3.4.

RESEARCH HYPOTHESES

The corresponding hypothesis of research objectives are as follows:

Hypothesis 1: There is no significant relationship between share price movements in the

power sector with respect to the dividend announcement.

Hypothesis 2: There is no significant relation between dividend distributions with

financial growth in the power sector.

Hypothesis 3: There are various factors influencing investor‟s perception in power sector
in the context of dividend distributions. However, investment opportunities and
profitability of the firms are more effective.

* 1 & 2 are null hypotheses, whereas hypothesis 3 is declarative in nature.

3.5. CONCEPTUAL & OPERATIONAL DEFINITIONS

A). Dividend Payout

Dividend payout is a part of earnings paid to shareholders in the form of dividend.

Dividend payout is calculated by dividing Total Dividend paid to equity shareholders by
Total Net Profit Belonging to Equity Shareholders or by dividing Dividend Per Share by
Earnings Per Share.
Dividend Payout = Dividend per Share/ Earnings per Share
B). Dividend Yield
Dividend yield is Dividend Per Share divided by Market Price Per Share. It is also a
company's total annual dividend payments divided by the market capitalization.
Dividend Per Share/Market Price Per Share
C). Retention Ratio:
The retention ratio refers to the percentage of net income that is retained to grow the
business, rather than being paid out as dividends. It is also known as plow back ratio. It is
calculated as:
(Net Income - Dividends) / Net Income)
or

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1 – (Dividends per share / EPS).

D). Net Profit:

The profit is that profit which is calculated after the deduction of all the expenses like
wages, rent, and tax for all the revenue. We can also say that net profit is calculated by
subtracting total expenses from total revenue. It is also known as net income or net
earnings.
E). Net Worth:
Net worth is the amount by which assets exceed liabilities. Net worth is the value of all
the non-financial and financial assets owned by an institutional unit or sector minus the
value of all its outstanding liabilities. It is used to determine the true financial position of
the company. It is measured as:
Net Worth = Total Assets - Total Liabilities
F). Net profit margin:
Net profit Margin is a ratio used to calculate percentage of profit from total revenue.
High Net profit Margin shows that company is more efficient in to convert its sale into
profit. It is described as from the formula.
Net Profit Margin= Net Profit ÷Total Revenue

G). Current Assets:

Current Assets represent the value of all the assets, which can readily convert into cash.
For eg cash in hand, cash at bank, debtors, Bills receivable, etc. We can also say that
current assets include cash and cash equivalent.
H). Net Blocks
Net Blocks represent the actual cost of achievement of assets after adjusting for or
subtraction of depreciation for wear-and-tear.
Net Block = Original cost- Depreciation

I). Return on Capital Employed:

It is a ratio which evaluates the efficiency of the organization in terms of capital
employed. Capital employed is the total amount of capital that a company has utilized in
order to generate profits. It is the sum of debt liabilities and equity fund of shareholders.

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ROCE = Earnings Before Interest and Tax (EBIT) / Capital Employed

J) Return on Net Worth / Return on Equity

Return on Net Worth is the amount of net income returned as a percentage of
shareholder‟s equity. It is also known as Return on Equity. It measures the company‟s
efficiency of making use of funds and effectiveness of investing funds
ROE is expressed as a percentage and calculated as:
Return on Equity = Net Income/Shareholder's Equity
K) Market capitalization:
Market capitalization is the valuation of the company depends on its current share price
and the total number of outstanding shares. It is computed by multiplying the current
market price of the company's share with the total outstanding shares or equity shares of
the corporation.
L) Share Price Volatility: The volatility refers to the degree to which price moves. The
term volatility indicates how much and how quickly the value of an asset changes. It is
measured by Beta, share with negative beta tend to move in the opposite direction
relative to the broader market. Stocks with a beta greater than 1.0 tend to be more volatile
than the market, and those with betas below 1.0 tend to be less volatile than the
underlying index.

3.6 SCOPE OF THE STUDY:

The scope of the study basically deals with the coverage aspect of the study in the context
of this coverage; a discussion on limitations is also needed. It also covers the discussion
on various theories used in the study. To begin with the study has covered an extensive
review of literature wherein all the past studies, survey are classified into five major
categories or themes. These themes are as follows: studies related to dividend relevance,
studies related to dividend irrelevance, studies related to signaling effect of dividend
policies, studies related to Dividend Policy in relation to shareholders and studies related
to the determinants of dividend policies. The coverage or scope revolves around major
dividend theories ranging from dividend relevance and dividend irrelevance. The theories
like Walter model, Gordon model, M. M. approach are discussed in the context of the

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study. The study includes five leading companies in the power industry in India. The
selection of these industries is done on the basis of their market capitalization. Through
an afford is made to arrive at this sample of five companies so as to make them represent
entire power industry of India, still chances of errors are there as many companies are
left. The names of the selected five companies are NTPC, NHPC, Tata Power, NLC,
Power Grid Corporation.

The share market has traditionally been a matter of debate and study among the thinkers
in financial and investment management. What makes this study more challenging is the
sensitive nature of these markets. The sensitivity of share market makes it difficult to
preciously measure share price movements and forecast future share prices. This inherent
nature of share market delimits the scope of the study. The study deals with share price
volatility in the context of dividend decisions in Indian power ministry. On
methodological part the study draws input from statistical methods like correlation,
ranking of factors, chi square etc. The study utilizes both primary as well as secondary
data inputs. He study makes an effort to analyze a sensitive issue like share price
volatility in a simple and scientific manner.

3.7. SIGNIFICANCE OF THE STUDY

The significance of this study is mainly folded due to its peculiar nature. Two obvious
aspects or angels make the significance of the study more pronounced and clear. The first
being the industry selected for the study, which is power sector. We know that the power
sector is a core industry and a well being of all other industries vastly depend upon the
fortunes of the power industry. In other words lack of power supply is bound to reflect
negatively on all sectors of the economy and industry. As the study deals with share price
volatility in the context of dividend declaration, the outcomes of the study can help in
bringing stability to the power sector of the company. A volatile power industry is not at
all good for the industries of the country.

The other aspect which makes the study quite significant is the area of investigation
attempted in it. Dividend relevance or irrelevance remains a debatable issue among the
thinkers and authors in financial management as well as investment management. There
is no consensus among authors and researchers on this as numerous studies advocating

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both dividend relevance and irrelevance can be seen in literature. The significance of this
study becomes self explanatory due to the fact that this study also touches upon the issue
of dividend relevance and irrelevance particularly in the power sector.

Dividend policy has though is crucial for any company, industry, however, it becomes
more contextual in case of an industry with mammoth significance for any economy like
power industry. It will not be an exaggeration to say that dividend decisions of a
company are extremely crucial to keep attracting prospecting investors in the future.

From this line of thinking, one can easily contemplate the significance of the study as it
deals with dividend policy aspects of a crucial sector which is power sector.

3.8. RESEARCH METHODOLOGY

The methodology used in the study is being presented under the following heads

3.8.1. Research Design: All good studies in the world are at least two stage design first
stage is exploratory and reporting, which is compulsory part and the other stage is the
actual work done. The present study is based on extensive review of literature followed
by other research techniques used in the main body of the study. The research design is
descriptive as well as explanatory. It is descriptive in the sense that it tries “what” part of
the study, whereas it is explanatory in the sense it tries to explain “how” part too.

3.8.2. Data Collection:

The present study draws input from both primary as well as secondary data. While
analyzing various hypotheses, support is drawn from both primary as well as secondary
data. Along with the details of primary and secondary sources of data corresponding
sampling plan is also presented. Further details are shared below.

Primary Data:

For the purpose of collecting primary data a questionnaire is developed the questionnaire
is divided into two parts the first dealing with factors affecting dividend policy in power
sector. The second one is dealing with the impact of dividend policy on share price
volatility. The sample of respondents includes the investors / brokers having experience
of the investment including the power sector.

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Corresponding sampling plan: The size of the sample is chosen on the basis of Krejcie
and Morgan sampling plan. Further details are as follows.

Sample Size: 425

Secondary Data: The scheme of collecting secondary data is summarized in following
table.

Table: 3.1. Representation of Secondary Data collection

Companies Data Collected Regarding Sources Time Span

1. NTPC  Share price Annual Reports
 Dividend
2. NHPC  Reported profit
 Investment
3. Tata Power  Current assets nseindia.com

 Net worth 2008-17

4.Power Grid  Net cash used in
Corporation moneycontrol.com
investing activities.
 Net Blocks
5. NLC
 Net Profit margin
 Return on Net worth
 Return on capital
Employed

Corresponding sampling plan: The sample of five leading companies of power sector
selected for the study is based on their market capitalization study.

A sizeable market capitalization of the power industries in India comprises of the market
capitalization of these five companies alone.
The market capitalization of these selected companies is presented below:

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 Table: 3.2. Power companies and market capitalization status

Company Market Cap

( Cr.)
NTPC 1,46,274.54
Power Grid Corp 1,07,666.11
NHPC 27,854.06
Tata Power 23,612.67
NLC India 13,688.33

Ref: moneycontrol.com

3.8.3. Statistical techniques used in the study.

There are three main objectives of the study, which are followed by corresponding three
hypotheses. Different statistical techniques are used to test different hypothesis. The
questionnaire developed for the study is used in analyzing all the three hypotheses.
However first two hypotheses only partially draw inputs from the questionnaire survey
analysis. To avoid ambiguity, mapping of objectives based on the questionnaire is
presented below.

Table 3.3 Mapping of Objectives

S.No. Objective Sequence Number of related Question in

Questionnaire

1 1 14,16, 17, 18, 19, 20, 21,22,23

2 2 2,4,6,8,12,13

3 3 1-23

Ref: Questionnaire.

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It will now be more systematic to present overall research techniques used in the study in
light of mapping of objectives presented in the above table. The same is presented below:

Table 3.4. Statistical techniques Used in Research

S. No. Objective Methodology

1 Objective -1 1-Correlation Analysis

2-Chi Square Test

2 Objective -2 1- Correlation Analysis

2-Ranking of factors
Analysis

3 Objective -3 Ranking of factors Analysis

In this study researcher tries to find out the association between the share price movement
and dividend policy. This relationship is evaluated with correlation analysis and Chi
Square test. This research work also evaluates ranking in connection investor dividend
expectations. With the help of correlation secondary data is evaluated, to analyze the
association between the variables. The Chi Square test is used to evaluate primary data of
questionnaires, to analyze the independence of attributes.

Here is a brief description of research tools used by the researcher in the study.
Correlation:
Correlation Analysis measures the relationship between the variables. The correlation
test is used to evaluate the degree (strength) of the variable. We can measure the
relatedness of the variables. It also measures the direction of the variables. It is measured
by Karl Pearson, co- efficient. It can be expressed by scatter diagram. The
mathematical formula for computation of r is:

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Chi Square test

A chi-square test is used for testing the independence of attributes. In this research chi
Square test is used to evaluate the relation of share price and dividend, with the help of
questionnaire analysis. The Chi Square test is a simple, non pragmatic test used to
evaluate the difference between collecting numbers and expected numbers. The
significant large difference leads to the rejection of the null hypothesis, which reflects
there is a significant relation between the variables. This is the simple formula for
calculation of chi square test

2
(O − E)2
𝑥 =
E

Where O is observed number

E is Expected Number

The expected values are calculated with the help of contingency table in which we have a
4x2 matrix. With the help of Chi Square test we come to know the independence of the
variables.

Conditions for the Applicability of Chi Square test

 Observations should be independent of each other.

 Expected counts should not be less than 5.
 The sample size should not be less than 50
 Random Sampling technique

Inference from chi Square is based on two points

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  Degree of freedom
 Level of significance

In the study, the level of significance is, .05 it means test is true up to 95%. Which is
being calculated by (1-95%) = (.05). So the research work is true up to 95 %. The degrees
of freedom (df) = (r-1) x (c-1) where r is the number of row and c is the number of
columns. So (df) is (4-1) x (2-1) = 3

Acceptance and Rejection Rules

 If the calculated value is less than tabulated value, Accept the null hypothesis
 If the calculated value is greater than tabulated value, reject the hypothesis

Ranking of factor analysis

A total of fifteen factors is identified which affect dividend policy. At the same time
seven factors are identified which are related to the impact of dividend on share price
volatility. On the basis of questionnaire analysis all these factors are converted into
scores. On the basis of these scores these factors are ranked and their analysis is carried
out.

3.9 LIMITATIONS OF THE STUDY

The main limitations of the study are as follows

 Only out of the entire power industry in India generalization of the results will be
limited since the data of NTPC & TATA Power, NHPC, NLC, Power Grid
Corporation will be analyzed only.
 Due to resource constraints, the sample size may not be as large as one would
deem fit for the purpose.
 Lack of interest from respondents to fill the questionnaire appropriately may be
cited as a limitation.
 The main theme of the study surrounds around dividend and share price, which
are two dynamic and sensitive issues to be captured accurately in quantitative
terms.

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3.10 CHAPTERISATION OF THE STUDY

Brief account of chapterisation of the study is being presented here. The First chapter of
Introduction deals with the conceptual aspects related to dividend like various theories in
this regard, detail about the concept of share price volatility and details of five companies
selected for the study are presented. The second chapter deals with review of literature
where with a review of past studies along with a summary of the review of literature and
research gap is presented. Chapter three presented the research methodology of the study
besides presenting main objectives and hypothesis of the study, this chapter also contains
the research design, data collection, sample size tools and techniques used limitations and
chapterization of the study. The Chapter four deals with the analysis of data. In this
chapter data analysis is presented systematically on two lines first on the basis of
hypothesis and second on the bases of primary and secondary data. Chapter five gives the
summary of results, whereas summarize results of data analysis of different hypothesis
are presented. Towards the end the last chapter deals with conclusion, recommendations,
future scope etc.

3.11 CONCLUSION OF THE CHAPTER:

This chapter deliberates on the research methodology part of the study. An effort has
been afoot to present this crucial part of any study in a systematic manner. By nature
study is full of financial management related jargon, so all the relevant terminology is
explained under the heads conceptual definitions. It is followed by mentioning the main
objectives and corresponding hypotheses of the study. Thereafter, the methodology
adopted in testing the hypothesis is presented in a lucid manner. Research design,
sampling plan, data collection, and statistical techniques used in the study are all
presented under the broad heading of research methodology. It is followed by discussion
on the limitations of the study and chapterisation of the study.

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