Relationship between Dividend Payout and Market Price of Shares
Keywords:
dividend, dividend policy, financial statement, payout, share priceAbstract
This paper attempted to find out relationship between dividend payment and share price. The third important decision of a company is the amount of cash to distribute to shareholders. Dividend policy includes the percentage of earnings paid to shareholders in cash dividends, the stability of absolute dividends about a trend, stock dividends and stock splits. Two hypotheses were tested: No significant relationship between profitability and market share price and No significant relationship between profitability and market share price. For the purpose of this study, secondary data obtained from the published financial statements of the companies under consideration to guide against bias and manipulation, thereby making replication possible. Quantitative technique using StataSE12 was employed to find out what association exists if any between dividend and market share price on one hand and profitability and market share price. The results showed that there was negative correlation between share price and profitability and positive correlation between share price and dividend payment.
References
Allen, Dave E. and Rachim, Veronica S.(1956).”Dividend policy and stock price volatility:
Australian evidence”. Applied financial economics, pp175-88
Asquith, P. and Mullins,D. (1983). The impact of initiating dividends on shareholders weaith”. Journal of business 56, pp77-96.
Baskin, J. (1989). “Dividend policy and volatility of common stock”. Journal of portfolio Management, 15(3), pp19-25.
Baker, H. K. and Powell, G.E. (2000). Determinants of corporate dividend policy: A survey of NYSE firms. Financial Practice and Education, 10, 29-40.
Baker, H. K. and Smith, D. M.(2006). In search of a residual dividend policy. Review of financial Economics,15(1), 1-18
Born, Jeffery, James, Moses and Dennis, Officer (1983). “Changes in dividend policy and Earnings”. Journal of portfolio management, summer. Pp52-56.
DeAngelo, H. and DeAngelo, L. and Douglas, J. Skinner(1992): “Dividends and losses”. Journal of finance, (48) pp1836-63.
Denis, D. and Sarin, A. (1994). The information content of dividend changes: Cash flow signaling, overinvestment, and dividend clienteles. Journal of financial and quantitative analysis,29,567-587.
Fama, E. F. and French, K. R.(2001). “Disappearing dividends: changing firm characteristics or Lower propensity to pay? Journal of financial economics, 60(1) 3-43.
Farrelly, G. E., Baker, H. K. and Edelman, R. B. (1986). Corporate dividends: Views of the policy makers. Akron Business and economics review, 17(4), 62-74.
Fenn, G. W. and Liang, N.(2001). “Corporate payout policy and managerial stock incentives”. Journal of financial economics. Pp60, 45-72.
Ghosh, D. and Khaksari, S.(eds) (1994), Manageria finance in the corporate economy, publisher: Routledge, London, United Kingdom.
Gordon, M. J. (1963). Dividends, earnings and stock prices. Review of economics and Statistics, pp99-105.
Grullon, G. and Michaely, R. and Swaminathan,B. (2002). Are dividend changes a sign of firm maturity? Journal of business, 75 pp 387-424.
Healy, Paul M. and Krishhna, G. Palepu(1988): “Earnings information conveyed by dividend initiations and omissions”. Journal of financial economics, 21 pp 149-175.
Kanwal, Anil and Sujata, kapoor (2008): “Determinant of dividend payout ratios- A study of Indian information technology sector”. International Research Journal of finance and Economics. P63.
Jensen, M. C. and Meckling, W. H. (1976). Theory of the firm: Managerial behavior agency costs and capital structure. Journal of financial economics 305-60.
Krishman, John, E.(1933). Principle of investment. McGraw Hill. P737.
Li, W. and Lie, E. (2008). Dividend changes and catering incentives. Journal of financial economics,80, 293-308.
Liu, S. and Hu, Y. (2005). Empirical analysis of cash dividend payment in Chinese listed Companies. Nature and Science,3(1), 65-70
Miller, M. H. and Modigliani, F.(1961): “Dividend policy, growth and valuation of shares”. Journal of business,××іᴠ, pp411-433.
Miller, M.H. and Rock, K.(1985) “Dividend policy under asymmetric information”. Journal of finance 40, pp1031-1051
Mitton, T.(2004). Corporate governance and dividend policy in emerging markets. Emerging Markets review, 5(4), 409-426.
Mohammed Nishat and Chandhary, Mohammed Irfan(2003): “Dividend policy and stock Volatility in Pakistan. Apaper presented at 11th Pacific Basin. Finance, economics and accounting conference.
Pruitt, S.W. and Gitman, L.J. (1991). The interactions between the investment financing and dividend decisions of major US firms. Financial review, 26(3), 409-430.
Rozeth, G.(1982). Growth betta and agency costs as determinants of payout ratios. Journal of finance. 5(3). Pp 54-60.
