Research proposal on dividend policy

Dividend policy

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IMPACT OF DIVIDEND POLICY ON SHAREHOLDERS' VALUE: A

but another event study displays different reaction of stock prices to dividend announcement in different years (hasan et al. is interesting to note that the latter policy is inconsistent with the position that dividends should be paid out of earnings rather than accumulated capital or reserves. the results provide information that though investors do not obtain significant value prior to the dividend announcement day or on the event day, they do gain value after the announcement. it is concluded that cumulative abnormal returns promoted by dividend announcements decline to zero in due course. study of asquth and mullins (1983) also suggests that stock prices and shareholders’ wealth are impacted by initiation and increase of dividends. the evidences prove that the increases in dividends imply more positive abnormal stock returns, and this supports the efficient market hypothesis (mehnidiratta and gupta, 2010). the dividends and accounts have been retrieved from annual reports of the companies (tesco, 2011; burberry, 2011; vodafone, 2011). three companies that were chosen have been used to test the semi strong form of the emh and whether the dividends announcements made by tesco, vodafone and burberry had a significant impact on shareholder returns and share prices. in fact, as the following figure demonstrates, the policies of vodafone and burberry are aimed at dividend growth. the evidences prove that the increases in dividends imply more positive abnormal stock returns, and this supports the efficient market hypothesis (mehnidiratta and gupta, 2010). the decision about paying dividends is made by the firm’s managers and often supported by shareholders’ voting. there are also empirical evidences of little stock market reaction to dividend announcements at some periods (hasan et al. if the company has many projects that offer positive net present value, then it would be recommended that dividends could be retained and reinvested in the firm. so, the null hypotheses of the analysis are the following:H0: dividends have a positive and significant effect on the share prices.: dividends have a positive and significant effect on the weekly stock returns.

Dividend policy essay

only residual earnings, which are left after investments in all positive npv projects could be distributed as dividends (bodie et al, 2009). the following formula was used:Dividend payout ratio = dividends per share / earnings per share. evidences also provide support for the semi-strong efficient market hypothesis, implying that stock market efficiently and quickly adjusts to new information about dividends (aharony and swary, 1980). (2010) “impact of dividend announcement on stock prices”, international journal of information technology and knowledge management, 2 (2), pp., the study of shiller (1981) challenges the efficient market hypothesis suggesting that the volatility of stock prices are too high to be explained by the future dividends. in these industries the majority of the large companies are “cash cows” for the investors and therefore the dividend policy tends to show constant payout ratios, which inspires trust in the company and expectation of future stability., the null hypothesis related to the effects of dividends on the share prices is accepted. payout ratios indicate different dividend policies adopted by the three companies. since institutional investors are normally better informed and tend to play key roles in public firms, the costly dividends have become a less popular way to provide information (baker, 2009). a more recent investigation of mehnidiratta and gupta (2010) supports the semi-strong form of efficient market hypothesis concluding that stock prices promptly and accurately react to the publicly available information, particularly to dividend announcements. however, the research of amihud and li (2006) finds that the reaction of stock market to dividend announcement is not constant. thus, dividend announcement is only the way for investors to obtain information about these fundamental developments. in this context it may be assumed that dividend announcements convey particular positive information about the company and provide signals about future performance of the firm. in fact, as the following figure demonstrates, the policies of vodafone and burberry are aimed at dividend growth. in these industries the majority of the large companies are “cash cows” for the investors and therefore the dividend policy tends to show constant payout ratios, which inspires trust in the company and expectation of future stability.

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Theories on Dividend Policy Empirical Research in Joint Stock

a more recent investigation of mehnidiratta and gupta (2010) supports the semi-strong form of efficient market hypothesis concluding that stock prices promptly and accurately react to the publicly available information, particularly to dividend announcements. moreover, the recent decrease in propensity of companies to pay dividends is sometimes related to the lower informational contend of dividend announcements. the overview of the traditional and most recent empirical investigations of the stock market reaction to the dividend announcements is provided and different findings are discussed and compared. there are also empirical evidences of little stock market reaction to dividend announcements at some periods (hasan et al. the following formula was used:Dividend payout ratio = dividends per share / earnings per share. the tested assumption states that payment of cash dividends is the most significant factor that impacts all prices around the event days (hasan et al. the recent empirical studies that were reviewed support the semi-strong efficient market hypothesis and find that dividend announcements produce abnormal returns and are positively related to the share prices (mehnidiratta and gupta, 2010). so, the null hypotheses of the analysis are the following:H0: dividends have a positive and significant effect on the share prices. the recent empirical studies that were reviewed support the semi-strong efficient market hypothesis and find that dividend announcements produce abnormal returns and are positively related to the share prices (mehnidiratta and gupta, 2010). but another event study displays different reaction of stock prices to dividend announcement in different years (hasan et al. paper analyses the impact of dividend policy of the companies on the share prices and different views of semi-strong form of efficient market hypothesisNeed help?. (1981) “do stock prices move too much to be justified by subsequent changes in dividends? tesco’s policy is aimed at maintaining a constant dividend payout ratio, which is very common for mature industries such as retailing. dividend payout ratio has been calculated for these companies for the period from 2007 to 2011. furthermore, the companies could undertake an alternative dividend policy which would imply linking the dividend payout to the investment opportunities that could be managed by firms (brealey and myers, 2003).

Effects of Dividend Policy on Firm's Financial Performance

contrast, the dividend policies of vodafone and burberry are not aimed at a constant payout ratio. furthermore, the relationships between the share prices and the dividends were tested. (1980) “quarterly dividend and earnings announcements and stockholders’ returns: an empirical analysis”, the journal of finance, 31 (1), pp. to the first regression, dividends do not have a significant impact on the weekly stock returns and hence the null hypothesis related to stock returns is rejected. since dividend announcements bear useful information, from the efficient market hypothesis view point this information is reflected in the share price changes immediately after the public announcement (bodie et al, 2009). moreover, the recent decrease in propensity of companies to pay dividends is sometimes related to the lower informational contend of dividend announcements. the dividends and accounts have been retrieved from annual reports of the companies (tesco, 2011; burberry, 2011; vodafone, 2011). it is concluded that cumulative abnormal returns promoted by dividend announcements decline to zero in due course. investors move their security positions on the announcement day which implies that after the event day there is informational value in dividend announcement. three companies that were chosen have been used to test the semi strong form of the emh and whether the dividends announcements made by tesco, vodafone and burberry had a significant impact on shareholder returns and share prices. the overview of the traditional and most recent empirical investigations of the stock market reaction to the dividend announcements is provided and different findings are discussed and compared. thus, dividend announcement is only the way for investors to obtain information about these fundamental developments. instead, dividend policies are changed by managers when some fundamental developments in company’s performance are expected, and these developments cause the change of the share prices. it was found that the dividends produced a positive and statistically significant effect on the share prices but no significant effect on weekly returns. the results are in line with assumption that dividend announcements bear valuable information for investors.

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  • Dividend Policy and Its Impact on Stock Price – A Study on

    if the company has many projects that offer positive net present value, then it would be recommended that dividends could be retained and reinvested in the firm. (1983) “the impact of initiating dividend payments on shareholders’ wealth”, the journal of business, 56 (1), pp. tesco’s policy is aimed at maintaining a constant dividend payout ratio, which is very common for mature industries such as retailing. firstly, it was intended to choose large companies that have an established dividend policy and revenue of more than £1 billion a year. dividend policy may be used as a simple way to signal managers’ view of the company’s recent and future performance (asquth and mullins, 1983). it was found that the dividends produced a positive and statistically significant effect on the share prices but no significant effect on weekly returns. however, it must be stated that dividend policies are not directly influencing share prices and lead to their changes. (2006) “the declining information content of dividend announcements and the effects of institutional holdings”, journal of financial and quantitative analysis, 41, pp. is interesting to note that the latter policy is inconsistent with the position that dividends should be paid out of earnings rather than accumulated capital or reserves. the event study methodology was used to evaluate the effect of cash dividend announcements on the share prices. to emh in its semi strong form, the information on dividends should be quickly absorbed into the stock prices during the first week and hence the acceptance of the null hypotheses will be consistent with the semi strong efficiency. the results provide information that though investors do not obtain significant value prior to the dividend announcement day or on the event day, they do gain value after the announcement. instead, dividend policies are changed by managers when some fundamental developments in company’s performance are expected, and these developments cause the change of the share prices. contrast, the dividend policies of vodafone and burberry are not aimed at a constant payout ratio., the null hypothesis related to the effects of dividends on the share prices is accepted.

    The relationship between dividend payout and firm performance

    , whereas vodafone demonstrates a “steady dividend growth strategy”, burberry demonstrates the a strategy that does not show a specific pattern but can be interpreted as a signal to the market because in 2009 the company announced the dividends that were equal to the dividends announced in the previous year in spite of the accounting losses suffered by the firm which were reflected in negative earnings per share (appendix c). the findings suggest that dividend announcement are less informative over time, and this may be related to the reluctance of managers to pay extra expenses related to dividends (amihud and li, 2006). the semi-strong efficient market hypothesis suggests, new information including dividend announcement is quickly reflected in the company’s stock prices.: dividends do not have a significant effect on the weekly stock returns. alternative hypotheses are the following:Halt: dividends do not have a significant effect on the share prices., the study of shiller (1981) challenges the efficient market hypothesis suggesting that the volatility of stock prices are too high to be explained by the future dividends. since institutional investors are normally better informed and tend to play key roles in public firms, the costly dividends have become a less popular way to provide information (baker, 2009). (2006) “the declining information content of dividend announcements and the effects of institutional holdings”, journal of financial and quantitative analysis, 41, pp. alternative hypotheses are the following:Halt: dividends do not have a significant effect on the share prices., whereas vodafone demonstrates a “steady dividend growth strategy”, burberry demonstrates the a strategy that does not show a specific pattern but can be interpreted as a signal to the market because in 2009 the company announced the dividends that were equal to the dividends announced in the previous year in spite of the accounting losses suffered by the firm which were reflected in negative earnings per share (appendix c). to the first regression, dividends do not have a significant impact on the weekly stock returns and hence the null hypothesis related to stock returns is rejected. (2012) “cash dividend announcement effect: evidence from dhaka stock exchange”, research journal of finance and accounting, 3 (2), pp. evidences also provide support for the semi-strong efficient market hypothesis, implying that stock market efficiently and quickly adjusts to new information about dividends (aharony and swary, 1980). the findings suggest that dividend announcement are less informative over time, and this may be related to the reluctance of managers to pay extra expenses related to dividends (amihud and li, 2006). (2010) “impact of dividend announcement on stock prices”, international journal of information technology and knowledge management, 2 (2), pp.
    • DIVIDEND POLICY AND STOCK PRICE

      the tested assumption states that payment of cash dividends is the most significant factor that impacts all prices around the event days (hasan et al. the decision about paying dividends is made by the firm’s managers and often supported by shareholders’ voting. similarly, there are no evidences that a company value may be increased through increase of dividends, since dividends only convey signals about fundamental changes in the company and are viewed as only by-products of the changes (moles et al. dividend policy may be used as a simple way to signal managers’ view of the company’s recent and future performance (asquth and mullins, 1983). however, the output from the regression of share prices on dividends demonstrates that the former have a statistically significant positive influence on the share price performance. the event study methodology was used to evaluate the effect of cash dividend announcements on the share prices.. (1981) “do stock prices move too much to be justified by subsequent changes in dividends?: dividends have a positive and significant effect on the weekly stock returns. similarly, there are no evidences that a company value may be increased through increase of dividends, since dividends only convey signals about fundamental changes in the company and are viewed as only by-products of the changes (moles et al. moreover, the effect of dividend increase is stronger than the influence of dividend initiation. (1980) “quarterly dividend and earnings announcements and stockholders’ returns: an empirical analysis”, the journal of finance, 31 (1), pp. investors move their security positions on the announcement day which implies that after the event day there is informational value in dividend announcement. (1983) “the impact of initiating dividend payments on shareholders’ wealth”, the journal of business, 56 (1), pp. furthermore, the relationships between the share prices and the dividends were tested. only residual earnings, which are left after investments in all positive npv projects could be distributed as dividends (bodie et al, 2009).
    • Dividend Policy and Share Prices

      the two-stage study tests the share prices response to dividend announcement.: dividends do not have a significant effect on the weekly stock returns. however, it must be stated that dividend policies are not directly influencing share prices and lead to their changes. the two-stage study tests the share prices response to dividend announcement. firstly, it was intended to choose large companies that have an established dividend policy and revenue of more than £1 billion a year. the semi-strong efficient market hypothesis suggests, new information including dividend announcement is quickly reflected in the company’s stock prices. to emh in its semi strong form, the information on dividends should be quickly absorbed into the stock prices during the first week and hence the acceptance of the null hypotheses will be consistent with the semi strong efficiency. this paper the impact of dividend policy of the companies on the firm’s share prices is analysed and different views in the context of the semi-strong form of the efficient market hypothesis are contrasted. this paper the impact of dividend policy of the companies on the firm’s share prices is analysed and different views in the context of the semi-strong form of the efficient market hypothesis are contrasted. dividend payout ratio has been calculated for these companies for the period from 2007 to 2011. study of asquth and mullins (1983) also suggests that stock prices and shareholders’ wealth are impacted by initiation and increase of dividends. however, the output from the regression of share prices on dividends demonstrates that the former have a statistically significant positive influence on the share price performance. (2012) “cash dividend announcement effect: evidence from dhaka stock exchange”, research journal of finance and accounting, 3 (2), pp. moreover, the effect of dividend increase is stronger than the influence of dividend initiation. in this context it may be assumed that dividend announcements convey particular positive information about the company and provide signals about future performance of the firm.
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