDIA (12) December, 2009 Sujata Kapoor, JBS, JIIT,Dec’ 2009 TABLE OF CONTENTS S. no. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Contents Introduction Review of the literature Research objectives Research Methodology Lintner Model: Analysis and findings Factor Analysis and Regression results on Extracted Factors Quadratic Polynomial Regression Analysis & Findings Event study: Analysis & Findings Conclusion Chapter plan Selected References Annexure Page no. 4-9 9-14 14-15 15-23 23-24 24-28 28-30 30-32 32-35 35-36 36-38 (III-XX) 2 Sujata Kapoor, JBS, JIIT,Dec’ 2009 KEY TERMS DIVIDEND PAYOUT RATIO: The percentage of earnings paid to shareholders in dividends. Calculated as: DIVIDEND POLICY: The policy a company uses to decide how much it will pay out to shareholders in dividends. SHAREHOLDERS’ VALUE: The value delivered to shareholders because of management's ability to grow earnings, dividends and share price. In other words, shareholder value is the sum of all strategic decisions that affect the firm's ability to efficiently increase...
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...School of Management Blekinge Institute of Technology Determinants of Share Price Movements in Bangladesh: Dividends and Retained Earnings Author Shohrab Hussain Khan Supervisor Mr. Anders Hederstierna Thesis for the degree of MSc. in Business Administration Spring, 2009 Thesis Summary Title: Determinants of Share Price Movements in Bangladesh: Dividends and Retained Earnings Author: Shohrab Hussain Khan Supervisor: Anders Hederstierna Department: School of Management, Blekinge Institute of Technology Course: Master’s thesis in Business Administration, 15 credits (ECTS). Background and Problem Discussion: Financial scholars have been conducting studies of dividend policy for several decades; but different researchers have come to different conclusions. Financial economists have come to different conclusion about factors determining dividend policy and effect of dividend policies on common stock price. A general question may arise in the mind of the shareholders that the corporate dividend policy affects the value of their stocks. So, in addition to the theory of dividend policy, it is necessary to discuss the empirical evidence on the dividend payment practices of the corporations and their possible impacts on common stock prices. Empirical testing of dividend policy may focus on whether the determinants carry information in pricing the common stocks and whether the dividends are the only determinants serving as signals in conveying information about the current...
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...Factors affecting on stock price 1. Introduction The stock market has become an essential market playing a vital role in economic prosperity that fostering capital formation and sustaining economic growth. Stock markets are more than a place to trade securities; they operate as a facilitator between savers and users of capital by means of pooling of funds, sharing risk, and transferring wealth. Stock markets are essential for economic growth as they insure the flow of resources to the most productive investment opportunities. In essence, a large number of economic variables like gross domestic product, interest rates, current account, monthly supply, employment, their information etc. have an impact on daily stock prices (Kurihara, 2006). This paper reflects how stock price is determined by considering the effect of different factors and outlines whether the internal, external and economic factors have impact on stock pricing. This study is about to know whether Dividends, paid up capital, market capital, corporate social responsibility, lawsuits, Retained Earnings, AGM, EGM, Earning Per Share, Rumors, Margin Loan, Net Income, Face Value, Return on Investment, Goodwill of the firm, Company News, Analysts Report, Sentiment, Rumors, etc. depends on stock price or merely some special factors like stock dividend, P/E ratio, government policy, macroeconomics fundamental, investors sentiment...
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...METHODOLOGY IMPACT OF DIVIDEND POLICY ON SHARE PRICE: A CROSS SECTIONAL STUDY OF COMMERCIAL BANK LISTED IN NIGERIAN STOCK EXCHANGE SUBMITTED TO PROF. NIRMALYA B BISWAS ABSTRACT Dividend decision is a vital financial decision any company must make a side from financing decision and investment decision. Ordinary shareholders who are the owners of the company by contributing the capital to run the business are entitled to get returns from the profit made by the company after all obligations or other interest had been met; the policy adopted by the company on how dividend should be paid, how much should be paid and the proportion of profit to be retained is known as dividend policy. Company’s major goal is wealth maximization of shareholders and this can be achieved either by paying returns which is called dividend or through share appreciation by reinvesting the retained profit in to profitable investment. Though a lot of research has been carried out on how dividend policy affect shareholders wealth less has been done on the impact of dividend policy adopted by the Commercial Banks in Nigeria on share price (Market price per shares) of the ordinary shareholders who invested in Banks shares. The aim and purpose of this research is to find out how dividend policy has impacted the MPS (Market price per shares) of an ordinary shareholder in Commercial Banks. This current study will carry out a cross sectional study on the 15 Commercial Banks listed in the Nigerian Stock Exchange...
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...paper will examine the relationship between the dividend policy and stock price volatility based on the previous studies. Dividend policy is referred as a direction to the dividend paid out. In practice, we can through three aspects to show how the dividend policy is important. Firstly, in term of the clientele effect, the transaction cost and tax of investor position can exert an influence on whether dividend policy gains are preferred which means that dividend policy will exert an important influence on investors’ behaviour. Secondly, according to the signaling effect, dividend paid is the mean by manager to signal the new information to investor. And thirdly on basis of the agency theory, dividend policy would attribute to the conflict between the interests of management and interests of stakeholders. Through the different dividend policy, firms can use the earning to make scrip dividends, special dividends, share repurchase and non–pecuniary benefits. In 1961, Modigliani and Miller (MM) argue that, given perfect and efficient markets, the pattern of dividend payments by a business have no effect on shareholder wealth. The only way to maximum shareholder wealth is investment with a positive NPV. So depend on M&M theory, Atrill (2000) agrees that to pay a lower dividend will simply be compensated by an increase in share price through reinvestment. De Angelo and Masulis, Kim (1988) and Miller (1986) supported that dividend paid can greatly reduce tax costs as tax clientele...
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...of Pakistan 2 Impact of interest rate on stock market 3 A study based on the effects of interest rate (KIBOR) on share price 4 Market Interest rate and commercial bank profitability in Pakistan 5 Determinants of Corporate dividend payout policy 6 Effects of Free Cash flow on profitability of firms 7 Determinant of dividend payout ratio: A study of Pakistani fertilizer sector 8 Fundamentals and stock returns in Pakistan 9 Effects of mergers and acquisition in banking sector of Pakistan 10 Impact of Privatization of banks on profitability 11 Can risk aversion indicators anticipate financial crises? 12 Cash flow and capital spending relationship: evidence from automobile sector 13 Impact of Privatization on profitability and efficiency of banks in Pakistan 14 To study the relationship between price earning ratio and return on investment 15 A test of price earning ratio to predict future growths 16 Factors affect on the dividend payout ratio (sugar industry) 17 Impact of macro-economic variables on stock sector of Pakistan 18 Relationship between Cash flow and investment spending in textile industry 19 Impact of taxation on firm’s dividend payout/ratio 20 Share price volatility explicatedmeasured by fundamentals 21 Stock price and economic variables ( Interest rate, inflation and GDP) 22 Determinants of P/E Ratio 23 Impact of capital structure on profitability 24 Impact of interest rate changes on bank’s profitability 25 Relationship of stock market returns...
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...Reaction of Stock Price 3 2.1.1 The Modigliani/Miller Theorem 3 2.1.2 The Tax Theory of Dividends 4 2.1.3 The Signaling Theory of Dividends 5 2.1.4 Agency Costs 5 2.1.5 Theory of Dividends Based on Tax Clienteles 6 2.2 Chart in the Light of Previous Theories 7 3 Elton and Gruber (1970): “Marginal Stock Holders tax Rates and the Clientele effect”, Review of Economics and Statistics 52, p. 68-74 8 3.1 Investors’ Marginal Tax Rate 8 3.2 Ex-Dividend Price Decline 8 3.3 Equal Tax Rates 9 4 Reference List 9 Allen, F., Bernardo, A.E., & Welch, I. (2000). A theory of dividends based on tax 9 clienteles. The Journal of Finance, 55(6), S. 2499-2536 9 * The Porsche Takeover To answer the question it has to be distinguished between common stocks (ordinary shares) and preferred stocks: Common stock (ordinary stock) can be defined as a “security representing ownership of a corporation” (Brealey, Myers, & Allen, 2011, p. 913). In this context ownership means “the right to the cash flows and the right to take all financing, and investment decisions, and full cash flow and full control rights”. Preferred stock on the other hand can be defined as a “stock that takes priority over common stock in regard to dividends. Dividends may not be paid on common stocks unless dividend is paid on all preferred stocks. The dividend rate on preferred stock is usually fixed at time of issue” (Brealey, Myers, & Allen, 2011, p. 922). The price difference (up...
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...creditors is earnings per share. * Regulators impose standards to ensure the comparability of EPS across companies. * This seems simple, Earnings / Number of shares outstanding …but it’s not. Basic EPS * Earnings available to common shareholders for each share of stock outstanding. * Ignores any potential common shares which might arise from convertible securities. * Calculation: Net income (after tax) – Preferred dividends Weighted average outstanding common stock Numerator: Basic EPS Net income Less: Current period’s cumulative preferred stock dividends (always) Less: Noncumulative preferred stock dividends (only if declared) = Net income available to common shareholders Denominator: Basic EPS Weighted-average outstanding common shares Stock Dividends and Stock Splits * Common shares issued as part of stock dividends or stock splits are treated retroactively. * All shares outstanding prior to the stock dividend or stock split date are adjusted. Weighted-average outstanding common shares Reacquired Shares * The weighted-average number of shares is reduced by the number of reacquired shares, weighted by the number of...
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...1. When shares of common stock are issued to satisfy the exercise of employee stock options, are the shares issued from the Company’s “authorized but previously unissued shares” or from the Company’s “treasury stock”? Where in the financial statements do you find this information? (page 44) According to the 10-K, the Company’s common stock remains the same in 2011 and 2010 (75.5 million) while the treasury stock increased from 2615.2 to 3210.3 million, which means the Company didn’t issue any “authorized but previously unissued shares” this year but satisfied the exercise of employee stock options by using the treasury stock they bought in fiscal year 2011. 2. Based on the assumptions used for the Black-Scholes option-pricing model as disclosed in the notes to the financial statements, as well as the market price of the stock on the last day of fiscal years 2011 and 2010, determine whether the change in value of each assumption (and stock price) between 2010 and 2011 positively or negatively impacts the estimated fair value of the options granted during 2011. (page 33) As disclosed in General Mills’ 10-K, the market price of the stock on the last day of fiscal years 2011 and 2010 are $37.38 and $27.99, respectively, while the estimated fair value of stock options in 2011 and 2010 are $4.12 and $3.20, respectively. The increased market price can be a strong supporter to the increased estimated fair value. Then the change in value of each assumption in Black-Scholes option-pricing...
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...DIVIDENDS & STOCK REPURCHASE - I Dr. Kulbir Singh ACF Term III 2013-14 IMT Nagpur • Shareholders love it. • Bondholders hate it. • Managers consider it obvious. • Financial economists find it puzzling. • What is it? • Dividends; what else?! INTRODUCTION Dividend has been defined u.s. Sec 2 (14A) of the Companies Act, 1956 Dividend payment by Indian Companies are regulated by Sec 205 of Companies Act, 1956 Dividend is distribution of divisible or distributable profits of a company among the holders of its shares. Paid by the company to its shareholders on the basis of number of shares held by them and the rights attached to the various class of shares. Dividend includes any interim dividend Dividend declared at any time between two AGM Paid in anticipation of profits of a period before accounts for that period have been prepared Can be paid if authorized by AoA Declared by Board of Directors in AGM Declaration of dividend is usually one of the items of the Agenda of every annual general meeting Approval of shareholders required in India and most of Europe and China, but not in some countries like the USA. INTRODUCTION Dividend is paid by a company to its shareholders on a particular date (book closure date) either out of profits or out of reserves. Dividends are paid after providing fro Depreciation (Sec 205(1) to the extent specified in Sec 350 of the Companies Act) and After transferring to the reserves (Sec 205(A)) of the company at least 10% of...
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...Is stock market performance linked to business performance? Abstract Still in the heart of an unprecedented financial crisis, new questions came up about the working of the stock market. In the eyes of general public the stock market can seem a lot like gambling to the extent that this one was reconsidered. The stock market index seems to be valuating at random, especially since the last financial crisis. But the fact that stock market plays an important role in the health of the economy turn impossible this though from general public, which leads us to ask the following question: how the stock market is influenced? We will adopt a general approach and focus on the probable influence of business performance on stock market performance. In order to do so, we collected information and date from Standard and Poor’s source and from specialized source. Executive summary The first modern stock market, today called the New York Stock Exchange (NYSE) was established in 1792 in New York City . The purpose of the stock market is to give the opportunity to companies to open themselves up to public investment in order to raise capital. The stock market is composed of a primary market and a secondary market. The primary market is where a company sells shares for the first time or issues new ones. In the secondary market investors trade securities or assets with other investors, the cash proceeds from transactions go to the investors instead of the company. At this point...
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...Email Dividend growth stock investing is a popular stock-market strategy. Investing in stocks with a history of growing dividends provides both a solid income stream and potential for capital appreciation. For most companies, the earnings per share (EPS) is the cash flow from which those dividends are paid. For a dividend to grow, it needs to be supported by EPS growth. Sponsored Link Simple Project Management Yes. It's easy. Nothing to install. Try it Free! www.smartsheet.com Earnings Per Share and Dividend Most dividend-paying companies make dividend payouts quarterly to coincide with the required quarterly financial reports. Earnings per share refers to the net income a company earns after all expenses and taxes divided by the number of outstanding shares. When the EPS number is published, that amount can be compared to the quarterly dividend amount the company paid for the quarter. A common corporate goal is to produce an EPS that grows year after year. Seasonal effects may cause earnings to fluctuate from quarter to quarter. To get a more accurate picture of earnings, compare full-year results or compare the same quarter year-over-year (such as the second quarter of last year compared to the second quarter of this year). Dividend Payout Ratio The dividend payout ratio is the dividend amount divided by the earnings per share. The ratio can be calculated on an annual or quarterly basis. A lower payout ratio means the company has excess earnings for future dividend increases...
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...1885, when John Pemberton invented the original recipe for a new cocawine. Pemberton developed Coca-Cola, a non-alcoholic version of his original cocawine, when Fulton County passed prohibition legislation. Carbonated water was added later by accident when Pemberton was mixing drinks for a friend and incidentally included it. His friends loved the new taste, so he altered the original formula to incorporate it. | Pepsi - International Directory of Company Histories, Vol. 40. St. James Press, 2001. (http://www.fundinguniverse.com/company-histories/the-pepsi-bottling-group-inc-history/). Major Suppliers Pepsi Cola | Coca-Cola | PolandEgyptUnited Arab EmiratesCanada | Poland China Bulgaria Egypt Hong Kong Canada | Coca-Cola Stock Analysis The company has managed to deliver a 9.7% annual increase in EPS since 2002. Analysts expect Coca-Cola to earn $4.08 per share in 2012 and $4.47 per share in 2013. In comparison, Coca-Cola earned $3.69 per share in 2011. Coca-Cola’s 2020 Vision Strategy strives for a high-single-digit annual EPS growth throughout this...
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...about the future value and the present value of money. For example a dollar today has more value than the dollar you will be earning in the future. Time value of money is a very important concept because it will help make decision on how much to save today to have a certain amount of saving for retirement in future. Interest rate and a time line also plays an important role in analyzing the time value of money. For Individuals the implications can be seen when deciding how much to save for retirement, valuing stocks when doing a personal investment or when calculating loan repayment schedule. For a corporation time value of money concept comes in to play when evaluating a project financial viability, when making new investment in plant and machinery and when investing in stocks and bonds. 2. Bonds I was able to learn about the types of bonds issued in the market and the risk associated with the bond market, pricing of the bonds, relationship between bond price and interest rate. A bond is a long term debt instrument issued by a corporate or a government in order to raise capital. This is a contract under which the borrower (a corporate or a government) agrees to make a payment of principle and interest on a specific future date to the holder of the bond. Corporate Bond, Treasury bond, high-yield corporate bonds (low quality also known as junk bonds), foreign bonds, mortgage-backed bonds and municipal bonds are few types of bonds available in the market for investment...
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...Tools Corporation Problem Statement When considering whether or not it is necessary to pay dividend, Eastboro Machine Tools Corporation is facing a problem, i.e. how to provide enough cash to ensure the upcoming aggressive growth in the following years. If dividend is necessarily paid, how much dividend will be paid to benefit the shareholders most in the long run? Situation Analysis After two massive restructurings, the firm seems to get in a quick track to development. Its product “Artificial Workforce” appears to have a bright future. Most of securities analysts are optimistic about the product’s impact on the company. That’s why Campbell took the boldest approach by assuming that the company would grow at a 15% compound rate. However, we have noticed that whether or not the 15% growth rate could be achieved heavily depends on the financial decision and the dividend decision even if the firm has good opportunity to generate satisfactory free cash flow to firm (FCFF). Thus, in order to ensure the maximization of the shareholders’ long-term benefits, Ms. Campbell has to take a close look at how the dividend decision impacts the financial decision and the resultant effects on investment decision and the market values of the entire firm and the equity. As the case indicates, Campbell has five options: Zero-dividend, 40%-dividend, Residual-dividend, stock repurchase and not to matter. In my mind, Campbell’s ultimate target is to guarantee enough cash to...
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