...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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...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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...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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...“IMPACT OF DIVIDEND ON STOCK PRICES” ABSTRACT The project aims to establish the impact of dividend on market price of a share. This has been done for individual companies in Steel sector. After studying the basic concepts of dividends and dividend policy I am able to get a proper perspective of the requirements of the project and also gain a better understanding of the results obtained. I have looked to find the relation between pre dividend price change and the dividend using regression analysis. Similarly, I have analyzed the relation between the post dividend price change and the dividend. It is a matter of fact that dividends are declared by a company primarily to generate capital and also at certain times to maintain the market sentiment. It is in the best interests of the company to maximize the market value of its share and companies use dividend as a tool to maintain their corporate image. However, the degree of correlation between the dividend and the market price is low which implies that several other internal and external factors affect the market value of shares. To gain a holistic picture, I also did a comparative study of two peers in a sector (steel)to better understand how the specific requirements of each sector also impact the dividend policy of a company. The conclusions derived from the analysis performed further consolidated theoretical knowledge and deviations were better understood. SYNOPSIS “Impact of...
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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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...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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...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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...Question The dividend discount model tells us that the value of a firm is equal to the present value of its expected dividend payments. Some firms have never paid dividends and have no intention of doing so. Does this mean that these firms are worth nothing? Discuss with reference to academic research and theory. Answer 719 words Two schools about dividend policy: relevant dividend theory and irrelevant dividend theory The dividend discount model tells us the value of a firm is equal to the value of its expected dividend payments. The dividend discount model provides a means of developing an explicit expected return for the stock market. Elaborations on the simple dividend discount model provide an important tool for comparing relative values across a sample of individual stocks. [pic] V is the value of the stock. Dt is the expected dividend payment at the year t. K is the discount rate. Dividend policy has always been a baffling problem of financial management. In theoretical circles there are two schools about dividend policy: relevant dividend view and irrelevant dividend view. Relevant dividend view: Farrar, Salwyn and Gordon are representatives of this theory. Their theory is that company's dividend distribution has an impact on the value of the company. Dividend payment is not dispensable, but very necessary. It is an important strategy of a company. If the company’s choice of the dividend payment policy on the stock market changes , the company's...
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...Administration ISSN: 1451-243X Issue 9 (2010) © EuroJournals, Inc. 2010 http://www.eurojournals.com Dividend Policy: A Review of Theories and Empirical Evidence Husam-Aldin Nizar Al-Malkawi Corresponding Author, Faculty of Business, ALHOSN University P.O. Box 38772 - Abu Dhabi, UAE E-mail: h.almalkawi@alhosnu.ae Michael Rafferty Senior Research Analyst, WRC, University of Sydney, Australia E-mail: m.rafferty@econ.usyd.edu.au Rekha Pillai Faculty of Business, ALHOSN University, Abu Dhabi, UAE E-mail: r.pillai@alhosnu.ae Abstract The literature on dividend policy has produced a large body of theoretical and empirical research, especially following the publication of the dividend irrelevance hypothesis of Miller and Modigliani (1961). No general consensus has yet emerged after several decades of investigation, and scholars can often disagree even about the same empirical evidence. This paper aims at providing the reader with a comprehensive understanding of dividends and dividend policy by reviewing the main theories and explanations of dividend policy including dividend irrelevance hypothesis of Miller and Modigliani, bird-in-the-hand, tax-preference, clientele effects, signalling, and agency costs hypotheses. The paper also attempts to present the main empirical studies on corporate dividend policy. However, due to the enduring nature and extensive range of the debate about dividend policy which has spawned a vast amount of literature that grows by the day, a full review of all debates...
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...DIVIDEND POLICY AND ITS IMPACT ON SHARE PRICE (ANALYSIS OF SELECTED “A” CLASS LISTED COMPANIES) Submitted By Bijendra Bahadur Malla Roll No.: 740090 Reg. No: 2007-2-22-0056 A Research Report Submitted To Prof. Dr. Prem Raj Pant Apex College Pokhara University In partial fulfillment of requirements for the course on Research Methodology For the degree of Master of Business Administration Kathmandu August, 2009 ACKNOWLEDGEMENTS This Study has been under taken to analysis the “Dividend Policy and its Impact on Share Price (Analysis of selected “A” Class Listed Companies)” under partial fulfillment of the requirement of MBA degree. The thesis mainly covers the dividend policy and its impact on share price of “A” class listed companies of Nepal. I would like to express my deep gratitude to Professor Dr. Prem Raj Pant, for his kind support, advice and continuous support for the thesis writing. I would like to express my deep greet to my respected supervisor, Mr. Pushpa Raj Joshi and Mr. Bharat Singh Thapa for his continuous guidance and supervision. The report in this form is the result of their inspiring and invaluable guidance and supervision. I express sincere thanks to all librarians of Apex College who helped me directly and indirectly in the course of review of literature. Finally, I would like to thank my family and friends for their help, blessings, love and support for me to prepare for the thesis writing. ........…….……........ Bijendra Bdr. Malla ...
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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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...OF CORPORATE GOVERNANCE PRACTICES AND BOARD COMPOSITION ON DIVIDEND PAYOUT POLICIES ON NIFTY 50 COMPANIES (2000-2012) | RESEARCH PROPOSAL, BUSINESS RESEARCH METHODS | | 2/27/2013 2/27/2013 Abstract Purpose: The purpose of this study is to examine the relationship between Corporate Governance practices and corporate dividend policy in India. Design/methodology/approach: Data regarding ownership structure, dividend policies and board composition would be collected for 40 non-financial companies listed on National Stock Exchange in India. The period of investigation has been taken from 2000-2012. Regression models would be run to define the relationship and for estimation purpose. Potential Findings: Based on the some heuristics and back of mind observations it can be seen that board size and composition, extent of ownership of promoters, the amount of free float in the market, firm size and investment opportunities are positively and significantly associated with dividend policies and dividend payout decisions. On the contrary, there are some instances which show a negative relationship between profitability and dividend payouts indicating the need of reinvesting funds. A significant number of independent directors in the board also have an impact on the payout policies, albeit not a significant one. A number of positive NPV investment opportunities also bear a negative relationship with dividend payout as more money is retained to invest in these projects...
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...THE ROLE OF DIVIDEND POLICY IN STOCK PRICE DETERMINATION IN TELECOMMUNICATION INDUSTRY: THE CASE OF PLDT AND GLOBE FATIMA KAYE A. DE CHAVEZ, LORELLA A. ESPELETA and LESLIE JOY A. PATIO College of Business and Accountancy University of Batangas ABSTRACT The issue of how much a company should pay its stockholders, as dividend is one that has been of concern to managers for a long time. The optimal dividend policy of a firm may be defined as the best dividend payout ratio the firm can adopt. But, what does "best" mean in this concept? This paper is an attempt to explain the effect of Dividend Policy on the Stock Prices by taking the top two Telecommunications Company namely Philippine Long Distance Telephone Company and Globe Telecom. Other various websites were reviewed to see the significance of these dividend policies on the determination of stock prices. Charts, tables and other significant information of these two telecommunication companies which have been evaluated served as the methodology used by the researchers. The study identified that these top two telecommunication companies have different dividend policies being implemented. This difference among the two companies does not have a significant impact as long as stock price determination is concerned. The study also showed that an increase or a positive change in the company's dividend ratio gives a higher dividend among stockholders, yet several minor reductions to dividends have occurred due to capital acquisition...
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...ABSTRACT This report focuses on the concept of Dividend Policy used in a firm. It talks about the importance of using a Dividend Policy which is giving a share to the stockholders. A dividend policy is first known as a heavy factor in a company’s stock value and is a set of company rules and guidelines used to decide how much the company will pay out to its shareholders. The report then highlights the common theories and models used in dividend policy decision in an organization. The feasibility of the concept had been further exemplified with the case study of City Lodge Hotels Limited and Microsoft vs Berkshire Hathaway which depicts two companies that do not believe in using a dividend policy and a lodging company that believes in keeping dividends. Keywords Dividend Policy, Residual Dividend Policy, Shareholders, Walter Model, MM Model, Dividend Irrelevancy. INTRODUCTION Dividend policy is the policy used by a company to decide how much it will pay out to shareholders in dividends. In financial accounting course, it is said that after deducting expense from the revenue, a company generates profit. Part of the profit is kept in the company as retained earnings and the other part is distributed as dividends to shareholders. From the share valuation model, the value of a share depends very much on the amount of dividend distributed to shareholders. Deciding on the amount of earnings to pay out as dividends is one of the major financial decisions that a firm’s managers...
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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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