Dividend Policy and Share Price Finance Essay

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This section highlights the relationship between dividend policy and share price with the views of various researchers in order to specifyconsiderateregarding the related studies. The next following part will feature the intense research by financial academic on company dividend policy to determine a link between dividend policy and value of firm. This section will get sum up after showing different researchers outlook over Indian Scenario.

Dividend Policy and Share Price

When year 1980's numerous share market literatures saw the present value of dividends to be prevailing determinant of market return on stocks. As per LeRoy and Porter and Shiller (1981), they reasoned that under surmise of consistent discount component, stock costs were excessively volatile to be steady with the movement of future dividends. Wohar and Mark (2006) stated that the corrosion of stock price movement is quit sensitive to real dividend growth as well. Though, Cochrane (1992) and Timmerman (1995) contended that stock price changes might be described by time- varying markdown rate and future abundance return. The founding build by Cochrane (1992) on variability of abundance return is to be more essential than the variability of dividend growth.

Nishat and Irfan (2003) investigated the dividend policy and stock price movement in Pakistan. Both the dividend policy measures, dividend yield any payout proportion, have noteworthy effect on the share price movement. Moreover, their outcome also upkeep the arbitrage realization effect, duration effect and information effect in Pakistan. The approachability of dividend yield toward stock price movement expanded but payout ratio is having noteworthy effect at a lower level if importance only.

An auspicious firm earns income. The profit spread to shareholder as dividends. In this way, the link between company's profit and dividend payout is explored by Amidu and Abor (2006) in Ghana. They thought that dividend payout proportion furnished firm with no usually accepted recommendation for the level of dividend payment that will boost share value. In this sense, share price movement is act contrariwise with the dividend payout ratio. Amidu and Abor (2006) believe is reinforced by the recognizing that they done in Ghana, in which their examination consequences demonstrated a statistically meaningful and positive connection between profitability and dividend pay out ratio. In the interim, the theory on the negative connection between share value and dividend payout ratio is affirmed as well.

As per Graham and Dodd (1951) and Gordon (1959), they contended that an increase in dividend payout advances to higher stock price (company's value) and bring down the cost of equity. Though, some experimental indicated the inverse position. Peterson (1985) reported that with high-elevated dividend payout ratio, heightened returns are needed by firm's shareholder, and this is lead to lower share price. Baker, Powell and Veit (2002) have researched the link between dividend policy, firm value and share price movement. They found an optimal dividend policy strikes an offset in middle of present dividends and future growth that maximize stock price. They also found that stock price volatility is low if dividend approach is stable.

Additionally, the smoothing theory suggest that the dividend determination is the outcome of past and current earning which manager modifies firms dividend payout to some target level. In the mean time, the indicating speculation indicates that dividend have projecting power of future earning and share prices (Goddard, McMillan and Wilson, 2006). In different statement, there is a positive relationship between dividend, earning and share price. Dividend decisions are joined to company's future anticipated income, and dividend updates ought to indicate future earning updates and price changes as well. This moreover upheld by the consequence of the study work of Goddard, McMillan and Wilson (2006) in which there is a strong proof of a contemporaneous connection between share price, dividend and profit for 137 United Kingdom Production and Utility groups.

Amidu and Abor (2006) analysis infer that, profitable firms will almost always pay high dividend. The outcome additionally demonstrates negative relationship between dividend payout and risk. Firm which encountering earning volatility identify, its difficulty to pay dividend, along these line, the firm may pay less or no dividend to their shareholders. In this sense, the outcome indicates the vital relationship between dividends and earning and this connection could straight control that movement in share price. The firm may encountered high share price volatility if the firm's earning volatility is influenced the decrease of dividend payment.

Selective review of Literature

After highlighting the correlation between dividend policy and share price, this part feature the review from various researchers over the subject:

Experimental researches led to see the impact of dividend policy on stock price first incorporate the work of Linter. Linter (1956) reviewed the different determinants of corporate dividend policy and its impact on firm's market value by managing the interview of top management of 28 firms. Effect of his investigation indicates that Firm Market Value relies on the Dividend Payout. His outcome further demonstrate that firms wish to follow the stable dividend payout policies and for this reason they need to alter their profit. Baskin (1989) thought about the effect of dividend policy on stock price volatility and found converse connection between stock price and dividend strategy. Further in his study, he demonstrated that there is noteworthy connection among Dividend Yield and price volatility. Profit, Firm's size, Debt Level, Growth level and Dividend Payout in addition have a noteworthy effect on stock returns and dividend yield. Gordan(1963) gave the notion of dividend relevance and outcome of his research demonstrate that dividend policy have huge positive influence on stock price. Further he determines that the firm those pay higher amount of dividend to their shareholders, encounters less risk in terms of stock price volatility. Allen & Rachim (1996) likewise focused the connection between dividend policy and stock price but found no connection in the middle of Dividend yield and stock prices.

Fama and French (2001) analyses the issue of lower dividend paid by corporate firm over the period 1973-1999 and the components answerable for the downfall. Specially they examine whether lower dividend were the outcome of changing company's characteristics or lower tendency to pay on the part of the company. They recognize that proportion of firm paying dividend has dropped from a crest of 66.5 percent in 1978 to 20.8 percent in 1999. They ascribe this decay to the modifying characteristics of firms: "the decline in the incidence of dividend payer is in part due to an increasing tilt of publicly traded firms toward the characteristics - small size, low earnings, and high growth - of firms that typically have never paid dividends"

Baker, Veit and Powell (2001) analysis the reasons that are supporting dividend policy decisions of corporate firms traded on the Nasdaq. The investigation, is grounded on the sample survey (1999) response of 188 firms out of the total of 630 firms that dividends in every quarter of calendar years 1996 and 1997, considers that the following four factors have a noteworthy effect on the dividend determination: pattern of past dividends, stability of earning and the level of present and future projected earning. The research project additionally identifies statistically important difference in the importance that managers connect to dividend policy in different businesses for example financial vs. non-financial.

Travlos, Trigeorgos & Vafeas (2001), analyzed the conduct of Cyprus stock Market toward the declaration of dividends. Consequences of their academic work demonstrated that the declaration of cash or stock dividends has positive impact on stock price. An analysis led by Ho (2002) applicable to the dividend policy indicated the positive connection in middle of Dividend policy and size of Australian firm and liquidity of Japanese firms. He further found negative connection in middle of dividend policy and risk, which occurred in case of Japanese firm only.

Pradhan (2003) illustrated the impact of dividend payment and retained earning on Stock Market of Nepalese firms. His consequences indicated that dividend payment has convincing connection with stock price whereas retained earning has quit weak connection with stock price. Nepalese stockholders give additional weight to dividend income than capital gain. Adefila, Oladipo &Adeoti (2004) thought about the reasons that can influence the dividend policy of Nigerian firms and its influence on stock price and companies value. Outcome of their investigation demonstrated that Nigerian shareholder do not utilize their stock for hypothetical purpose. They purchase stock for prestigious explanation and for get credit from banks. Their outcome in addition inferred that there is no connection between dividend payment, net earning and stock price. Nigerian firm pay dividends to their stakeholders paying little respect to their level of benefit for satisfaction of their shareholders. Additional analysis directed by Raballe & Hedensted (2008) in Denmark for the period of 1988 to 2004 distinguished the position connection between cash dividend and return o equity, retained earning, size of firm and the previous year profit. They were unable to recognize any connection in middle of debt equity ratio and dividend decision of firm.

Chen, Huang & Cheng (2009) studied the impact of cash dividend on share price for the period of 2000-2004 in china. They discovered that cash dividend has quite positive impact on stock prices. When cash dividend expands stock price also increase and when the cash dividend decrease, share price decreases. Al-Kuwari (2010) studied that payout decision of the companies catalogued at GCC (Gulf Cooperation Council) stock exchange, his outcome indicated that payout decision have positive impact on company size, profitability and ownership but have negative effect on Growth Opportunities.

Ali & Chowdhury (2010) investigated the price movement of private commercial banks catalogued at Dhaka Stock Exchange towards the dividend announcement. The took a sample of 25 banks and their outcome indicated that stock price for 11 bank diminished, 6 bank stock price increases, whereas 8 banks stock price remained unchanged when dividend were declared. In all sum outcome of their study indicated that there is insignificant connection among stock prices and dividends.

Hussainey, Mgbame & Chijoke-Mgbame (2011) examined the effect of dividend policy on stake price. Consequences of their investigation demonstrated a positive connection between Dividend Yield and stock price change and negative connection between Dividend Payout ratio and stock price changes. Their outcome further showed that the firm's earning, Growth rate, level of debt and size also causes the change in stock prices of UK.

Indian Scenario

There are vey few researchers who gave their studies in India over dividend behavior. This section summaries briefly some of these studies:

In Indian connection, a few findings have examined the dividend behavior of corporate firms. Among all the researchers the main contribution in Indian studies was given by Bhattacharya (1979).Bhattacharya (1979) develop a two-period model. His model determine that it is rash for bad-prospects firms to promise high level dividends, and just good-prospects firm can promise high level dividend without hurting log-term operation. Signaling hypothesis and asymmetric information holds an essential implication - that is, unanticipated dividend updates ought to be gone with by stock price change in the same direction. Krishmurty and Sastry (1971) examined dividend behavior of Indian Chemical Industry for the period of 1962-1967 and undertook crossectional information of 40 Public Limited companies. The outcome disclosed that Linter model gives exceptional demonstration of dividend behavior. Dhameja (1978) in his research tested the dividend behavior of Indian companies by ordering them into size group, industry group, growth group and control group. The research found there was no statistically noteworthy connection between dividend payout, on the other hand and industry and size on the other. Growth was contrariwise related to dividend payout and was found to be noteworthy. The prevailing finish was that dividend decisions are preferable described by Lintner's model with current profit and lagged dividend as informative variable. Mahapatra and Sahu (1993) found cash flow as a major determinant of dividend emulated by net earning.Bhat and Pandey (1994) undertook a review (survey) of managers' view to dividend determination and found that manager notice current profit as the most noteworthy variable. Narsimhan and Asha (1997) recognized that the uniform tax rate of 10% on dividend as recommended by union budget 1997-98, adjust the interest of investor in favor of high payouts. Mohanty (1999) found that the firm, which issued bonus shares, have either upheld the payout at the pre bonus level or just diminished it marginally thereby expanding the payout to shareholders. Narsimhan and Vijaylakshmi (2002) investigated the impact of ownership structure on dividend payout of 189 production firms. Regression analysis demonstrate that promoters holding Sujata Kapoor, JBS, JIIT, Dec' 2009 of September 2001 has no impact on average dividend payout for the period 1997-2000.

Anand Manoj (2002) examined the outcomes of 2001 survey of 81 CFOs of Business today-500 companies in India to figure out the determinants of the dividend policy decisions of the corporate India. He used factor analytic framework on the CFOs' reaction to catch the determinants of the dividend policy of corporate India. The findings uncovered that large no. of firms have target dividend payout proportion and were in agreement with Lintner's study of dividend policy. CFO's utilize dividend policy as an indicating tool to pass on qualified information on the current and future prospects of the firm and therefore influence its market value. The managers outline dividend policy following thinking seriously about the investors' preference of dividend and clientele effect. Sen and Ray (2003) have illustrated a noteworthy phenomenon observing the key determinants of stock price in India. The research work is based upon the stocks covering BSE index over a period 1988-2000. The experimental research uncovered dividend payout is clearly the single essential factor affecting stock price. The second factor comes earning per share, which has particularly powerless effect on stock price. So the research investigated one of the important factor dividend payout ratios having effect on Indian stock price. Reddy Y.Subba and Rath Subhrendu (2005) examined Dividend trends for huge samples of stocks traded on Indian market showed that the rate of firms paying dividend declined from over 57% in 1991 to 32% 2001, and that just a few firms paid customary dividends. Dividend - paying companies were less likely to be larger and additional profitable than non-paying communities, however growth opportunities do not appear to have essentially influenced the dividend policies of Indian firms. The ascent of the number of firms not paying dividend is not supported by the necessities of cash for investments. Sharma Dhiraj (2007) observationally examined the dividend behavior of select Indian firms listed on BSE from 1990 to 2005. The study investigated whether or not the dividend are still in trend in India and attempted to judge the applicability of one of the two extremely inverse schools of thoughts relevance and irrelevance of dividend decision. The study also examined the applicability of tax structure in the Indian perspective. The finding offered mixed and uncertain outcomes about tax theory showing that the alteration in the tax structure does not have a significant impact on dividend behavior of firm.

Thirumalvan & Sunita (2005) analyzed the effect of share repurchases & Dividend announcement on stock price in the connection of Indian corporate sector throughout the period (2002-2004). They examined the signaling effect of stock repurchases and dividend announcements. The research studied examined abnormal returns across various repurchase level. They have taken the firms recorded in the BSE index for the motivation behind experimental studies. The study blankets the effect on stock price five days prior and after the dividend declaration. The outcome displays the upward trend of share price movement after the dividend declaration. The essential purpose of their finding is that existed just for a day following the declaration. After which the degree of positivism of allotment begins declining. Their conclusion indicates the market reaction in the Indian context to events or declaration for example share repurchases and dividends for the most part vary around day or a few.

Various clashing theoretical models, all needing strong experimental support, outline latest attempts by examiners in finance to describe the dividend phenomenon. However to come with strong result an serious study of all theoretical models together with experimental evidence is required. The noteworthy literary work on dividend policy have been unable to get a accord on study on the general dividend hypothesis in the last five year that can either illustrate the method of dividend decision making or foresee an optimal dividend policy. Consequently it ends up being essential to study dividend behavior of Indian companies utilizing the outline of empirical models.

The main objective of this study is to compare the study done by different researchers in Indian context over the impact of dividend policy on market value of firm. The next chapter will demonstrates the different methodologies used by these researchers in order to study.

Chapter 4: Research Methodology

This chapter highlights the methodology adopted in the research has been discussed here. It frame out the different measurements of the research and the method keep on for the comparison of researches of different researchers in the reference of Dividend Policy and Share value for the study. For this purpose the study has collected the data from the research paper of the researchers and demonstrated the different methodologies by different researchers. Further tools and techniques followed by the researchers for understanding the subject are also bought in this part. The main approach followed in this paper is qualitative research in which comparison has been done between the researches of three researchers. The comparison is basis on availability of data through website and journals. The comparison study has been performed because of the expensiveness and free unavailability of data of different sectors, which led to approach a qualitative research rather than quantitative. By following comparative study this paper aim to find out the most favorable research among three. The data used in this research is all secondary data.

Introduction of Research Methodology

Research Methodology is a way to discover the consequence of a given situation on a particular matter or situation that is likewise pointed as research problem. In Methodology, researchers utilizes distinctive criteria for solving/searching the given study problem. Diverse origins utilize distinctive sort of techniques for tackling the problem. Assuming that we consider the expression "Methodology", it is the way of looking or tackling the study difficulty.

But every research is incomplete without designing it. This research design is conducted on two approaches: Qualitative and Quantitative.

Qualitative research: Qualitative research is the methodology for the most part connected with the social constructivist standard, which highlights the socially built nature of actuality. It is in regards to recording, examining and endeavoring to reveal the deeper importance and meaning.

Quantitative research: Quantitative research is usually connected with the positivist/post positivist paradigm. It normally includes gathering and changing over information into numerical shape with the intention that statistical figuring could be made and result drawn.

Research Paradigm means a purpose by which researchers think about how they develop knowledge. The terminologies of research paradigm are positivism, interpretivism and realism.The main components of a paradigm are ontology, epistemology and methodology.

Mainly the researches are done on the basis of certain collective data. These data are of 2 types: primary data and collective data. Primary data are those data that are collected from questionnaires, observations, interviews, data processing and so on. Whereas secondary data are those, which are collected from journals, internet, government publication, published books, newspapers and magazines etc. The data collected for this research is mainly basis on secondary data, which are gathered from journals and websites.

Research Strategy by Different Researchers

The research is comparative study of different researchers over different sectors of Indian firms. The study compared the different methodologies used by Pani (2008), Sujata Kapoor (2009), R. Azhagaiah & Sabari Priya (2008). The studies of these researchers are chosen because of availability of their data and they have given revolutionary results in this reference. These researchers have contributed a lot in the research of dividend policy and share value over Indian firms. Following are outline of the different dimensions used by these researchers:

Pani (2008)

Pani (2008) in his research discussed the classical linear regression model and other tests. In his research he represents the hypothesis that dividends affect stock price or market value of the firm. The market value of the firm can be represented as:

Market value of the Firm = f net profit, Dividends

. Retained Earning

The market value of the firm here is essentially acted for on the core of accounting Earning Analysis. Net profit in this equation is determined from the current investment of the firm. As higher the net profit the higher can be the stock price. The ratio of dividends to retained earnings is the factors on which market value of the firm also depends for the reason that the profit is mainly discriminated either dividend or retained earnings.

In his research, he focuses over the context-specific Panel-Data models including the control variable like leverage ratio and the size of the firm. He has observed firm effect and time effect through the panel data estimation during the sample period. For his research purpose he derived the proposed model to analyze the impact of dividends on stock return. He has analyzed the issue over his proposed derived model. Instantaneously he has discussed other option, which were available for the analysis. He has analyzed the result of different industry aggregately in his study.

The proposed Model is here:

Macintosh HD:Users:rahul:Desktop:Screen shot 2012-09-18 at 9.54.18 PM.png

Where, SZ = Ln (total Assets)

Aµi = Firm Specific component

Eit= Disturbance Term

Then he divided the null hypothesis or D/R ratio affects stock returns i.e. Ho: D/R affects Vit. Firstly he examined the result of the classical linear regression model and secondly panel data estimation. He defined four basic models, which he has estimated earlier continuing toward final examination.

yit= AŽA±+ Eit(No group effect or xs)

yit=AŽA±i +Eit(Group dummies only)

yit =AŽA±+AŽA²'Xit + Eit(Repressors only)

yit =AŽA±i+AŽA²'Xit +Eit(Xs and group effects)

Model 1 on 2: H0: (no group effects on the mean of y)

Model 1 on 3: H0: (no fit in the regression of y on xs)

Model 1 on 4: H0: (no group effects or fit in regression)

Model 2 on 4: H0: (group effects but no fit in regression)

Model 3 on 4: H0: (fit in regression but no group effects)

He has examined the set of data for using the panel data models with the help of above five different hypotheses. For the Food and Beverage, Mining Industry and Non-metallic Industry, the LR, F and LM test along with Hausman Specification Test supports the use of fixed effect models however for other services, Textile Industry and Mining Industry, the diagnostic test rejects the use of fixed effect models.

Data Gathering

In study he gathered all the data to achieve his objective from Prowess database of the CMIE (Centre for Monitoring on Indian Economy) in India. A sample of 500 companies from "A1" and "B1" groups of shares is chosen for experimental analysis. These samples were dividend into six different industries namely Electricity, Food and Beverage, Mining, Non-metallic, textile and service sector. His motive behind choosing these companies is the consistency with the dividend payment history for the study period 1996-2006.

Though, his study has theorized the dependent variable(market value of firm) and the descriptive variables for example size of the firm, dividend to retain earning ratio and debt to equity ratio. The stock return is reflected as proxy for the market value of the firm as dependent variable and Ln (total assets of the firm) have been occupied as a proxy for rest of following variable.

Sujata Kapoor (2009)

Sujata Kapoor (2009) in her research has utilized several different tool and techniques and models namely Lintner model and event study to accomplishresearch objectives.

Linter Model

Linter(1956) introduced a model to concentrate on the determinant of the dividend behavior of American corporation considering that the dividend payout is a role of net current earning after tax(PAT) and dividend paid during the previous year i.e. lagged dividend (Div t-1). Companies choose to payout a settled proportion of their net profit as dividend to regular stakeholders; however in the view of their well known preference for constant dividends may attempt to succeed the target level just by a fraction of the amount demonstrated by the target payout ratio whenever profit changes. The above speculative definition of Lintner has been utilized as an estimating equation for corporate dividend in her study, which is as follow:

D*it = AŽA±iEit

Dit -Di(t-1) = ai + Ci {D*it -Di(t-1)}+uit


D*it = desired dividend payment during period 't'

Dit = Actual dividend payment during period 't'

AŽA±i = target payout ratio

Eit = earning of firm during period 't'

ai = a constant related to dividend growth

Ci = partial adjustment factor

uit = error term

Dit - Di(t-1) = ai + Ci{AŽA±iEit - Di(t-1)} + uit

Dit = a + AŽA±iCitEit + (1-Ci)Di(t-1) + uit

Simplified further in the form of multiple regression equation,

Dt=a+ AŽA±iEit + Ci D (t-1) +uit

To comprehend the connection between dividend and earning (PAT) a Multiple Regression Analysis was performed in respect of companies, which are constituent of CNX IT file, CNX FMCG file and CNX service Sector Index individually, for the panel data of 9 years i.e. from 2000 to 2008.

Lintner Model Used:

Y=AŽA± + AŽA²1X1+ AŽA²2X2 + uit + AŽAµit


Y= dependent variable (equity dividend in Rs. crore during period t)

X1= independent variable (PAT) in Rs. Crore

AŽA± = Constant

AŽA²1= regression coefficient of PAT (target payout ratio)

X2= Equity dividend during period t-1

AŽA² 2= regression coefficient of dividend during period t-1 i.e. (1-c) and c is the adjustment factor.

uit = firm specific components

AŽAµit = disturbance term


Target Payout ratio * adjustment factor = AŽA²1

AŽA±i* Ci = AŽA²1

AŽA±i*(1-AŽA²2) = AŽA²1

This implies AŽA±I = target payout ratio = AŽA²1/(1-AŽA²2)

Speed of adjustment factor=(1-AŽA²2)

Hence, the regression results structures the groundwork of testing the applicability of Lintner model, which is a finance classic in each of he sectors.

Event study

To examine the impact of dividend announcement on shareholders' wealth in the prescribed sectors in India Event Study approach has been utilized. Firstly, find the announcement date in each of the industries for the sample period from 2001 to 2008. Thus, 168-announcement date were taken from IT sector, 199 dates from FMCG and 202 from service sector. Secondly, 41 days has been taken which include 20 days before the events and 20 days after the events. Thirdly, daily-adjusted closing prices were taken for estimatingpredictable returns as per Market model. Fourthly, the aggregate abnormal returns were calculated with the help of average abnormal return to watch the reaction over a period of time. Finally, standard deviation of abnormal return has been used to calculate t-statistic to cross sectional.

To evaluate the stock price reaction to dividend announcements, Return (Rit), which is the time "t" return on security "i" were figured as (Pit-Pit-1)/Pit-1 where Pit is the balanced closing price of the stock "I" on day t. Pit-1 is the balanced closing price of stock i on day t - 1

Rit = (Pit - Pit-1)/Pit-1

Likewise, the following formula were used to calculate return on Market Index,

Rmt =(It -It-1)/It-1

After that following equation will be use to calculate abnormal return for each of the day in the event window:

ARit = Rit -E (Ri,t) , t=(-20,-19A¢â‚¬A¦A¢â‚¬A¦20)

Then, market model is used to estimate expected return. Estimation window of 150 days have been used, according to following equation:

E(Rit) = ai + bi Rm,t+ei,t

In which,Rm,t is the return on the market portfolio on day "t" substitute specific sector indices, ei,t is the random error term and ai and bi are market model parameter.

According to the following formula the abnormal returns (ARs) averaged across the sample of firm:

AARs =Avg(ARt) = (1/N) ARit


N is the number of sample observations.

Therefore, to find out daily average abnormal returns, the abnormal return must divide by the number of days. The cumulative abnormal returns from day t1 through t2 ,CARt , are :

CAARt = AŽA£ Avg (ARt) where t = t1 to t2

CAAR can be positive and negative. Assuming that CAAR is negative in periods following dividend announcements, this intimates dividend announcements do not convey information about future earning and cash flows of the firm. A positive CAAR demonstrate allocation of dividend adds to shareholder value by passing on good news to the market. We utilize a 41day event window period beginning from -20 to +20 days relative to dividend announcement day (0 day). For the motive of analysis both interim and final dividend announcements has been taken. To calculate the t-statistic, to start with, all abnormal returns identical as:

SAR it= ARit / Si (AR)

Where, Si (AR) represents the standard deviation of the abnormal returns of stock "i" in the estimation period. For the sample of N observation for every day "t" in the window the t-statistic is calculated as:

t(SAR) = (AŽA£i=1 to N SAR it) .1/A¢Ë†Å¡N

Data Gathering

Sujata Kapoor (2009) has gathered the secondary data for methodical and experimental study from Prowess database of CMIE (Centre for Monitoring Indian Economy). The analysis has been done on panel data in Lintner model. In this analysis the sample period is taken from 2000 to 2008.

R. Azhagaiah & Sabari Priya .N (2008)

In their research, they haveanalyzed the impact of dividend policy on shareholder wealth over the organic and inorganic chemical industry of India. In that the have used multiple regression method and stepwise regression models by taking DPSit (Dividend per Share), RE it (Retained Earnings per Share), Pet-1 (Lagged Price Earning Ratio) and MPSit-1 (Lagged Market Price) (MVit-1) as independent variable, and MPSit (Market Price Per Share) as dependent variables. With the help of F value the co-efficient of determination (R2) has been tested, to determine the proportion of explained variation in the dependent variable. The tool used by them for analyzing data is following:

MPSit = a + b DPSit + c REit + eit (1)

MPSit = a + b DPSit + c REit + (PE)t-1 + eit (2)

MPSit = a + b DPSit + c REit + (MPS)it-1 + eit (3)


MPSit -- Market price per share

DPSit -- Dividend per share

REit -- Retained Earning per share

PEt-1 -- Lagged Price Earning Ratio

MPSit-1 -- Lagged Market Price (MVit-1)

The "i" denotes the ith company in the sample of "n" companies chosen from individual industry and every variable are measured in the ith time period. Closing price of share for year is used as a market price of a share. Mean, Standard Deviation, Multiple Regression Model and Stepwise technique has been used to analyze the data.

Data Gathering

Priya & Azhagaiah (2008) also collected their data from PROWESS database of CMIE. The sample of 28 companies has been taken, which are registered in BSE (Bombay Stock Exchange) among them 19 were of organic and 9 were of inorganic using Multi-Stage Random Sampling Technique for the sample period of 1996-1997 to 2005 -2006.

In this chapter it was easily shown that which method have they used to represent their research. This chapter has analyzed the various method, models, tools & techniques utilized by Pani (2008), Sujata (2009) & R. Azhagaiah & Priya (2008). The table 4.1 will summarize this whole chapter in he tabular form:

Table 4.1: showing the area of research and models used by three different researchers


Pani (2008)

Sujata Kapoor (2009)

R. Azhagaiah & Sabari Priya. N(2009)

Area of Research

Electricity industry,

Food and Beverage,


Other industry

- Textile

- Mining

IT Sector,

FMCG (fast moving consumer goods),

Service Sector

Organic chemical companies,

Inorganic chemical companies

Sample Period

1996 to 2006

2000 to 2008

1997 to 2006

Models Adopted

Classical linear regression model using panel data model

Lintner Model

Event study

Multiple regression model

Stepwise regression model

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Dividend Policy And Share Price Finance Essay. (2017, Jun 26). Retrieved November 30, 2023 , from

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