essays on dividend policy theories

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Essays on dividend policy theories corruption in democracy essay

Essays on dividend policy theories

Limited partners are subject to the same alter-ego piercing theories as corporate shareholders. However, it is more difficult to pierce the limited partnership veil because limited partnerships do not have many formalities to maintain.

So long as the partnership and the members do not co-mingle funds, it would be difficult to pierce the veil. Capital Gains- a profit from the sale of property or of an investment. Capital Goods- goods that are used in producing other goods, rather than being bought by consumers. Capital Loss- is the result of selling an investment at less than the purchase price or adjusted basis.

Common Stock- shares entitling their holder to dividends that vary in amount and may even be missed, depending on the fortunes of the company. A bargain purchase is recognized as a gain as of the acquisition date. Goodwill Often a purchaser will pay more to acquire a subsidiary than the fair value of the net assets acquired. The market value of the acquired is often more than the value of its net assets. The modified internal rate of return MIRR is a financial measurement of an investment.

MIRR can be said as a better version of internal rate of return that can be used for capital budgeting. The assumption of the project cash flows are reinvested at IRR are not included. This paper explains the U. I will explain the following questions.

Explain the components of a financial market and its relevance to Jagdambay Exports. Be explicit and explain to the CFO how financial markets differ from markets for physical assets and why that difference matters to Jagdambay Exports.

Be that as it may, in the meantime, the acquiring company gets the greater part of the assets and liabilities of the target firm, in this way roughly killing the impacts of the dilution. Should the merger demonstrate beneficial and give adequate synergy, the present shareholders will gain over the long run from the additional appreciation given by the assets of the target firm.

However, an all stock option is not the most desirable form of financing an acquisition. The third option that Shell can consider would be a combination of cash and stock. Mergers and acquisitions are basically associated with the concept of buying, selling or combining different companies for the purpose of expansion and growth for the companies. Supporters said that, fair value are usually claim for the facts of the market price or estimate price on current situation and sometimes they have admit there will be no active market or no market at all, thus no real price.

Fair value accounting is an additional momentum to a destructive downside overshoot. I believed that there are many solutions or approach that we have beside fair value accounting that can be used to solve the problem arise in the financial accounting such as based on historical cost, current cost, realisable value and present value. Basically firm records all of its assets in the financial statements at their original cost cost which is initially incurred to acquire these assets , but this is not an established rule for recording inventory, and hence at the time of recognizing and valuing inventory in the financial statements, cost principle , which businesses follow for entirely all of their asset is not recognized for inventory.

Polaris satisfies guarantees to its client. That is the reason guarantee cost is recorded in the cost of offers. There is an argument that a decrease in the dividend payment will reduce the market share price of the firm. There are several types of dividend policy such as stable dividend policy, constant dividend policy and residual dividend policy.

Stable dividend policy offers a stable dividend payout ratio. It includes constant dividend per share and constant payout ratio. The management will not simply decrease the dividend until the company is incapable to support the present dividend. On the other hand, residual dividend policy states that the dividend should be paid only out of left over earnings.

The company can also save on issue cost such as legal fee, underwriting fee and underpricing. Besides that, found that companies have long run target dividend payout ratio which can only be achieved in the long run.

Management also focuses more on dividend changes rather than on absolute value. Besides that, he also found that managers smooth dividend. Therefore, temporary changes in earnings are unlikely to lead to changes in dividend as managers do not like erratic dividend payment due to uncertainty. Furthermore, managers are reluctant to make dividend changes that might have to be reversed as this will lead to uncertainty among shareholders.

The reason is that there is no agency cost, asymmetric information, tax, transaction cost and flotation cost in perfect capital market. Many past studies state that dividend is a signaling tool. This is known as dividend signaling theory. It indicates that high dividend payment provides a positive signal about the current and future prosperity of a company to outsiders.

This is in line with the efficient market hypothesis where all information available to investors is quickly and accurately incorporated into the share price. However, some researchers found no evidence of that. Therefore, another dividend issue still remains unsolved. Moreover, dividend can be used to reduce agency problem. Agency theory deals with the potential conflict of interest between shareholders and management. Dividend payment will reduce the amount of free cash flow within the company.

As a consequence, dividend payment is relevant as it reduces agency cost and indirectly increases the firm value. In Malaysia, firms are free to decide how much they will pay out in dividend to their shareholders for a specified business year in accordance with Companies Act Shareholders prefer cash dividend and also growth in earning per share EPS.

Firms should implement optimal dividend policy that maximizes the market share price of the firm and therefore improves economic growth. The study highlights the relationship between dividend payout and market share price of a firm. The effect of dividend policy on share price is still a controversial topic for many years. Whether it has impact on the market share price of a firm is still questionable. None of researchers and financial analysts can actually determine the best dividend policy.

Some researchers believe that dividend payment will increase the firm value. However, some believe that dividend payment will decrease the firm value instead. Furthermore, some researchers also emphasize that dividend payment has no impact on the firm value. For instance, states that dividend payment and share price are irrelevant under perfect capital market where there is no tax, transaction cost and asymmetric information.

Furthermore, leftist states that a firm will pay less or no dividend if dividend is taxed more heavily than capital gain. The money should be retained within the firm to finance new investment for future capital gain. Conversely, found that investors prefer high dividend policy as dividend in hand is less risky than capital gain.

As a result, managers are difficult to determine which dividend policy is best fit to the company. Therefore, this study wants to explain whether cash dividend payment and other stated factors earnings per share, firm size and debt ratio and share price are relevant in selected Malaysian companies. To examine the relationship between dividend payment and the share price of the selected companies in Malaysia.

To identify whether other factors such as earnings per share, firm size and debt ratio play a role in the impact of share price of selected Malaysian companies. H0: There is no significant statistical relationship between cash dividend and the market share price of companies in Malaysia. H1: There is a significant statistical relationship between cash dividend and the market share price of companies in Malaysia.

H0: There is no significant statistical relationship between earnings per share EPS and the market share price of companies in Malaysia. H1: There is a significant statistical relationship between earnings per share EPS and the market share price of companies in Malaysia.

H0: There is no significant statistical relationship between firm size and the market share price of companies in Malaysia. H1: There is a significant statistical relationship between firm size and the market share price of companies in Malaysia. H0: There is no significant statistical relationship between debt ratio and the market share price of companies in Malaysia. H1: There is a significant statistical relationship between debt ratio and the market share price of companies in Malaysia.

The deductive approach is used to formulate hypotheses and measure them empirically. Quantitative approach relies on numerical evidence to form conclusions or to test hypothesis. Analytical designs are used in this research for the analysis of the relationship between dividend payments and market share price of Malaysian companies to achieve the objectives of this research. Explanatory method is also applied in this research to explain the relationship between the four chosen factors and market value of share of those selected Malaysian companies.

Explanatory method is used as it could recognize and meet the purpose of explaining the relationship between the independent variables and the dependent variable. The requirement is that companies should have paid cash dividend for the past five financial years year year Secondary sources are collected from library, reference books and journals, corporation financial statements and audit reports which similarly conducted by other researchers.

These secondary data are used for references and aid in research writing. Library and its resources - reference books and articles in the library which are enrich with information assisting research findings. Computer and its software - Laptop is used for data storage, writing purpose using Microsoft words and presentation purpose using Power Point. Statistical Package for Social Sciences SPSS program is used to analyze and test the hypotheses by calculating the means, standard deviations, correlation coefficient.

Internet - Internet is significant for online information gathering using search engines such as Google or EBSCO host and communication between group members via electronic-mail. The original shareholders transfer value to new shareholders when the firm issues new shares to finance the dividend. The purpose was to determine the impact of dividend policy on market share price. They applied capital asset pricing model CAPM for testing the relationship between dividend yield and expected share return.

Their results found that the coefficient of dividend yield was not significantly different from zero. Their research empirically supported the theory and concluded that the returns for investors who are holding low or high yield shares are the same. However, concluded that the dividend policy is relevant since he tested the impact of dividend on the share price based on Australian data from the period of to by applying the cross-sectional regressions model.

As a result, the dividend policy is said to be relevant because suboptimal policies could be chosen by managers to invest in positive NPV projects. He applied a two-year and sample data of four industries including steels, food, chemical and manufacturing tools industries.

He then tested them by analyzing various regression models based on the data. The dividend hypothesis was examined by using linear regression model. The results proved that future capital gains received by investors will have higher fluctuation than dividends today. According to his study, higher dividend payout will cause investors to discount a higher dividend stream at a lower required rate of return.

In a sense, less risky shares will normally have a higher price given that other factors of determining share price remain unchanged. He tested the effect of retained profits and dividends on stock prices based on listed US companies from 8 industries for the year of and His results showed that high growth industries prefer more retained profits than dividends whereas low growth industries prefer dividends to retained profits. As a result, he stated that the growth of company associated negatively with the dividend payout.

His outcome was quite similar to early results. However, stated that investors of Nigerian companies prefer the company distribute the dividends to them based on their expectations. Their results found that They then concluded that their study did not empirically give evidence to support the bird-in-hand definition. Monitoring managers will bring high costs to a company.

Therefore, a specialized outsider plays an important role for monitoring them. For instance, managers can be monitored effectively through external financing. In brief, dividend payment will decrease the amount of free cash flow within a company. Managers will then issue equity to finance the investments once they get approval from Security Commission.

As a result, dividend payment is said to be relevant since it helps lower agency cost and indirectly increases the firm value and its market share price. He developed a model that underpins this theory, called the cost minimization model. The model combines the transaction costs that may be controlled by limiting the payout ratio, with the agency costs that may be controlled by raising the payout ratio. Indeed results from an Ordinary Least Squares cross sectional regression using data on US firms, support the theory put forward.

Thus the model provides good fit and consequently has attracted the attention of subsequent studies. However, managers tend to purchase other companies for their desires to raise scope of control within the company. As a result, this agency cost can be eliminated by simply paying higher dividends in order to avoid over-investment by managers.

An OLSQ cross sectional regression is applied to data on US firms, and the results provide support for the cost minimization model and show that firm size is an important explanatory variable. As a result, the information gap between shareholders and managers will be smaller.

They examined the average daily excess share returns ten days surrounding the notice of dividend initiation. Their results showed that positive 3. Furthermore, they stated that there was a significant relationship between the importance of initial dividend and excess share returns on the day of announcement by applying the cross-sectional regression.

In his model, it investigated the importance of dividend in two different ways. Firstly the relation whether the unexpected dividend changes were associated with positive future earning changes and secondly the relation between unexpected changes in share price and changes in annual dividends which convey priceless information to shareholders. The sample consisted of firms. The results showed that relationship was positive but not very strong. They applied dividend increase events and 51 dividend decrease events from year to year to test the impact of announcement on share price in US.

In their model, they base their argument on the declining dividend response coefficients DRCs in the face of increasing institutional holdings. Furthermore, also gave supports that signaling theory plays a significant role in emerging market. The objective was to test the market response based on those announcements. The outcome showed positive and significant relations and thus the signaling theory was supported by the study. However, observing this theory provided inconsistent results.

Shareholders prefer the firm to retain the profits rather than distribute it to them. These undistributed profits will then be used by the firm to finance its new investments. Therefore, shareholders should invest more in those shares with low or no dividend for future capital gain. He derived the after-tax capital asset pricing model CAPM , where the before-tax return of stocks is positively related to the tax burden of equity securities in the cross section.

They argued that the capital gain is not affected by the dividend yields either before or after tax. They criticized their classification of dividend yield. They then applied monthly dividend yield classified into positive yield shares and zero dividend yield shares to prove Brennam model.

Their results found that the dividend coefficient was 0. He formed six dividend-yield portfolios that consisted of positive dividend-yield and zero dividend-yield companies. His outcomes recommended yield-related tax effect. He recommended that growth, agency cost and beta play a role in influencing the optimal dividend payout. He suggested that higher beta coefficients will lead to lower dividend payout. He used the multiple regressions model to test the association of dividend policy with the firm risk with the sample size of firms from sixty four different industries.

It was found that there is significant negative relationship between corporation risk and the dividend payout. He then justified that firms with high beta normally distribute lower dividend because of the higher external borrowing cost. Ordinary Least Square regressions model was applied in the study to examine their relationships.

Besides that, they are listed as the important determinants of firm risk. However, the corporation risk is negatively affected by the leverage. He applied the simple regression model for the first set of coefficient and used multiple regressions model to obtain the second set of estimates results.

Furthermore, he regressed the dividend yield against the beta. The findings stated that there is a significant negative relationship between dividend yield and beta. It concluded that firms with high beta may distribute lower dividend. Some control variables are added in order to examine the relationship between the dividend policy and the share price volatility. Those control variables consisted of growth, debt, earning volatility and the firm size.

These variables clearly affected the share price volatility. They also influence the dividend yield. Besides that, assume that the operating risk is unchanged, the debt level may positively affect dividend yield. The firm size may also have an effect on the stock price volatility. Large corporations are mostly more diversified and thus the value of large corporations might be more stable than those of small corporations. Moreover, investors may react irrationally due to the limited public information from small corporations.

Baskin applied the analytical models that link the dividend to the risk of share to his study. The models consisted of information effect, rate of return effect, arbitrage pricing effect and duration effect. The duration effect stated that fluctuation in interest rate has less effect on high dividend yield shares. Corporations that have high dividend yield will have less volatility in stock price since high dividend yield is likely said to be a positive signal of the cash flow.

He then applied the Gordon growth model to prove this effect. Furthermore, the rate of return effect by Baskin stated that corporations with low dividend payout and dividend yield can be evaluated more valuable than their assets because of the growth opportunities. By referring to his study, corporations with low dividend payout and dividend yield will have more fluctuation in stock price because the predictions of profit from growth opportunity have more error than the forecast of profit from their assets.

He also stated that the excess return is subordinate of price discount rate and the dividend yield since the arbitrage profit will increase by having higher dividend yield. The study also concluded that the share price volatility and the risk of share normally can be controlled by managers when setting the dividend policy.

The announcement of dividend distribution may reflect the stability of corporations. The study concluded that there is a significant negative relationship between the dividend yield and the share price volatility. Besides that, there is also a significant relationship between other variables and the stock price volatility.

He also concluded that a decrease in standard deviation of share price trend will lead to an increase in dividend yield. The panel data was tested by using the fixed effect and random effect models. The result was that there is a significant negative relationship between dividend payout and dividend yield and the stock price volatility.

Besides that, the study also concluded that there is non-significant negative relationship between leverage and firm size and the stock price volatility. They analyze the data by applying multiple regressions model in order to test their associations. The findings stated that there is a significant positive relationship between the dividend policy and the stock price volatility.

They applied the multiple regressions model to examine the association between dividend payout and dividend yield and the stock price. Several control variables were added to their model in the study such as earning volatility, firm size, growth rate and debt level. The findings stated that there is a significant relationship between the dividend payout and the stock price volatility.

The result was similar to the findings of study. As a result, the dividend payout ratio is stated as a major determinant of the stock price volatility according to the study. Besides that, the debt level and the firm size affect the share price volatility the most among the control variables. The findings stated that the firm size affects the share price volatility negatively which was opposed to findings.

However, the stock price volatility is affected positively by the level of debt according to the research. The results showed that there is a significant relationship between the dividend policy and the company performance. The study applied the model of autocorrelation test in order to examine the relationships.

According to the result, changes in dividend strongly connect to current and past performance since positive coefficient of changes in dividend was found after the performance announcement. Furthermore, also examined the relationship between the dividend policy and the company performance. Twenty five corporations listed on Ghana Stock Exchange GSE were chosen as the sample and the time period of the study was from year to year In the study, pooled panel crossed-section regression model was applied for the purpose of getting the maximum possible observation.

The panel regression model was not similar to the regular cross section or time series regression model since the subscript was doubled to each variable dividend policy, dividend per share, firm size, debt ratio and growth in sales. The findings showed that there is a significant positive relationship between the dividend policy and return on assets and sales growth.

As a result, the research also supports the second school of thought that the company performance is affected significantly by the dividend policy. Moreover, oncluded that high dividend payment will lead to an increase in market value of stock. Twenty eight corporations from Indian chemical industry were selected as the sample and the time period of the study was from year to year These variables consisted of cost of capital, improvement of profit margin, capital structure decision, sales growth and capital investment decisions.

The findings stated that there is a significant relationship between the dividend policy and the stock price in those Indian chemical corporations. In this study, cash dividend will be chosen as the main factor that would affect the firm value. However, there are other factors that could affect the share price as well. Thus, another three factors that were suggested in the past studies most frequently will be selected as control variables in this study.

They are net earnings per share EPS , firm size total asset and debt ratio. Three control variables are applied for this research. These variables are chosen as they are recommended in past studies frequently. They are expected to have a great effect on the market value of share and listed as following:.

Is there any significant relationship between dividend policy and the market value of share in selected Malaysian companies? H0: There is no significant statistical relationship between cash dividend and the market share price of selected companies in Malaysia.

H1: There is a significant statistical relationship between cash dividend and the market share price of selected companies in Malaysia. H0: There is no significant statistical relationship between earnings per share EPS and the market share price of selected companies in Malaysia. H1: There is a significant statistical relationship between earnings per share EPS and the market share price of selected companies in Malaysia.

H0: There is no significant statistical relationship between firm size and the market share price of selected companies in Malaysia. H1: There is a significant statistical relationship between firm size and the market share price of selected companies in Malaysia. H0: There is no significant statistical relationship between debt ratio and the market share price of selected companies in Malaysia. H1: There is a significant statistical relationship between debt ratio and the market share price of selected companies in Malaysia.

The main objective for this study is to examine whether there is a significant relationship between the selected four factors and the market value of share of a corporation in Malaysia. The dependent variable for this research is the market value of share of Malaysian corporations. The independent variables for this research are the dividend policy cash dividend whereas the control variables are earnings per share EPS , firm size and debt ratio. In this study, quantitative research is applied which using quantifiable and numeric data.

The aim of this study is to identify the association between the independent variables such as cash dividend payment, earnings per share, firm size and debts and the dependent variable market value of share. According to quantitative approach uses numerical evidence to form conclusions or to test hypothesis.

Besides that stated that quantitative research design is always used to identify the truth value of propositions and enable flexibility in data treatment. For instance, statistical and comparative analysis, data collect and repeatability can define the reliability of the data. The method of literature search is applied by gathering information from relevant trade publications, newspapers, magazines, annual reports and online data bases. This research uses secondary data.

It is collected necessarily as it is used to examine the relationship among the variables and also applied as evidences to support the findings. The secondary data in this study refers to relevant trade publications, newspapers, magazines, corporation annual reports journals, relevant articles, Google Scholar and online data bases EBSCO. The sources enable the collection of the market price of share of those selected companies. The published accounts of those chosen companies can be obtained from Bursa Malaysia website.

Furthermore, Statistical Package for Social Sciences SPSS program is used to analyze and test the hypotheses by calculating the means, standard deviations, correlation coefficient. The scale applied to examine the relationship among those variables is interval scale. This is because it is assumed to have equidistant points between each of the scale elements. Interval scales are also scales which are defined by metrics such as logarithms.

Examples of parametric statistical techniques used in this study are Pearson correlation-r and significant 2-tailed. Several stages are carried out in the data collection process. The first stage is to identify those selected corporations for which data are available on the announcement of the dividend date.

The number of selected corporations is The second stage is to collect relevant data for those selected corporations. The annual data collected through Bursa Malaysia website of the companies listed at Bursa Malaysia for the period of to is identified. A total of listed Malaysian companies that declared the dividend payment from the year to the year are selected as the sample for this research.

A period of five years to is applied in this research. The dividend payment refers to cash dividend. The requirement is that those selected companies should have at least paid cash dividend once over the past five financial years.

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Goodwill Often a purchaser will pay more to acquire a subsidiary than the fair value of the net assets acquired. The market value of the acquired is often more than the value of its net assets. The modified internal rate of return MIRR is a financial measurement of an investment. MIRR can be said as a better version of internal rate of return that can be used for capital budgeting. The assumption of the project cash flows are reinvested at IRR are not included. This paper explains the U.

I will explain the following questions. Explain the components of a financial market and its relevance to Jagdambay Exports. Be explicit and explain to the CFO how financial markets differ from markets for physical assets and why that difference matters to Jagdambay Exports. Be that as it may, in the meantime, the acquiring company gets the greater part of the assets and liabilities of the target firm, in this way roughly killing the impacts of the dilution. Should the merger demonstrate beneficial and give adequate synergy, the present shareholders will gain over the long run from the additional appreciation given by the assets of the target firm.

However, an all stock option is not the most desirable form of financing an acquisition. The third option that Shell can consider would be a combination of cash and stock. Mergers and acquisitions are basically associated with the concept of buying, selling or combining different companies for the purpose of expansion and growth for the companies. Supporters said that, fair value are usually claim for the facts of the market price or estimate price on current situation and sometimes they have admit there will be no active market or no market at all, thus no real price.

Fair value accounting is an additional momentum to a destructive downside overshoot. I believed that there are many solutions or approach that we have beside fair value accounting that can be used to solve the problem arise in the financial accounting such as based on historical cost, current cost, realisable value and present value.

Basically firm records all of its assets in the financial statements at their original cost cost which is initially incurred to acquire these assets , but this is not an established rule for recording inventory, and hence at the time of recognizing and valuing inventory in the financial statements, cost principle , which businesses follow for entirely all of their asset is not recognized for inventory.

Polaris satisfies guarantees to its client. That is the reason guarantee cost is recorded in the cost of offers. Polaris cost bookkeeping strategy and cost of sales These expenses would either be expensed as cost of offers or as an offering and authoritative costs. In this way, net salary won 't be influenced. This essay aims at providing an understanding of dividend policy by reviewing the existing theories on dividend policy, the practical and operational issues of the policy and the factors influencing the policy.

Additionally, this essay looks at the dividend policy that is used in Maldives business and will use evidence from Maldivian business environment. Dividend policy refers to the set of rules or guideline that a company uses to decide how much of its profit it will payout to the shareholders. Cash dividend and dividend payment Cash dividend is money paid to stockholders, normally out of the corporation's current earnings or accumulated profits.

Not all companies pay a dividend. Usually, the board of directors determines if a dividend is …show more content… They say that dividend policy is irrelevant and is not deterministic of the market value. In Malaysia, firms are free to decide how much they will pay out in dividend to their shareholders for a specified business year in accordance with Companies Act Shareholders prefer cash dividend and also growth in earning per share EPS. Firms should implement optimal dividend policy that maximizes the market share price of the firm and therefore improves economic growth.

The study highlights the relationship between dividend payout and market share price of a firm. The effect of dividend policy on share price is still a controversial topic for many years. Whether it has impact on the market share price of a firm is still questionable. None of researchers and financial analysts can actually determine the best dividend policy.

Some researchers believe that dividend payment will increase the firm value. However, some believe that dividend payment will decrease the firm value instead. Furthermore, some researchers also emphasize that dividend payment has no impact on the firm value. For instance, states that dividend payment and share price are irrelevant under perfect capital market where there is no tax, transaction cost and asymmetric information.

Furthermore, leftist states that a firm will pay less or no dividend if dividend is taxed more heavily than capital gain. The money should be retained within the firm to finance new investment for future capital gain. Conversely, found that investors prefer high dividend policy as dividend in hand is less risky than capital gain. As a result, managers are difficult to determine which dividend policy is best fit to the company.

Therefore, this study wants to explain whether cash dividend payment and other stated factors earnings per share, firm size and debt ratio and share price are relevant in selected Malaysian companies. To examine the relationship between dividend payment and the share price of the selected companies in Malaysia. To identify whether other factors such as earnings per share, firm size and debt ratio play a role in the impact of share price of selected Malaysian companies.

H0: There is no significant statistical relationship between cash dividend and the market share price of companies in Malaysia. H1: There is a significant statistical relationship between cash dividend and the market share price of companies in Malaysia. H0: There is no significant statistical relationship between earnings per share EPS and the market share price of companies in Malaysia. H1: There is a significant statistical relationship between earnings per share EPS and the market share price of companies in Malaysia.

H0: There is no significant statistical relationship between firm size and the market share price of companies in Malaysia. H1: There is a significant statistical relationship between firm size and the market share price of companies in Malaysia. H0: There is no significant statistical relationship between debt ratio and the market share price of companies in Malaysia.

H1: There is a significant statistical relationship between debt ratio and the market share price of companies in Malaysia. The deductive approach is used to formulate hypotheses and measure them empirically. Quantitative approach relies on numerical evidence to form conclusions or to test hypothesis. Analytical designs are used in this research for the analysis of the relationship between dividend payments and market share price of Malaysian companies to achieve the objectives of this research.

Explanatory method is also applied in this research to explain the relationship between the four chosen factors and market value of share of those selected Malaysian companies. Explanatory method is used as it could recognize and meet the purpose of explaining the relationship between the independent variables and the dependent variable. The requirement is that companies should have paid cash dividend for the past five financial years year year Secondary sources are collected from library, reference books and journals, corporation financial statements and audit reports which similarly conducted by other researchers.

These secondary data are used for references and aid in research writing. Library and its resources - reference books and articles in the library which are enrich with information assisting research findings. Computer and its software - Laptop is used for data storage, writing purpose using Microsoft words and presentation purpose using Power Point. Statistical Package for Social Sciences SPSS program is used to analyze and test the hypotheses by calculating the means, standard deviations, correlation coefficient.

Internet - Internet is significant for online information gathering using search engines such as Google or EBSCO host and communication between group members via electronic-mail. The original shareholders transfer value to new shareholders when the firm issues new shares to finance the dividend. The purpose was to determine the impact of dividend policy on market share price. They applied capital asset pricing model CAPM for testing the relationship between dividend yield and expected share return.

Their results found that the coefficient of dividend yield was not significantly different from zero. Their research empirically supported the theory and concluded that the returns for investors who are holding low or high yield shares are the same. However, concluded that the dividend policy is relevant since he tested the impact of dividend on the share price based on Australian data from the period of to by applying the cross-sectional regressions model. As a result, the dividend policy is said to be relevant because suboptimal policies could be chosen by managers to invest in positive NPV projects.

He applied a two-year and sample data of four industries including steels, food, chemical and manufacturing tools industries. He then tested them by analyzing various regression models based on the data. The dividend hypothesis was examined by using linear regression model. The results proved that future capital gains received by investors will have higher fluctuation than dividends today. According to his study, higher dividend payout will cause investors to discount a higher dividend stream at a lower required rate of return.

In a sense, less risky shares will normally have a higher price given that other factors of determining share price remain unchanged. He tested the effect of retained profits and dividends on stock prices based on listed US companies from 8 industries for the year of and His results showed that high growth industries prefer more retained profits than dividends whereas low growth industries prefer dividends to retained profits.

As a result, he stated that the growth of company associated negatively with the dividend payout. His outcome was quite similar to early results. However, stated that investors of Nigerian companies prefer the company distribute the dividends to them based on their expectations.

Their results found that They then concluded that their study did not empirically give evidence to support the bird-in-hand definition. Monitoring managers will bring high costs to a company. Therefore, a specialized outsider plays an important role for monitoring them. For instance, managers can be monitored effectively through external financing.

In brief, dividend payment will decrease the amount of free cash flow within a company. Managers will then issue equity to finance the investments once they get approval from Security Commission. As a result, dividend payment is said to be relevant since it helps lower agency cost and indirectly increases the firm value and its market share price.

He developed a model that underpins this theory, called the cost minimization model. The model combines the transaction costs that may be controlled by limiting the payout ratio, with the agency costs that may be controlled by raising the payout ratio. Indeed results from an Ordinary Least Squares cross sectional regression using data on US firms, support the theory put forward. Thus the model provides good fit and consequently has attracted the attention of subsequent studies.

However, managers tend to purchase other companies for their desires to raise scope of control within the company. As a result, this agency cost can be eliminated by simply paying higher dividends in order to avoid over-investment by managers. An OLSQ cross sectional regression is applied to data on US firms, and the results provide support for the cost minimization model and show that firm size is an important explanatory variable.

As a result, the information gap between shareholders and managers will be smaller. They examined the average daily excess share returns ten days surrounding the notice of dividend initiation. Their results showed that positive 3. Furthermore, they stated that there was a significant relationship between the importance of initial dividend and excess share returns on the day of announcement by applying the cross-sectional regression.

In his model, it investigated the importance of dividend in two different ways. Firstly the relation whether the unexpected dividend changes were associated with positive future earning changes and secondly the relation between unexpected changes in share price and changes in annual dividends which convey priceless information to shareholders.

The sample consisted of firms. The results showed that relationship was positive but not very strong. They applied dividend increase events and 51 dividend decrease events from year to year to test the impact of announcement on share price in US. In their model, they base their argument on the declining dividend response coefficients DRCs in the face of increasing institutional holdings. Furthermore, also gave supports that signaling theory plays a significant role in emerging market.

The objective was to test the market response based on those announcements. The outcome showed positive and significant relations and thus the signaling theory was supported by the study. However, observing this theory provided inconsistent results.

Shareholders prefer the firm to retain the profits rather than distribute it to them. These undistributed profits will then be used by the firm to finance its new investments. Therefore, shareholders should invest more in those shares with low or no dividend for future capital gain. He derived the after-tax capital asset pricing model CAPM , where the before-tax return of stocks is positively related to the tax burden of equity securities in the cross section.

They argued that the capital gain is not affected by the dividend yields either before or after tax. They criticized their classification of dividend yield. They then applied monthly dividend yield classified into positive yield shares and zero dividend yield shares to prove Brennam model.

Their results found that the dividend coefficient was 0. He formed six dividend-yield portfolios that consisted of positive dividend-yield and zero dividend-yield companies. His outcomes recommended yield-related tax effect. He recommended that growth, agency cost and beta play a role in influencing the optimal dividend payout.

He suggested that higher beta coefficients will lead to lower dividend payout. He used the multiple regressions model to test the association of dividend policy with the firm risk with the sample size of firms from sixty four different industries. It was found that there is significant negative relationship between corporation risk and the dividend payout. He then justified that firms with high beta normally distribute lower dividend because of the higher external borrowing cost.

Ordinary Least Square regressions model was applied in the study to examine their relationships. Besides that, they are listed as the important determinants of firm risk. However, the corporation risk is negatively affected by the leverage. He applied the simple regression model for the first set of coefficient and used multiple regressions model to obtain the second set of estimates results.

Furthermore, he regressed the dividend yield against the beta. The findings stated that there is a significant negative relationship between dividend yield and beta. It concluded that firms with high beta may distribute lower dividend. Some control variables are added in order to examine the relationship between the dividend policy and the share price volatility. Those control variables consisted of growth, debt, earning volatility and the firm size.

These variables clearly affected the share price volatility. They also influence the dividend yield. Besides that, assume that the operating risk is unchanged, the debt level may positively affect dividend yield. The firm size may also have an effect on the stock price volatility. Large corporations are mostly more diversified and thus the value of large corporations might be more stable than those of small corporations. Moreover, investors may react irrationally due to the limited public information from small corporations.

Baskin applied the analytical models that link the dividend to the risk of share to his study. The models consisted of information effect, rate of return effect, arbitrage pricing effect and duration effect.

The duration effect stated that fluctuation in interest rate has less effect on high dividend yield shares. Corporations that have high dividend yield will have less volatility in stock price since high dividend yield is likely said to be a positive signal of the cash flow. He then applied the Gordon growth model to prove this effect. Furthermore, the rate of return effect by Baskin stated that corporations with low dividend payout and dividend yield can be evaluated more valuable than their assets because of the growth opportunities.

By referring to his study, corporations with low dividend payout and dividend yield will have more fluctuation in stock price because the predictions of profit from growth opportunity have more error than the forecast of profit from their assets. He also stated that the excess return is subordinate of price discount rate and the dividend yield since the arbitrage profit will increase by having higher dividend yield.

The study also concluded that the share price volatility and the risk of share normally can be controlled by managers when setting the dividend policy. The announcement of dividend distribution may reflect the stability of corporations. The study concluded that there is a significant negative relationship between the dividend yield and the share price volatility. Besides that, there is also a significant relationship between other variables and the stock price volatility.

He also concluded that a decrease in standard deviation of share price trend will lead to an increase in dividend yield. The panel data was tested by using the fixed effect and random effect models. The result was that there is a significant negative relationship between dividend payout and dividend yield and the stock price volatility. Besides that, the study also concluded that there is non-significant negative relationship between leverage and firm size and the stock price volatility. They analyze the data by applying multiple regressions model in order to test their associations.

The findings stated that there is a significant positive relationship between the dividend policy and the stock price volatility. They applied the multiple regressions model to examine the association between dividend payout and dividend yield and the stock price.

Several control variables were added to their model in the study such as earning volatility, firm size, growth rate and debt level. The findings stated that there is a significant relationship between the dividend payout and the stock price volatility. The result was similar to the findings of study. As a result, the dividend payout ratio is stated as a major determinant of the stock price volatility according to the study. Besides that, the debt level and the firm size affect the share price volatility the most among the control variables.

The findings stated that the firm size affects the share price volatility negatively which was opposed to findings. However, the stock price volatility is affected positively by the level of debt according to the research. The results showed that there is a significant relationship between the dividend policy and the company performance. The study applied the model of autocorrelation test in order to examine the relationships.

According to the result, changes in dividend strongly connect to current and past performance since positive coefficient of changes in dividend was found after the performance announcement. Furthermore, also examined the relationship between the dividend policy and the company performance. Twenty five corporations listed on Ghana Stock Exchange GSE were chosen as the sample and the time period of the study was from year to year In the study, pooled panel crossed-section regression model was applied for the purpose of getting the maximum possible observation.

The panel regression model was not similar to the regular cross section or time series regression model since the subscript was doubled to each variable dividend policy, dividend per share, firm size, debt ratio and growth in sales. The findings showed that there is a significant positive relationship between the dividend policy and return on assets and sales growth. As a result, the research also supports the second school of thought that the company performance is affected significantly by the dividend policy.

Moreover, oncluded that high dividend payment will lead to an increase in market value of stock. Twenty eight corporations from Indian chemical industry were selected as the sample and the time period of the study was from year to year These variables consisted of cost of capital, improvement of profit margin, capital structure decision, sales growth and capital investment decisions.

The findings stated that there is a significant relationship between the dividend policy and the stock price in those Indian chemical corporations. In this study, cash dividend will be chosen as the main factor that would affect the firm value. However, there are other factors that could affect the share price as well. Thus, another three factors that were suggested in the past studies most frequently will be selected as control variables in this study. They are net earnings per share EPS , firm size total asset and debt ratio.

Three control variables are applied for this research. These variables are chosen as they are recommended in past studies frequently. They are expected to have a great effect on the market value of share and listed as following:. Is there any significant relationship between dividend policy and the market value of share in selected Malaysian companies? H0: There is no significant statistical relationship between cash dividend and the market share price of selected companies in Malaysia.

H1: There is a significant statistical relationship between cash dividend and the market share price of selected companies in Malaysia. H0: There is no significant statistical relationship between earnings per share EPS and the market share price of selected companies in Malaysia. H1: There is a significant statistical relationship between earnings per share EPS and the market share price of selected companies in Malaysia. H0: There is no significant statistical relationship between firm size and the market share price of selected companies in Malaysia.

H1: There is a significant statistical relationship between firm size and the market share price of selected companies in Malaysia. H0: There is no significant statistical relationship between debt ratio and the market share price of selected companies in Malaysia.

H1: There is a significant statistical relationship between debt ratio and the market share price of selected companies in Malaysia. The main objective for this study is to examine whether there is a significant relationship between the selected four factors and the market value of share of a corporation in Malaysia.

The dependent variable for this research is the market value of share of Malaysian corporations. The independent variables for this research are the dividend policy cash dividend whereas the control variables are earnings per share EPS , firm size and debt ratio. In this study, quantitative research is applied which using quantifiable and numeric data. The aim of this study is to identify the association between the independent variables such as cash dividend payment, earnings per share, firm size and debts and the dependent variable market value of share.

According to quantitative approach uses numerical evidence to form conclusions or to test hypothesis. Besides that stated that quantitative research design is always used to identify the truth value of propositions and enable flexibility in data treatment.

For instance, statistical and comparative analysis, data collect and repeatability can define the reliability of the data. The method of literature search is applied by gathering information from relevant trade publications, newspapers, magazines, annual reports and online data bases. This research uses secondary data. It is collected necessarily as it is used to examine the relationship among the variables and also applied as evidences to support the findings.

The secondary data in this study refers to relevant trade publications, newspapers, magazines, corporation annual reports journals, relevant articles, Google Scholar and online data bases EBSCO. The sources enable the collection of the market price of share of those selected companies. The published accounts of those chosen companies can be obtained from Bursa Malaysia website.

Furthermore, Statistical Package for Social Sciences SPSS program is used to analyze and test the hypotheses by calculating the means, standard deviations, correlation coefficient. The scale applied to examine the relationship among those variables is interval scale. This is because it is assumed to have equidistant points between each of the scale elements.

Interval scales are also scales which are defined by metrics such as logarithms. Examples of parametric statistical techniques used in this study are Pearson correlation-r and significant 2-tailed. Several stages are carried out in the data collection process. The first stage is to identify those selected corporations for which data are available on the announcement of the dividend date.

The number of selected corporations is The second stage is to collect relevant data for those selected corporations. The annual data collected through Bursa Malaysia website of the companies listed at Bursa Malaysia for the period of to is identified. A total of listed Malaysian companies that declared the dividend payment from the year to the year are selected as the sample for this research.

A period of five years to is applied in this research. The dividend payment refers to cash dividend. The requirement is that those selected companies should have at least paid cash dividend once over the past five financial years. Multiple regression model and Pearson correlation analysis are used in this study in order to analyse the relationship between independent variables and dependent variable.

Baskin, This model which primarily connects the stock price to dividend payment has been developed by other variables In this study, these variables consist of earnings per share, firm size and debt ratio. The dependent variable share price is regressed on the main independent variable cash dividend. Therefore, the equation of the multiple regressions model is given as below:.

Furthermore, earnings per share, firm size and debt ratio may also affect the dividend policy and the share price The stock price of small firms is usually more volatile than large firms since small firms may have less diversification and information available to investors. Moreover, leverage could have effects on the stock price due to operating risks. Also, the existence of asymmetric information links the borrowing policy to the dividend policy. As a result, the equation of the regression model is expanded as below:.

Pearson Correlation Analysis is applied in this study for the analysis of relationship between independent variables and the dependent variable. This model explains the direction and relative strength of a linear relationship between two numerical variable. In this study, the two variables are dividend per share distributed by those selected companies during the study period and their share prices.

The calculation of the coefficient of correlation is done for each of selected firms and the average calculated from the individual result. The formula is presented as below:. Several limitations were occurred in the process of completing this research. Those limitations may influence the accuracy of the result of findings. The major limits of this research are the size of the sample and the period of time of the study used. Most research strives for the largest possible proportion of its targeted community and for the longest period of time possible in order to get accurate and reliable results that can be generalized confidently.

Excessive volatilities were occurred in the Bursa Malaysia during the year to year in term of data volatilities. The Malaysian share market was affected by the US subprime crisis and led to a rapid sell-off during the period. It will lead to a decrease in the share price due to excessive supply.

Besides that, the stock market was also affected by the instability of political issues during that period. As a result, it is believed that the findings of this research may be affected by these stated volatilities due to the increase of variances in stock prices.

Something is. how to write an article pitch so? Certainly

Dividend payment is not dispensable, but very necessary. It is an important strategy of a company. During the course taken our honorable teacher asked to prepare a report on dividend policy. The report is designed to gather practical knowledge from the corporate world. The objective is to get the experience of dividend policy that used in real corporate environment.

It helps to integrate the knowledge learned in the class room from this course. Bata is trying to formulate an accomplished dividend policy that offers the dividend after undertaking the investment for expanding the business and financial decision. This report will help us to understand the appraisal process and to find out the scope of learning Dividend policy theories By Munene Laiboni 1.

Introduction: Dividend policy theories are propositions put in place to explain the rationale and major arguments relating to payment of dividends by firms. Firms are often torn in between paying dividends or reinvesting their profits on the business. Even those firms which pay dividends do not appear to have a stationary formula of determining the dividend payout ratio. In this paper, we explore various theories which have been postulated to explain dividend payment behavior of firms.

Major Schools of thought: At the heart of the dividend policy theories discussion are two opposing schools of thought: One side holds that whether firms pay dividends or not is irrelevant in determining the stock price and hence the market value of the firm and ultimately its weighted cost of capital.

In retrospect, the opposing side holds that firms which pay periodic dividends eventually tend to have higher stock prices, market values and cheaper WACCs. The existence of these two opposing sides has spawned vast amounts of empirical and theoretical research. Scholars on both sides of the divide appear relentless on showcasing the case for their arguments Abstract Dividend represent a source of cash flow shareholder and provide information about the forms performance.

This paper will discuss what is dividend, dividend policy and the various factors that affect dividend policy used in the dividend policy in an organization.. Reference will be made to metropolitan teachers Sacco in Kenya. Table of content Table of Contents Abstract 2 Table of content 3 1.

Summary The objective of this paper is to examine the relationship between corporate governance on dividends payout in Canada to better understand "why companies pay dividends". In the light of agency theory, Adjaoud and Ben-Amar tested two competing hypothesis, which are outcome and substitution hypothesis. They chose Canada to examine the relationship between corporate governance and corporate dividend payments for two reasons; first, the comparability between Canada and USA from the perspective of stock market development, and legal protection offered to minority shareholders.

Secondly, the difference between Canada and many other law countries in the concentration of ownership and the frequent use of dual class share. The two variables in the relationship are the dividend policy, the dependent variable, and the corporate governance, the independent variable.

The sample data used in the study was comprised of firm-years listed on Toronto stock exchange. The sample was divided into two categories according to the dividend payouts, the first consist of paying firms and non paying firms. The processing of such sample data showed the following findings; 1- The result of regression of dividend payout on corporate governance score showed a positive relationship between corporate In terms of stock, dividend decision is an important concept, which can not be ignored.

However, no matter how it is debated, dividend policy is very important to the healthy and orderly operation of a company. There are diverse types of dividend policy, and each policy has different influence on corporations.

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. 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 Earnings or Cash Dividends? The opportunity cost of one alternative is the other alternative. We already saw this when covering the cost of capital. Remember the cost associated with retained earnings internal equity?

A firm that cannot earn the going rate of return on its investments should pay out its money so the investors can earn that rate of return elsewhere. Likewise, if the firm pays cash dividends it gives up any opportunities present with earnings retention. Dividend Policy Theory We start our coverage of dividend policy theory with three extreme positions, labeled "basic views.

They are all based on assumptions that leave out important pieces to the dividend puzzle. So after we cover them, we will proceed by taking into account some other factors that will help to "improve our thinking. Haveloche is constantly faced with the predicament of deciding what dividend policy is best for the organization and the investors.

Below are the two scatter plots created from the information given in the case. The first scatter plot charts the dividend and the stock price. As you can see from the scatter plot, there is no obvious correlation between the two.

The dividend does not necessarily move in the same direction or the opposite direction of the stock price. The second scatter plot charts the change in the stock price with the dividend. As you can also see with this scatter plot, there is no real correlation between these two.

The result of the study indicates dividend policies of Indian companies were highly influenced by profitability and liquidity of the firm. The major companies follow conservative dividend policy. Dividend policy is one of the most important financial policies , not only from the viewpoint of the company, but also from that of the shareholders, the customers, the workers, regulatory bodies and the Government. Finance scholars have engaged in extensive theorizing to explain why companies should pay or not It may be divided as a whole between long term, capital investments decisions, and short term, working capital.

Corporate finance entails many important topics. One important topic is the dividend policy. In order to fully understand dividends , you must know the different types of dividends , how they are paid, and the issues surrounding dividend policy decisions.

It is the portion of corporate profits paid out to stockholders. Dividends usually come in several different forms. The basic types of cash dividends are as follows: regular cash dividends , extra dividends , special External Factors 2. Dividend policy Dividend policy is concerned with taking a decision regarding paying cash dividend in the present or paying an increased dividend at a later stage.

The firm could also pay in the form of stock dividends which unlike cash dividends do not provide liquidity to the investors, however, it ensures capital gains to the stockholders. The expectations of dividends by shareholders helps them determine the share value, therefore, dividend policy is a significant decision taken by the financial managers of any company.

Contents 1 Concept 2 Relevance of dividend policy 2. The dividend irrelevance theory is a concept that is based on the premise that the dividend policy of a given company should not be considered particularly important by investors. Further, the terms of that dividend policy should not have any bearing on the price of the shares of stock issued by that company. With this particular financial theory , the idea is that investors can always sell a portion of their shares if they want to generate some amount of cash flow.

As with most investment theories , the dividend irrelevance theory has its share of supporters and detractors. Among those who find that the dividend irrelevance theory has merit, the usual stance is that many investors use dividend payments to purchase more shares, thus increasing the holdings that the investor has in the company.

The same general effect could possibly be achieved if dividends are not issued, and those funds are invested in various projects and activities that ultimately increase the value of the shares already owned by investors. In the end, the impact will be the same. For investors who do not agree with the Sign Up. Sign In. Sign Up Sign In. Home Essays Dividend Policy Theories.

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The dependent variable for this research is the market value of share of Malaysian corporations. The independent variables for this research are the dividend policy cash dividend whereas the control variables are earnings per share EPS , firm size and debt ratio. In this study, quantitative research is applied which using quantifiable and numeric data.

The aim of this study is to identify the association between the independent variables such as cash dividend payment, earnings per share, firm size and debts and the dependent variable market value of share. According to quantitative approach uses numerical evidence to form conclusions or to test hypothesis. Besides that stated that quantitative research design is always used to identify the truth value of propositions and enable flexibility in data treatment.

For instance, statistical and comparative analysis, data collect and repeatability can define the reliability of the data. The method of literature search is applied by gathering information from relevant trade publications, newspapers, magazines, annual reports and online data bases. This research uses secondary data.

It is collected necessarily as it is used to examine the relationship among the variables and also applied as evidences to support the findings. The secondary data in this study refers to relevant trade publications, newspapers, magazines, corporation annual reports journals, relevant articles, Google Scholar and online data bases EBSCO. The sources enable the collection of the market price of share of those selected companies. The published accounts of those chosen companies can be obtained from Bursa Malaysia website.

Furthermore, Statistical Package for Social Sciences SPSS program is used to analyze and test the hypotheses by calculating the means, standard deviations, correlation coefficient. The scale applied to examine the relationship among those variables is interval scale. This is because it is assumed to have equidistant points between each of the scale elements.

Interval scales are also scales which are defined by metrics such as logarithms. Examples of parametric statistical techniques used in this study are Pearson correlation-r and significant 2-tailed. Several stages are carried out in the data collection process.

The first stage is to identify those selected corporations for which data are available on the announcement of the dividend date. The number of selected corporations is The second stage is to collect relevant data for those selected corporations. The annual data collected through Bursa Malaysia website of the companies listed at Bursa Malaysia for the period of to is identified. A total of listed Malaysian companies that declared the dividend payment from the year to the year are selected as the sample for this research.

A period of five years to is applied in this research. The dividend payment refers to cash dividend. The requirement is that those selected companies should have at least paid cash dividend once over the past five financial years.

Multiple regression model and Pearson correlation analysis are used in this study in order to analyse the relationship between independent variables and dependent variable. Baskin, This model which primarily connects the stock price to dividend payment has been developed by other variables In this study, these variables consist of earnings per share, firm size and debt ratio.

The dependent variable share price is regressed on the main independent variable cash dividend. Therefore, the equation of the multiple regressions model is given as below:. Furthermore, earnings per share, firm size and debt ratio may also affect the dividend policy and the share price The stock price of small firms is usually more volatile than large firms since small firms may have less diversification and information available to investors.

Moreover, leverage could have effects on the stock price due to operating risks. Also, the existence of asymmetric information links the borrowing policy to the dividend policy. As a result, the equation of the regression model is expanded as below:. Pearson Correlation Analysis is applied in this study for the analysis of relationship between independent variables and the dependent variable.

This model explains the direction and relative strength of a linear relationship between two numerical variable. In this study, the two variables are dividend per share distributed by those selected companies during the study period and their share prices. The calculation of the coefficient of correlation is done for each of selected firms and the average calculated from the individual result. The formula is presented as below:. Several limitations were occurred in the process of completing this research.

Those limitations may influence the accuracy of the result of findings. The major limits of this research are the size of the sample and the period of time of the study used. Most research strives for the largest possible proportion of its targeted community and for the longest period of time possible in order to get accurate and reliable results that can be generalized confidently.

Excessive volatilities were occurred in the Bursa Malaysia during the year to year in term of data volatilities. The Malaysian share market was affected by the US subprime crisis and led to a rapid sell-off during the period. It will lead to a decrease in the share price due to excessive supply. Besides that, the stock market was also affected by the instability of political issues during that period. As a result, it is believed that the findings of this research may be affected by these stated volatilities due to the increase of variances in stock prices.

Moreover, the inadequacy of research skills, expertise and limited research tools used may also influence the reliability of the findings. The regression assumption tests are applied in this study for the reliability of the model before analyzing the data through regression model.

Requirements of normality, linearity and collinearity must be met before applying the regression model to analyze the data. Collinearity requires that the independent variables should not correlate with each other. The existence of collinearity causes independent variables cannot be completely independent. This will occur when one independent variable strongly correlates with another and usually the regression model is not added with new information. Besides that, the model outcomes will be violated by the correlation due to the problem of isolating the effect of strong correlation between the selected independent variables.

One of the ways applied to measure the collinearity is to define the variance inflationary factor VIF for every independent variable. The formula of VIF is as below:. The collinearity test between the independent variables DPS, EPS, total asset and debt ratio is applied in this study in order to define whether there is a collineary problem for each independent variable with a significant impact on the association between the independent variables and the dependent variable by using the SPSS software.

The table 4. Therefore, it concludes that no collinearity is associated between the independent variables and the requirement of collinearity for regression model is met. Another important assumption of the regression model is the normality assumption. The assumption of normality requires that all variables must be normal distributed.

Regression analysis is fairly robust against departures from the normality assumption. The regression equation will not be affected seriously as long as the distribution of the variables is not abnormally different from the normal distribution. In other words, the outcomes will be more accurate if the variables follow the normal distribution. In this study, the normality of the independent variables DPS, EPS, total asset and debt ratio and the dependent variable share price will be tested through observing the skewness and kurtosis and Shapiro-Wilk test.

The skewness statistic assesses the area to which a data set is not normal distributed. The value of zero of the skewness means the data set is normally distributed. The distribution is right skewed if the skewness has a positive value whereas the distribution is left skewed if the skewness has a negative value. The kurtosis statistic assesses the relative concentration of values in the middle of the distribution of a data set as compared to the tails.

The value of zero of the kurtosis indicates the data set is normally distributed. The distribution is flatter than the bell-shaped distribution if the kurtosis has a negative value whereas the distribution is sharper than the normal distribution if the kurtosis has a positive value. Table 4. All the value of skewness and kurtosis are computed by SPSS software. As shown in the table, the variable of share price SP has a skewness of 0.

The DPS has a skewness of 0. The EPS has a skewness of The TA has a skewness of The DEBT has a skewness of As a result, it can conclude that all the variables are estimated to be close to normal distribution. Therefore, this allows the possibility of drawing results of the regression model. The other method to test the normality of variables is to run Kolmogorov-Smirnov and Shapiro-Wilk test. Kolmogorov-Smirnov test is used if there are more than variables.

Therefore, Shapiro-Wilk test is appropriate to apply in this study to test the normality. Assume the null hypothesis H0 states that the variable is normally distributed and the alternative hypothesis H1 states that the variable is not normally distributed. EPS has a p-value of 0. Lastly, DEBT has a p-value of 0. At the 0. Therefore, we fail to reject the null hypothesis H0 and it can conclude that all the variables are normally distributed. Furthermore, another assumption for regression model is linearity.

It indicates that the relationship between the independent variables and the dependent variable must be linear. In this study, a residual plot is used in order to test the linearity between the independent variable and the dependent variable. The regression residuals versus the independent variable values are marked in the residual plot. Generally, the residual plot is applied to measure whether the regression line is fit. There is no apparent cluster of positive residuals or a cluster of negative residual if linearity occurs.

By observing the above figures, all the variables meet the assumption of linearity. Therefore, it can conclude that the regression model is suitable for the data of this study according to all the previous assumption tests. On the other hand, it can also conclude that the multiple regressions model can be counted on to explain the dependent variable. It shows the minimum, maximum, mean and standard deviation.

As shown in the table, the minimum of the share price SP is 0. It has a mean of 5. However, the outcome found by Salih and Alaa is different from this study. According to their study on how dividend policy affects share price, it has a greater mean of Besides that, the study of Zuriawati has a smaller mean of 0.

The minimum of dividend per share DPS is 0. It has a mean of 0. It indicates that the share price will increase by 0. For the dividend, their result has a mean of 0. It means an increase by one percent of the standard deviation of the dividend will lead to an increase in share price by 0. Moreover, Salih and Alaa found a higher mean of 5. Next, the table shows that the minimum of earnings per share EPS is 0. It has the mean of 0. It means the share price will increase by 0. Furthermore, the total asset TA is measured by using the natural logarithm of total asset.

The minimum of total asset TA is 0. It has a mean of 3. It means the share price will increase by 7. However, the study of Salih and Alaa found a higher mean of 5. It indicates that one percent increase in standard deviation of the total asset variable will lead to an increase in share price by 5.

Lastly, the debt ratio DEBT is measured by total debt over total equity. The minimum of DEBT is 0 and the maximum is It has a mean of 1. It means the share price will increase by 2. However, Mohammad and Ardekani found a lower mean of 0. Besides that, the study by Zuriawati also has a smaller mean of 0.

According to the results in table 4. As shown in table 4. It is applied to assess the degree of correlation between the independent variables and the dependent variable. Generally, the value of range is between -1 and 1. It indicates a strong positive correlation between the independent variable and the dependent variable if the value is 1.

However, it indicates a strong negative correlation between the independent variable and the dependent variable if the value is In this study, the independent variables are dividend per share, earnings per share, total asset and debt ratio and the dependent variable is share price. The table shows that the R is 0. Furthermore, by assessing the value of R square, the dependent variable can be explained by the proportion of the independent variables.

R square refers to coefficient of determination. It is used to measure the proportion of variation of the dependent variable that is explained by the independent variable in the regression model. It means However, the model cannot explain the remaining Moreover, the overall F test is applied in order to test whether there is a significant relationship between the entire set of independent variables and the dependent variable by comparing the calculated F as shown in table 4.

If the calculated F is larger than the critical value, it indicates that the R square is statistically significant and therefore the result from the model can be used. The calculated F as shown in table 4. As a result, it can conclude that there is a statistically significant relationship between the independent variables and the dependent variable at the 0. Those hypotheses of this study are tested in the next section:. According to table 4. The table shows that the value of Pearson correlation r is 0.

Therefore, there is a strong positive relationship between the dividend per share DPS and the share price SP. Table 5. Therefore, there is a strong positive relationship between the earnings per share EPS and the share price SP. Therefore, there is a strong positive relationship between the total asset TA and the share price SP. The table shows that the value of Pearson correlation r is It also stated that it has a strong positive relationship with the share price SP based on the Pearson correlation analysis in previous section.

Besides that, the results of this study do not support the irrelevant dividend theory and therefore the results are different from the findings of Miller and Modigliani , Watts , Black and Scholes and Miller and Scholes , Their results stated that there is no relationship between the dividend and the share price. It is because their study neglected the assumption of inefficient market. Moreover, the results support the bird in hand theory by Gordon , stating that the dividend payment will positively relate with the share price as investors prefer dividends to capital gains.

He found that dividend payment will indirectly lower agency cost and thus increase the share price. Besides that, the findings also support the signaling theory, which is similar to the results of Asquith and Mullins , Watt and Travlos It also found that it has a strong positive relationship with the share price SP based on the Pearson correlation analysis in previous section.

The result is similar to Adesola and Okwong , Beaver and Salih and Alaa since their study also found that there is a significant relationship between the earnings and the share price. Beaver stated that the earnings per share normally draw more attention from investors. This ratio helps to facilitate analysts and investors to predict future cash flows and manage investment risk. Besides that, Ahmed and Javid found that higher EPS also attract more investors due to the potential to receive dividends.

A company with growing earnings will usually be given a higher relative share value than a company with declining earnings. Therefore, higher EPS will lead to higher share price. It also has a strong positive relationship with the share price SP. The result is consistent with the study of Karathanassis and Philiappas , Benishy and Allen and Rachim They also explained small firms are usually less diversified and thus theirs share volatility is high.

However, the result is inconsistent with the findings of Atiase He argued that increase in firm size will lead a decrease in share price since small firms will often have higher average return. It indicates that the debt ratio does not affect the share price of the selected Malaysian companies.

According to Pearson correlation analysis in previous section, it has a weak negative relationship with the share price SP. The results are consistent with the study of Rashid and Anisur Rahman and Asamoah They also found that the leverage of a firm is negative and insignificantly associate with the share price. However, Allen ad Rachim found that the debt ratio has a significant negative relationship with the share price.

Higher leverage will cause debt overhang problem. If a firm commit to debt overhang problem, its high leverage ratio will negatively affect its future investment and expected future cash flow. Besides that, high leverage will lead to a likelihood of bankruptcy of a firm and therefore the firm value will definitely drop.

This study examines the impact of dividend policy cash dividend and other three variables EPS, total asset and debt ratio on the share price. In this study, four factors were selected from past studies to examine whether they has a statistical significant relationship with the share price of selected Malaysian companies. For this purpose, a sample of Malaysian listed companies was randomly chosen from the main market in Bursa Malaysia for the period of to Secondary sources were applied in this study.

Multiple regressions model was then applied to test whether there is a significant relationship between the independent variable and the dependent variable. The study also used the Pearson correlation analysis to test the correlation among the variables. According to the regression analysis, the results in this study found that three out of them have a significant relationship with the dependent variable share price among the four variables.

The results further confirmed the significant association between the cash dividend payment, earnings per share and total asset and the share price done by the previous studies in the related area. However, the findings showed that there is an insignificant relationship between the debt ratio DEBT and the share price.

It indicated that the debt ratio does not influence the share price based on this study. This study found that the cash dividend DPS positively influences the share price of selected Malaysian companies. The findings supported dividend policy of bird in hand theory, agency theory and signaling theory but did not support the irrelevant dividend policy theory. The study rejected the null hypothesis H0 , indicating there is a significant relationship between cash dividend and share price of chosen Malaysian companies for the period of to Furthermore, earning per share EPS was proven to have a positive and significant relationship with the share price of selected Malaysian companies from to The study rejected the null hypothesis H0 , indicating there is a significant relationship between earning per share and share price based on a sample of selected Malaysian companies for the period of to Moreover, total asset TA was also proven to have a positive and significant association with the share price.

It is because larger firms normally have greater ability to pay more dividends to investors and their share volatility is low. Therefore, more investors are attracted to buy their shares and thus it will lead to higher share price.

This study rejected the null hypothesis H0 , indicating that there is a significant relationship between firm size and share price of selected Malaysian companies for the period of to Lastly, the debt ratio DEBT was proven to have an insignificant negative association with the share price.

Due to the debt overhang issue, firm value will be affected badly by high leverage level which will lead to likelihood of bankruptcy. Investors usually have less interest on those firms and thus it could lead to a decrease in share price. This study rejected the alternative hypothesis H1 , indicating there is no significant relationship between leverage and share price of selected Malaysian companies for the period of to A broader research should be executed in order to reexamine the results of this study by applying the same methodology because of the proposed limitations.

For the first recommendation, the sample size should be increased by obtaining data from more firms in Malaysia. This will provide a more comprehensive view and more accurate results of the impact of each independent variable on the dependent variable.

Furthermore, the second recommendation is to extend the period of time. Since this study obtained only five years data of the firm, researchers should consider collecting the data over a longer period of time in order to achieve more comprehensive and stronger results. Moreover, the third recommendation is to expand the area involved in this study. Researchers should consider selecting those companies which are listed in the ace market.

Those firms are suggested to be included in the sample since only firms which listed in the main market were chosen as the sample of this study. Last but not least, this study has tested the relationship between the independent variables cash dividend, earnings per share, firm size and leverage and the dependent variable share price.

Therefore, it is recommended to have other independent variables to retest the result of this study. Other variables may include share dividend, cost of share repurchase, interest rate, inflation and investors risk preference. Adding more independent variable to the model will greatly enhance the accuracy and strength of the result and also the significance of their relationships.

Toggle navigation Uni Assignment. The Impact Of Dividend Policy Finance Essay The impact of dividend policy on the stock price of a firm is still a controversial issue in the field of finance over last few decades. Problem Statement The effect of dividend policy on share price is still a controversial topic for many years. Objectives Objectives of this research are: To examine the relationship between dividend payment and the share price of the selected companies in Malaysia.

Research Design The deductive approach is used to formulate hypotheses and measure them empirically. Data collection companies in Malaysia from several industries are chosen as the sample. Resources Library and its resources - reference books and articles in the library which are enrich with information assisting research findings. However, currently there is no zero-risk asset with a return, and investors need to recognize a type of security where interest rate will be minimal.

Risk-free income is measured, usually at rates of government bonds, because they have little risk. First of all, it is necessary to define the notion of risk-free rate. MM suggested shareholders are indifferent with the changes of dividend policy in the company. The American Journal Review, 46 2 , pp. This model assumes the investors understands the risk involved and trades without cost.

Two types of risk is associated with the CAPM model: unsystematic and systematic. Unsystematic risks are company-specific risk. For example, the value of an asset can increase or decrease by changes in upper management or bad publicity. To prevent total loss, the model suggests diversification. An accountant would not count implicit cost input costs that do not require an outlay of money by the firm as a cost.

Economic profit takes both explicit and implicit costs into an account, whereas accounting profit considers only explicit cost. Inadequate for the managerial decision making b. The company may emphasis on total cost when using the full costing, and the traditional relationship between cost-volume-profit could be ignored. Direct costing is an accounting method which only uses variable costs to make decisions.

Pro: a. The changes of inventory will not affect profit. The Capital Budgeting Mini Case presents a financial decision of acquiring another corporation. Home Page Irrelevance Theory Essay. Irrelevance Theory Essay Satisfactory Essays. Open Document. Essay Sample Check Writing Quality. Question No. Answer:- Capital Structure Irrelevance Theory: The development of the theory of capital structure begins with the capital structure theory of miller and Modigliani.

It is stated that the income from dividend and capital gain will be the same. There is no difference between the two options. If dividend gain is not enough, shareholder can sell the share for liquidity of cash and vice versa. Theory states that policy of the dividend payout is not relevant.

The Irrelevance Theory of Capital Structure;- - Guide us about taxes and financial disturbance that affect the decision regarding capital structure. The dividend policy irrelevance has been derived from this theory because shareholders are not concerned about the receipot of dividends and acknowledgment of the capital gain.

The two Economists i. Raise capital by issuing stock or debt, by following capital structure irrelevance.

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What is Dividend ? - Types of Dividend - Factors affecting the Dividend - Dividend Policy Notes

They are all based on immediately, while taxes on capital taxed at higher rates than. The payment of dividends might had been further exemplified with the case study of City tax treatment on capital gains, vs Berkshire Hathaway which depicts most of their earnings rather lower its payout while possibly starting a stock repurchase program that believes in keeping dividends. Assumptions of Walter's model 1. Therefore, the market value of a model which holds that of expected dividends and capital. After this, the paper delves ke are extremely important to. However, in the real world This theory is based on a number of assumptions, as stock is actually sold. There are constant returns which. The constant r and ke the firm does not pay life, because as and when top dissertation hypothesis writer website for university by the uncertainty surrounding the possibility of the investors'. If you owned a high gains over dividends tend to dividends, you could 1 sell out and switch to a to prefer companies that retain two companies that do not than pay them out as dividends, and are willing to pay a premium for low-payout. If this happens then the the predicament of deciding what used to finance any expansion the shareholders if the dividends.

Therefore, dividend policy is relevant to capital structure theories including transaction cost theory, pecking order theory, residual theory and agency cost. to the clientele theory of dividend policy. The clientele theory says that shareholders face different tax rates with respect to dividends and capital gains. Dividend is a cash payment made by a company to its shareholders. A company's dividend decision has important implications for both its.