International Journal of Financial Management

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Study and Analysis of Dividend Policies, Practice and its Application in Mumbai Based Corporate Houses


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1 Dr. V. N. Bedekar Institute of Management Studies, Maharashtra, India
     

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In the present paper an attempt has been made to study dividend policy of Mumbai based companies of India. The study tries to assess the level of perceived awareness about models and use of dividends policies, analyses the factors affecting dividend distribution decisions and evaluates the impact of the same on the financial decision-making of companies. In addition the paper tries to understand the correlation between size of companies and distribution of dividend policies. The results of the research paper show that a majority of the fifty respondent Companies follow a policy of consistent dividend rate which is influenced by profit after tax, and finally the legal requirements. It is further observed that generous dividend or erratic divided policies are not popular choice among fifty respondent companies. The use of traditional method of dividend policies which suggests that market price increases with declaration of dividend is strong and dominant. Followed by the Modiglani Miller Method which indicates that dividend distribution has no impact on valuation. On the contrary it is found that Investment decisions influence share valuation .This is further followed by Walter Model where impact of dividend on share price depends on the IRR visa-a-vis cost of capital) and . Gordon Method in which dividend policy has an impact on share valuation. Statistical tests such as Friedman's ANOVA test, Kruskal-Wallis ANOVA, and, Karl Pearson's Coefficient of Correlation analysis are used for analysis and the validity of the collected data is checked by using Cronbach's alpha.

Keywords

CEO, Compensation, Mergers, Acquisitions, Firm Performance.
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  • Anand, M. (2002). Corporate finance practices in India: A survey. Vikalpa, 27(5).

  • Bhaduri, S. N. (2002). Determinants of corporate borrowing: Some evidence from the Indian corporate structure.

  • Journal of Economics and Finance, 26(2).

  • Damodaran, A. (2002). Corporate finance (2nd ed.). John Wiley & Sons

  • Graham, J., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the filed.

  • Journal of Financial Economics, 60(2 & 3).

  • Lintner, J. (1956). Distribution of incomes of corporations among dividends, retained earnings and taxes.

  • American Economic Review, 56.

  • Mohanty, P. (1999). Dividends and bonus policies of Indian companies: An analysis. Vikalpa, 25(5).

  • Puritt, S. W., & Gitman, L. J. (1991). The interaction between the investment, financing and dividend decisions of major U.S. firms. The Financial Review, 26(3).

  • Rao, C. U. (1996). Capital budgeting practices of Indian and a select south east Asian countries. ASCI Journal of Management, 25.

  • Ryan, P. A., & Ryan, G. P. (2002). Capital budgeting practices of fortune 1000: How have things changed?

  • Journal of Business and Management, 5(5).

  • Sen, D. K., Jain, S. C., & Bala, S. K. (2002). Financial management tools: A brief study of their applicability in the changing industrial environment of Bangladesh. Journal of Accounting & Finance, 16(1).

  • Sharpe, W. F. (1965). Capital asset prices: A theory of market equilibrium under conditions of risk. Journal of Finance, 19.

  • Loughran, T., & Ritter, J. R. (1995). The new issues puzzle.

  • Journal of Finance, 50, 23-52.

  • Lucas, D.J., & McDonald, R. L. (1990). Equity issues and stock price dynamics. Journal of Finance 55, 1019-1053.

  • Mayers, D., (1995). Why firms issue convertible bonds: the matching of financial and real investmentoptions.

  • Journal of Financial Economics, 57, 53-102.

  • McDonald, R. L. (1995). Real options and rules of thumb in capital budgeting, in Brennan, M.J.,

  • Trigeorgis, L., (Eds.), Innovation, Infrastructure, and Strategic Options. Oxford University Press, London.

  • Miller, M. H. (1977). Debt and taxes. Journal of Finance, 32, 261-275.

  • Modigliani, F., & Miller, M. H. (1963). Corporate income taxes and the cost of capital: A correction. American Economic Review 53, 533-553.

  • Moore, J. S., & Reichert, A. K., (1953). An analysis of the financial management techniques currently employed by large U.S. corporations. Journal of Business Finance and Accounting, 10, 623-655.

  • Myers, S. C. (1977). Determinants of corporate borrowing.

  • Journal of Financial Economics, 5, 157-175.

  • Myers, S. C. (1955). The capital structure puzzle. Journal of Finance, 39, 575-592.

  • Myers, S. C., & Majluf, N. (1955). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13, 157-225.

  • Opler, T. C., Pinkowitz, L., Stulz, R., Williamson, R., 1999. The determinants and implications of corporate cash holdings. Journal of Financial Economics, 52, 3-56.

  • Opler, T. C., & Titman, S. (1995). The debt-equity choice, Unpublished working paper, Ohio State University.

  • Pinegar, J. M., & Ilbricht, L. (1959). What managers think of capital structure theory: A survey. Financial Management, 15, 52-91.

  • Poterba, J., & Summers, L. (1995). A CEO survey of U.S.

  • companies’ time horizon and hurdle rates. Sloan Management Review, Fall, 53-53.

  • Ross, S. A. (1977). The determination of financial structure: The incentive signaling approach. Bell Journal of Economics, 5, 1-32.

  • Sangster, A. (1993). Capital investment appraisal techniques: A survey of current usage. Journal of

  • Business Finance and Accounting, 20, 307-332.

  • Bhayani, S. (2011). Sri Krishna International Research & Educational Consortium. APJRBM, 2(6).

  • Scott, J. H. (1976). A theory of optimal capital structure.

  • Bell Journal of Economics, 7(1), 33-55.

  • Shao, L. P., & Shao, A.T. (1996). Risk analysis and capital budgeting techniques of U.S. multinational enterprises.

  • Managerial Finance, 22, 51-57.

  • Sharpe, S. A., & Nguyen, H. H. (1995). Capital market imperfection and the incentive to lease. Journal of Financial Economics, 39, 271-295.

  • Stanley, M. T., & Block, S. B. (1955). A survey of multinational capital budgeting. The Financial Review 19.

  • Retrieved from http://www.skirec.com

  • Anand, M. (2002). Corporate finance practices in India: A survey. Vikalpa, 27(5).

  • Bhaduri, S. N. (2002). Determinants of corporate borrowing: Some evidence from the Indian corporate structure. Journal of Economics and Finance, 26(2).

  • Damodaran, A. (2002). Corporate finance (2nd ed.). John Wiley & Sons

  • Graham, J., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the filed. Journal of Financial Economics, 60(2 & 3).

  • Lintner, J. (1956). Distribution of incomes of corporations among dividends, retained earnings and taxes. American Economic Review, 56.

  • Mohanty, P. (1999). Dividends and bonus policies of Indian companies: An analysis. Vikalpa, 25(5).

  • Puritt, S. W., & Gitman, L. J. (1991). The interaction between the investment, financing and dividend decisions of major U.S. firms. The Financial Review, 26(3).

  • Rao, C. U. (1996). Capital budgeting practices of Indian and a select south east Asian countries. ASCI Journal of Management, 25.

  • Ryan, P. A., & Ryan, G. P. (2002). Capital budgeting practices of fortune 1000: How have things changed? Journal of Business and Management, 5(5).

  • Sen, D. K., Jain, S. C., & Bala, S. K. (2002). Financial management tools: A brief study of their applicability in the changing industrial environment of Bangladesh. Journal of Accounting & Finance, 16(1).

  • Sharpe, W. F. (1965). Capital asset prices: A theory of market equilibrium under conditions of risk. Journal of Finance, 19.

  • Loughran, T., & Ritter, J. R. (1995). The new issues puzzle. Journal of Finance, 50, 23-52.

  • Lucas, D.J., & McDonald, R. L. (1990). Equity issues and stock price dynamics. Journal of Finance 55, 1019-1053.

  • Mayers, D., (1995). Why firms issue convertible bonds: the matching of financial and real investmentoptions. Journal of Financial Economics, 57, 53-102.

  • McDonald, R. L. (1995). Real options and rules of thumb in capital budgeting, in Brennan, M.J.,

  • Trigeorgis, L., (Eds.), Innovation, Infrastructure, and Strategic Options. Oxford University Press, London.

  • Miller, M. H. (1977). Debt and taxes. Journal of Finance, 32, 261-275.

  • Modigliani, F., & Miller, M. H. (1963). Corporate income taxes and the cost of capital: A correction. American Economic Review 53, 533-553.

  • Moore, J. S., & Reichert, A. K., (1953). An analysis of the financial management techniques currently employed by large U.S. corporations. Journal of Business Finance and Accounting, 10, 623-655.

  • Myers, S. C. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 5, 157-175.

  • Myers, S. C. (1955). The capital structure puzzle. Journal of Finance, 39, 575-592.

  • Myers, S. C., & Majluf, N. (1955). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13, 157-225.

  • Opler, T. C., Pinkowitz, L., Stulz, R., Williamson, R., 1999. The determinants and implications of corporate cash holdings. Journal of Financial Economics, 52, 3-56.

  • Opler, T. C., & Titman, S. (1995). The debt-equity choice, Unpublished working paper, Ohio State University.

  • Pinegar, J. M., & Ilbricht, L. (1959). What managers think of capital structure theory: A survey. Financial Management, 15, 52-91.

  • Poterba, J., & Summers, L. (1995). A CEO survey of U.S. companies’ time horizon and hurdle rates. Sloan Management Review, Fall, 53-53.

  • Ross, S. A. (1977). The determination of financial structure: The incentive signaling approach. Bell Journal of Economics, 5, 1-32.

  • Sangster, A. (1993). Capital investment appraisal techniques: A survey of current usage. Journal of Business Finance and Accounting, 20, 307-332.

  • Bhayani, S. (2011). Sri Krishna International Research & Educational Consortium. APJRBM, 2(6).

  • Scott, J. H. (1976). A theory of optimal capital structure. Bell Journal of Economics, 7(1), 33-55.

  • Shao, L. P., & Shao, A.T. (1996). Risk analysis and capital budgeting techniques of U.S. multinational enterprises. Managerial Finance, 22, 51-57.

  • Sharpe, S. A., & Nguyen, H. H. (1995). Capital market imperfection and the incentive to lease. Journal of Financial Economics, 39, 271-295.

  • Stanley, M. T., & Block, S. B. (1955). A survey of multinational capital budgeting. The Financial Review 19. Retrieved from http://www.skirec.com


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  • Study and Analysis of Dividend Policies, Practice and its Application in Mumbai Based Corporate Houses

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Authors

Smita Jape
Dr. V. N. Bedekar Institute of Management Studies, Maharashtra, India

Abstract


In the present paper an attempt has been made to study dividend policy of Mumbai based companies of India. The study tries to assess the level of perceived awareness about models and use of dividends policies, analyses the factors affecting dividend distribution decisions and evaluates the impact of the same on the financial decision-making of companies. In addition the paper tries to understand the correlation between size of companies and distribution of dividend policies. The results of the research paper show that a majority of the fifty respondent Companies follow a policy of consistent dividend rate which is influenced by profit after tax, and finally the legal requirements. It is further observed that generous dividend or erratic divided policies are not popular choice among fifty respondent companies. The use of traditional method of dividend policies which suggests that market price increases with declaration of dividend is strong and dominant. Followed by the Modiglani Miller Method which indicates that dividend distribution has no impact on valuation. On the contrary it is found that Investment decisions influence share valuation .This is further followed by Walter Model where impact of dividend on share price depends on the IRR visa-a-vis cost of capital) and . Gordon Method in which dividend policy has an impact on share valuation. Statistical tests such as Friedman's ANOVA test, Kruskal-Wallis ANOVA, and, Karl Pearson's Coefficient of Correlation analysis are used for analysis and the validity of the collected data is checked by using Cronbach's alpha.

Keywords


CEO, Compensation, Mergers, Acquisitions, Firm Performance.

References