CH- 1 Introduction

Since the existence of corporation form of business in financial management dividend policy has
been among the most important topics . In 1613 the first ever company in history to issue share
was the east India company, it declare in 1661 dividends. After the payment of dividends
happened and various rules for dividend policies were made in 1956 in Lintner was supposed to
work on the policy of dividend. Later on he inquired about various factors, which have an impact
on the timing of dividend payment like size, shape. Soon Miller a concluded that investment
policy has an effect on the value of firm rather than there is a relationship between the value of
firm and the dividend. There is a change in the value of firm because of dividend policy which
indicates prospecting incomes was proven by the Gordon. There are many hypothetical theories
proposed which show that there is exist an inverse relationship between payout ratio and the
dividend yield. Duration arbitrage , rate of return and information effect . But this case study is
about analyzing “Impact of dividend policy determinants on stock prices. The stocks will always
have short term duration whenever the dividend policy dividends are stable. Higher the dividends
lesser will be there response to the discount ration changes.

Background of the Study

“Dividend Policy” has always been among the debatable topics despite the improvement in the
theoretical and practicality in the field of finance, in the minds of various researchers,
professional and academicians. The share holders always plan the amount of return they want to
get on the other side the mangers are the once who decides what is the amount of dividend pay
and when to be paid. Through this the manager to decide the own policy of the dividend also
take the decision about the percentage of profit they want to utilize in the firm known as retained
earnings. It is very important decision for the mangers to decide upon the best dividend policy
suitable for the business. Even though dividends are just a part of earnings for the share holders
they are very important indicator of the business’s performance.

1
The company’s manager are the ones who take the decision regarding how much percentage of
its profit/ earnings is to be distributed to the investors in the company, for this the mangers
decide on the dividend policies. Many times it has been observed that the investors of a
company have no effect what so ever on their investing pattern as long as its concerned with the
dividend policy of a company, they are only concerned with the liquidity of portfolios so that
they can get cash whenever they want. This kind of theory is called “Dividend Irrelevance
Theory”, this means that the payment of dividend by a company will have no or a very small
effect on the stock prices. Despite of all this the companies still pay dividends.
Dividend can be distributed in the following three ways :

“Residual Dividend Policy “

As the name suggest in this policy the companies usually rely on the equity that is generated
internally in order to finance any kind of new project. So to make dividend payments the money
from the leftover or residual equity can be used after the new project capital funding
requirements have been met. Before making dividend payments to the investors the companies
try to make balance in their ratios namely debt equity ratio because they will make payments of
dividends only when the expenses of operation and new projects are met and there is money left.

For example there is a company who has a policy to maintain a debt to equity ratio of 0.5
and has recently earned Rs. 5000/-. The company has stumbled upon a capital expenditure
of Rs. 4500/-, to maintain to debt to equity ratio that is decided 0.5 it will have to finance
Rs. 1500/- through debt and the remaining through equity, by this the company will left with
Rs. 2000/- for the payment of dividends ( it is residual amount, Rs. 5000-Rs.3000/-). If the
capital expenditure would have been more than Rs. 5000/- . Then there will be no residual
amount left for the payment of dividends so they have to issue new stocks.

2
This model relies on 3 important aspects that are “An Investment opportunity schedule,
Target capital structure and external capital loss”.

• In order to determine the best suitable capital budget for the firm it is important to
decide on the dividend payout ratio that the firm wants to target.
• Secondly in order to finance the budget the managers must indentify the amount of
the equity which is done why determining the retained earnings.

In order to budget the new capital expenditure this model is very useful since it helps the
managers to set a dividend policy which will last long term this model provides with a
disadvantage also to the managers because of the unitability of the dividends and since the
earnings depend upon the situation any kind of business facing are different every year this
model is not useful and maintain a stable dividend and stable profit is a very difficult task.
This implies that this model is only suitable for long term planning. Many firms do not use
this model to calculate dividends on quarterly basis.

“Dividend Stability Policy”

As the name suggest this model is in contrast with the residual policy model because that
model have disadvantage of the fluctuation of dividends which is overcome in this stability
model. The problem of calculation of dividend payments on quarterly basis is solved in this
as in this a fraction is taken out of the yearly earnings and is named as the Quarter’s
dividends. The uncertainty of the investors is reduced by this and income is generated.

For example The company earn Rs. 10000/- in a particular year (Earnings per each quarter are
Rs. 4000/-, Rs.1000/-, Rs. 3000/- and Rs. 2000/-). The company has decided under the stability
policy to provide to each share holder every quarter the 20% of the earnings it has received in a
year . So in this every shareholder will get Rs. 2000/4(Rs. 500/- each quarter) or the company
can pay the dividends according to each quarter earnings i.e Rs. 800/-, Rs. 200/-, Rs. 600/- and
Rs. 400/-), whatever the company chosses from the above two, it will always pay dividends to its
shareholders unlike the residual policy will not search for new project so that it can invest the
excess amount of earnings

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“HYBRID DIVIDEND POLICY “

As the name suggest hybrid is the combination of the two policies (stable and residual). The debt
equity ratio is observed as a long term goal rather than a short term goal in this approach. The
company in general experience fluctuations in their business cycle because of which they have a
very small portion of the dividend from the yearly income in today’s market . Whenever the
income is more than the general levels the companies offer more than the set dividend and extra
dividend amount .

INDIAN CAPITAL MARKET

The Indian stock market being the oldest in Asia has its history back to nearly 200 years.the east
india company was the most dominant and powerful institution of that time the transaction of
loan and securities used to be conducted in an unorganised manner in early nineteenth century in
Bombay and Calcutta. Later the business on corporate stocks and shares took place and gradually
number of companies increased.

In the twentieth century the Indian capital market saw a drastic change with the introduction of
technology, the Indian market started growing. On line trading, transparency, strict surveillance,
depository system, investor protection and regulations were some of the key activities which
reflected the growth of the Indian Capital Market. With the Dematerialization of shares and
introduction of SEBI (Securities and Exchange Board of India) Indian Capital market provided
protection to its investors.

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Market Segments

Primary Market

The primary market provides the platform for exchange of new securities. It provides
opportunity to the issuers of securities, Government as well as corporate, to raise their resources
to meet the requirements of investment and/or discharge some obligation. This type market
mainly includes initial public offer (IPOs) to generate capital or fund.

Secondary Market

The Secondary Market mainly refers to a market where securities are traded after being initially
offered to public in the primary market or being listed on the Stock Exchange. A larger portion
of the trading is done in the secondary market. This market generally comprises of equity
markets and the debt markets.

For the investor, the secondary market provides an efficient platform for trading in securities. For
the management of the company, secondary equity markets serve as a monitoring and controlling
body by facilitating value enhancing control activities that guides management decisions.

Stock Exchange

The securities are traded or exchanged in secondary market. A Stock Exchange is an organized
platform where securities are traded or exchanged. Securities are defined as any monetary claims
and include stock, shares, debentures, bonds etc. Under the Securities Contract Regulation Act,
1956, the Central Govt. regulates securities trading and such trading can take place only in Stock
Exchanges recognized by the Govt. under this Act. At present there are 23 such recognized Stock
Exchanges in India. Of these, major Stock Exchanges are Bombay, Kolkata, Delhi, Chennai etc.
As per the Act, trading in securities permitted to be traded would be in normal trading hours
(09:15 A.M. to 03:30 P.M on working days).

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TYPES OF EXCHANGES IN INDIA:-

National Stock Exchange (NSE)

The National Stock Exchange (NSE) is India’s leading stock exchange covering various cities
and towns across the country. It was set up in November 1992 with an equity capital of Rs. 25
crores by leading institutions to provide a modern, fully automated screen-based trading system
with national reach. The Exchange has brought about unparalleled transparency, speed &
efficiency, safety and market integrity and its index NIFTY has got worldwide recognition.

NSE has played a catalytic role in reforming the Indian securities market in terms of
microstructure, market practices and trading volumes. It started operation in Wholesale debt
market in June 1994 & in equity, in Nov 1994.

Bombay Stock Exchange (BSE)

Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich heritage.
Popularly known as ‘BSE’, it was established as ‘The Native Share & Stock Brokers
Association’ in 1875. It is the first stock exchange in country to obtain permanent recognition in
1956 from the Government of India under the Securities Contracts (Regulation) Act, 1956. The
Exchange’s pivotal and pre-eminent role in the development of the Indian capital market is
widely recognized and its index, SENSEX, is tracked worldwide. The Exchange has a nation-
wide reach with a presence in 417 cities and towns of India. The systems and processes of the
Exchange are designed to safeguard market integrity and enhance transparency in operations.
The Exchange provides an efficient and transparent market for trading in equity, debt
instruments and derivatives. The BSE On Line Trading System (BOLT) is a proprietary system
of the Exchange and is BS 7799-2-2002 certified. The surveillance and clearing and settlement
functions of the Exchange are ISO 9001:2000 certified.

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Stock Broker

The Stock Broker is a member of any recognized stock exchange, who is permitted to do trades
on the floor of the exchange. A broker is an intermediary who arranges to buy and sell securities
on behalf of clients (the buyer and the seller). According to Rule 2 (e) of SEBI (Stock Brokers
and Sub brokers) Rules, 1992, a stock broker means a member of any recognized stock
exchange. No stockbroker is allowed to buy, sell or deal in securities, unless he or she holds a
certificate of registration granted by SEBI.

No investor can invest in the stock market directly; they have to register themselves with a
registered broker of recognized stock exchange. The broker then trades in securities on behalf of
its investors.

Sub broker

A Sub broker is a person who intermediates between investors and stock brokers. He acts on
behalf of a stock broker as an agent or otherwise for assisting the investors for buying, selling or
dealing in securities through such stock broker. No sub broker is allowed to buy, sell or deal in
securities, unless he or she holds a certificate of registration granted by SEBI. A sub broker may
take the form of a sole proprietorship, a partnership firm or a company. Stock brokers of the
recognized stock exchange are permitted to transact with sub brokers.

Depository

A depository is an organization which holds securities of an investor in electronic form at the

request of the investor through a registered Depository Participant. It also provides services
related to transactions in securities. Depository transfers securities between accounts on the
instructions given by the account holder. The fear of losing of securities is removed through
depository as it facilitates safekeeping of shares. It transfers the ownership of the securities
without having to handle the securities.

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The most vital parts that the investor takes into consideration before getting influenced to
buy a share is the Share Price. The share value of the businesses can forever show
volatility due to the impacts of some factors. The dividend policy is that impacts the stock
exchange value of the corporate. however the $64000 impact on the dividend
policy available market continues to be ambiguous and remains unsolved . thence this study
analyses the $64000 relationship between the dividend policy determinants and stock
exchange value taking into consideration the variables like, profits magnitude relation,
Earning per share, Dividend yield, Dividend payout magnitude relation, come on equity and
also the value of share square measure used for analyzing the impact level.

Dividend policy has been a most debatable subject within the space of finance. Numerous
studies on dividend policy has been conducted by several known researchers explains
that dividend ought to
simply be seen because the payment of extra stock to shareowner. It was argued that
Dividend Policy could be a call to be taken by the money manager whether or not the
firm ought to distribute or retain all profit or to distribute some and retain the
balance. Dividend policy is a very important facet of finance and dividends square
measure major money outlays for several companies. Described dividend as a periodic
payment to shareholders to compensate them for the use of their funds by the
firm that's creating the payment and it comes in different forms. Dividend could also be paid
on common stock, and for reason, it's typically expressed as a share of the worth of the
stock, which is distributed on proportionately basis to common shareholders.

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Dividend Policy Determinants:

“DIVIDEND PAYOUT RATIO”

By dividing the dividend the company has decided to pay to its shareholders with the earnings of
a company we get the dividend payout ratio . A company can choose its payout ratio to be either
a high or a low. Higher retained earnings, more capital gains , lesser dividend and probably a
higher share price , these all come under a low payout ratio. The DP ratio is the amount of the
earnings that are distributed by any firm which is in the form of dividends in comparison with
the total income of the company. The company some time keeps a portion of their earnings to
utilize it for the purpose to finance its in house expenses. Retained earnings is that amount which
the firm keep aside as a portion of the earnings in order to invest it back in the firm. In this study
it (DP ratio) is used as an independent variable to the calculate dividend payout ratio the
following formula can be used.

DPR= Dividend/Net Income

By analyzing the formula it is observed that the elements of the formula can be found in the income
statement of a company. At the time of decision making a close check is kept on the DP ratio because
it help in deciding whether or not to purchase the share of a company which is making profits and
distributing dividends. It can be concluded that in order to have stable earning DP ratio is the best
measurement.

“Earnings per Share (EPS)”

The net profit that is left after the company has paid the preference equity share holders is then
divided by the outstanding number of shares in order to calculate what will be the earnings per
share. In this study this variable is selected for a reason that is the firm’s ability to generate
profits can be analyzed from it

EPS = Profit available for equity shareholder / outstanding number of Equity Shares

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“Return on Equity (ROE)”

Return on equity as the name suggest implies the amount of return a shareholder gets in return of
his equity investment. Profit after tax of a company divided by the equity holding gives us return
on equity by using the below formula it can be calculated :

ROE= Net Income / Stockholder’s Equity *100

“ Stock Market Prices”

The dependent variable of in this study is taken as the market price per share. In order to get the
market prices the closing prices of each share is taken into consideration. It is probable that
profits after tax, return on equity , earnings per shares will have important link with the prices
while the retention ratio will be positively or negatively correlated depending upon the share
holder’s perception. The retention ratio will have direct impact on the prices if the shareholders
think that the investment chances in a company are attractive and a vice versa.

“Retention Ratio (RR)”

As the name suggest this ratio calculates the portion of income generated by a company that it
keeps with itself for the purpose of meeting various other expenses. In other words the amount of
that the firm retains rather than distributing as dividend is called retention ratio.

Retention Ratio = (Net Income-Dividends) / Net Income

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 CH- 2 LITERATURE REVIEW

“Adnan Ali, Farzand Ali Jan and Ilyas Sharif “

In this research paper a period of twelve years is taken for 45 companies that are not financial
and are earning profits and distributed dividends. In this research paper it was concluded that
retained earnings will lead to a lower price and there is a positive relationship between dividend
payout ratio and the share prices.

“Khaled Hussainey, Chijoke Oscar Mgbame and Aruoriwo M. Chijoke‐Mgbame”

The research study was all about analyzing whether there is any kind of relationship pertaining
between the stock prices and dividend yield. It was conclude that there was a positive
relationship between dividend yield and stock prices, there was a negative relationship between
the dividend payout ratio and the stock prices, the firm’s growth rate , earnings, debtlevel and
size explained the changes in stock prices, It was concluded that there was a relationship between
dividend policy and share prices.

“Md. Abdullah Al- Hasan, Md. Asaduzzaman and Rashed al Karim”

These researchers concluded in their study that the relevant theory hold true as they proved that
dividend policy determents like the market price , EPS have an impact on the market price,
various tools like correlation and regression were used to conduct the study in context with
Bangladesh.

“S.M. Tariq zafar, D.S. chaubey and S.M. Khalid”

The researcher conducted a study by taking into a consideration some banks in India for five
years . They concluded that on the shareholders wealth dividend payout had a high influence and
in the banking industry the share holder wealth was impacted by the dividend policy. To analyze
and prove the data multiple regression was used.

“Yusniliyana Yusof, Suhaiza Ismail”

The research was conducted in order to check what the various variables like the level of debt ,
the flows of cash, the amount of investment and the amount of dividend due had on the dividend

11
policy. This particular research was done for various companies of Malysia. The researcher
concluded that all these factors had a strong impact on the policy of dividend.

“Lintner (1956)”
In this study the researcher interview the highest level of management of various companies in
order to observe that whether there was any impact policies of dividend had on share prices After
studying the value of a firm and the factors of policies of dividend which had an impact on it was
concluded that payout ratio effected the market value of firm.

“Ho, (2002)”
In this study was conducted by utilizing a fixed regression model and a panel data approach
which demonstrated a direct relationship between the firms of Australia’s dividend policy and
the Japan’s corporation ability to payback the liablities. It was analyzed that there was an
indirect relationship between the policy of dividend and risk for the companies of Japan. It was
concluded that there was an industrial effect between the two.

“Travlos, Vafeas and Trigeorgis, (2001)”

In their study they observed that there was a direct relationship between the policy of dividend
and prices of stock and stated that with the growth of dividend the prices of stock increases and
vice versa.

“Pradhan (2003)”
This research was conducted in order to check what was the effect of dividend payment on the
earnings retained by the firms . The research was conducted by various firm’s stock prices in
Nepal and it was concluded that the retained earnings and the dividend payout ratio had a very
delicate relation among each other. One more thing was concluded that the capital gain was more
preferred than the dividend amongst investors in Nepal.

“Nishat and Irfan (2003)”

In this study 160 companies that are listed in stock exchange of Karachi for the period of 20
years starting from 1981 – 2000 was used and a regression analysis (Cross section) and it was

12
concluded that there was a direct association between payout ratio and dividend yield with
instability of share price.

“Adefila et al., (2004)”

This research paper analysed various facts because of its there were changes in the policy of
dividends of various companies in Nigerian . In this research it was further concluded that the net
earnings , amount of dividend and the prices had no relationship. The companies in Nigerian
irrespective of their incomes aim at satisfying their share holders and pay their dividends.

“Myers and Frank (2004) “

In this research paper it was concluded that the price earnings ratio and the dividend payout ratio
had a direct relationship and further it was analyze that the dividend payout and the debt equity
ratio also had a crucial direct relationship.

“Baker et al., (2006) “

In this research it was shown that the management in Norway design the dividend policy by
using a survey technique so in this study the researcher analyze the members of management’s
attitude . In this research it was concluded that the factor that the management keep in mind
while deciding the dividend policy are the earnings that the company already has, are excepted,
the liquidity and the leverage.

“Nazir et al., (2010)”

In this research paper it was analyzed whether the stock prices were effected by the dividend
policies. The research concluded that the growth of a firm and its earnings had a positive impact
whereas the size of the firm , leverage , dividend payout and yield had an indirect and
insignificant impact.

“Anand, (2008)”
This research concluded that the stock prices were effected by the dividends and the company’s
success was measured by the dividends.

13
“Amidu (2007)”
In this research paper it was concluded that the sales and the dividend policy , return on
investment had a positive relationship and secondly dividend payout ratio , return on investment
and leverage were negative correlated .

“Raballe and Hedensted (2008)”

This research work was conducted in Denmark and this study concluded that there was no
relationship between the decision regarding dividend and debt equity rates and it was also
concluded that the dividends amount were positive correlated to the earnings of the company , to
the earnings that the company retained , to the magnitude , to the return on investment.

“Pani, (2008)”
This research paper was conducted on some sectors of the stock exchange of Bombay and
around five hundred companies were selected as a sample. The research was conducted to
observe whether the prices of stock had any kind of relationship with the policy of dividend .

“Rashid and Rahman (2009)”

The research work was conducted to observe whether the volatility of the stock price and
dividend policy had a relationship by studying the Bangladesh’s firms. In this study it was
observed that the un perdicitiblity of stock prices and yield had a not so important relationship
between them.

“Akbar and Baig (2010)”

This research was conducted on various institutions under the stock exchange of Karachi in order
to analyse these effects on stock prices because of dividend policy. The research work concluded
that irrespective of whether the distributed dividend is cash, stock, or both the annoucment of
dividend payment has an impact on the share prices.

14
 CH-3 RESEARCH METHODOLOGY

OBJECTIVES:

The objectives of the study are as follows:

• To study whether there is a relationship between dividend policy determinants

• To find out what impact dividend policy determinants have on the market price.

• To evaluate the level of dependency of dividend policy determinants have on the market
price of three industries.

Methodology used

The project will be accomplished using the concepts of Financial Management like Ratios,
concept of Statistics like Hypothesis, Correlation, and Regression.
The project will require Secondary Research i.e. in the form of Company’s Balance Sheets.

• Secondary Data

Secondary data is that type of data which is not specifically collected for a certain work. It is a
data collected by somebody else, for their own purposes. However, it plays a significant role in
the project. For this study the secondary data was collected from the following sources:

» Books related to security market, financial management and capital market.

» NSE Website
» Websites related to financial management and stock market.
» Company’s Websites

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LIMITATIONS OF THIS STUDY

Any kind of research work is conducted so that the errors can be minimized and the objective
that is been set can be maximized. However a research work always has certain limitations which
need to be considered in order to present the study.

• The calculation has been done manually so the error may occur.

 As study is restricted only to 3 specific Industries and only 15 companies are taken, more
companies and sectors can be included in the study.

 All the Data is procured from Secondary Sources

16
Research Methodology

Introduction

The methodology of any research is very important aspect. The acquiring of data, refining of
data, defining logical relationship and controlling the study are all a part of the methodology.
The methodology develops and designs an approach so that the underlined meanings of the data
can be useful and to expand the knowledge some series of conclusion can be interpreted.

“Research is considered to be formal, systematic, intensive process of carrying on the scientific

method of analysis. It involves a more systematic structure of investigation usually resulting in
some sort of formal record of procedures and report of result or conclusions.”

RESEARCH STATEMENT

The statement of research is entitled as “To study the impact of Dividend Policy Determinants on
Share Prices in Indian Capital Market”. The present research focuses on analyzing the impact of
Dividend policy determinants on the share price in Indian Capital market.

RESEARCH DESIGN

A. A Research design is a plan of action to be carried out in connection with a research

project.
B. It is the conceptual structure within which research is conducted and it constitutes the
blue print for the collection, measurement and analysis of data.

C. It is the specification of methods and procedures for acquiring the information needed for
solving the problem.

D. Decisions regarding what, where, when, how much, by what means concerning an
inquiry or a research study constitute a research design.

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TOOLS FOR DATA CALCULATON

• MS EXCEL
• Statistical tools like Correlation, Regression.

MEHOD FOR DATA CALCULATON

It is a purely excel based calculation done in predefined format, the following are the stages of
calculating it-

1. Firstly the Balance Sheet and Profit and Loss account Statement for the period of ten
years i.e. 2009-2018 of each company is extracted from their individual websites.

2. The above data is then put into Excel for the purpose of further calculations

3. Various Ratios are calculated namely: - Net Profit Ratio, Return on Equity, Earning Per
Share, Dividend payout ratio, dividend Yield, Retained Earnings.

4. Hypotheses are defined and observations are recorded.

5. Correlation and Regression Analysis are conducted and the results are recorded.

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 CH-4 DATA ANALYSIS

The scrip’s are used for the calculation purpose-

Sector – Information Technology

• Tata Consultancy Services(TCS)

• Infosys
• Wipro
• HCL
• Tech Mahindra

Sector – Pharmaceuticals

• Cipla
• Dr.Reddy’s Laboratories
• Lupin
• Glenmark Pharma
• Sun Pharma

Sector – Automobile

• Tata Motors
• Mahindra & Mahindra
• Maruti Suzuki
• Hero Motocorp
• Bajaj Auto ltd.

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Hypotheses of the Study:

A statement that explains various relationships among different variables is known as

hypotheses. On the basis of available data various relationship between various variables are
established. Different statistical techniques or tests are conducted to verify these establish
relationship. As per the results analyze from the statistical analysis these hypotheses may be
substantiated or not .

According to this research’s objectives the following hypotheses for testing have been
developed.

H1: The Dividend Policy Determinants have an impact on the Share Prices

Ho: Dividend Policy Determinants have no impact on the Share Prices.

HA: Dividend Policy Determinants have an impact on the Share Prices

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Data Processing and Analyzing Technique:

To analyze and process the data MS Excel is used . Regression and correlation analysis have
been used to analyze the relationship between the dependent and independent variable. To access
and interpret the data regression and correlation statistical tools are used. To analyze the impact
dividend policy have on the share prices of the companies regression analyze is used.

Correlation and Regression analyses is been used to analyze the relationship of dividend policy
with share price of companies.

Dependent variable: Market price per share

Independent variables:

• Dividend Payout Ratio

• Retained earnings
• Net Profit
• Dividend Yield

Descriptive Information of Variables

Standard
N Mean Deviation Minimum Maximum
DPR 150 18.95626667 93.89620521 -1053.76 213.77
RE 150 74.25806667 95.81538241 -113.77 1153.76
MPP 150 998.6448667 1159.131153 35.68 8861.1
NPR 150 15.29493333 14.11424545 -99.99 48.7
DIVIDEND
YIELD 150 74.25806667 95.81538241 -113.77 1153.76

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CORRELATION ANALYSIS

Relationship between Share Price and Dividend Payout Ratio:

The study has identified the greatness of the relationship between dividend per share and
share price. The correlation coefficient matrix shows the relationship. Table shows the
correlation coefficient matrix

Correlations between MPSP and

DPS

DPS MPSP

DPS Correlation 1 0.034(**)

Significance(2-
tailed) .000

N 150 150

SP Correlation 0.034(**) 1

Significance (2-
tailed) .000

N 150 150

** At 0.01 level the Correlation is significant

22
From the above analysis of correlation coefficient it can be analyzed that the relationship
between dividend per share and share price is positive because the correlation between DPS and
MPPS is .034 and the result at 1% level of significance is significant.

This implies that since the relationship is positive both Dividend payout ratio and the share price
move along in the same direction i.e. with the increase in the dividend payout ratio the share
price also increases.

The result of correlation supports the relevance theory of dividend policy that means there is a
significant positive relationship between dividend per share and market price per share.

23
Relationship between Retained Earnings per Share and
Share Price:

The study has identified the greatness of the relationship between Retained Earnings per share
and share price. The correlation coefficient matrix shows the relationship. Table shows the
correlation coefficient matrix

Correlations between REPS and SP

REPS SP

RE Correlation 1 -0.020 (**)

Significance (2-
tailed) .000

N 150 150

SP Correlation -0.020(**) 1

Significance (2-
tailed) .000

N 150 150

** At 0.01 level the Correlation is significant

From the above analysis of correlation coefficient it can be analyzed that the relationship
between dividend per share and share price is positive because the correlation between REPS and
MPPS is -.020 and the result at 1% level of significance is significant.

This implies that since the relationship is positive both Retained Earnings per share and the share
price move along in the same direction i.e. with the increase in the dividend payout ratio the
share price also increases. The result of correlation supports the relevance theory of dividend
policy that means there is a significant positive relationship between Retained Earnings per share
and market price per share.

24
 Relationship between Earning Per Share and Share Price:

The study has identified the greatness of the relationship between Earnings per share and share
price. The correlation coefficient matrix shows the relationship. Table shows the correlation
coefficient matrix

Correlations between EPS and SP

EPS SP

RE Correlation 1 .791 (**)

Significance (2-tailed) .000

N 150 150

SP Correlation .791(**) 1

Significance (2-tailed) .000

N 150 150

** At 0.01 level the Correlation is significant

From the above analysis of correlation coefficient it can be analyzed that the relationship
between dividend per share and share price is positive because the correlation between EPS and
MPPS is .791 and the result at 1% level of significance is significant.

This implies that since the relationship is positive both Earning Per Share and the share price
move along in the same direction i.e. with the increase in the Earning Per Share the share price
also increases.

The result of correlation supports the relevance theory of dividend policy that means there is a
significant positive relationship between Earning Per Share and market price per share.

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REGRESSION ANALYSIS

Regression Analysis is done to analyze the impact of various dividend policy determinants on the share
prices of the companies for the last ten years i.e. 2009-2018

1. Stock Prices and Dividend Payout Ratio

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.140286925
R Square 0.019680421
Adjusted R Square 0.01305664
Standard Error 48.24483223
Observations 150

ANOVA
Df SS MS F Significance F
Regression 1 6915.602642 6915.602642 2.971176357 0.018684841
Residual 148 344479.4478 2327.563837
Total 149 351395.0505

Coefficients Standard Error t Stat P-value

Intercept 55.3072075 4.019176236 13.76083164 0.00
Dividend Pay out ratio 0.072556085 0.042092975 1.723710056 0.018684841
HO: There is significant relationship between Dividend Payout Ratio and Stock prices.

HA: There is no significant relationship between Dividend Payout Ratio and Stock Prices.

Alpha is taken as 95%.

If P value is less than alpha alternate hypothesis is accepted. In the above table the significant
value (P value) is less than Alpha. Hence, HA is accepted.

This implies that where is a significant relationship between dividend payout ratio and stock
prices

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 2. Stock Prices and Retained Earnings

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.083566
R Square 0.006983
Adjusted R Square 0.000274
Standard Error 48.55626
Observations 150

ANOVA
Df SS MS F Significance F
Regression 1 2453.909 2453.909 1.040802 0.0309299875
Residual 148 348941.1 2357.71
Total 149 351395.1

Coefficients Standard Error t Stat P-value

Intercept 59.82777 5.02219 11.91269 2.29E-23
Retained earnings -0.04235 0.041516 -1.0202 0.03093

HO: There is significant relationship between Retained Earnings and Stock prices.

HA: There is no significant relationship between Retained Earnings and Stock Prices.

Alpha is taken as 95%.

If P value is less than alpha alternate hypothesis is accepted. In the above table the significant
value (P value) is less than Alpha. Hence, HA is accepted.

This implies that where is an important relationship between stock prices and Retained Earnings
.

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 3. Stock Prices and Dividend Yield

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.1177933
R Square 0.0138753
Adjusted R
Square 0.0072123
Standard Error 48.387467
Observations 150

ANOVA
Significance
df SS MS F F
Regression 1 4875.700073 4875.7 2.08243 0.0151115623
Residual 148 346519.3504 2341.35
Total 149 351395.0505

Standard
Coefficients Error t Stat P-value
Intercept 57.7034 4.0136 14.3768 0.0000
Dividend Yield -1.1487 0.7960 -1.4431 0.01511

HO: There is significant relationship between Dividend Yield and Stock prices.

HA: There is no significant relationship between Dividend Yield and Stock Prices.

Alpha is taken as 95%.

If P value is less than alpha alternate hypothesis is accepted. In the above table the significant
value (P value) is less than Alpha. Hence, HA is accepted.

This implies that where is a significant relationship between Dividend Yield and stock prices

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 4. Stock Prices and Net Profit

SUMMARY
OUTPUT

Regression Statistics
Multiple R 0.173231
R Square 0.030009
Adjusted R Square 0.023455
Standard Error 13.94774
Observations 150

ANOVA
Significance
Df SS MS F F
Regression 1 890.7389803 890.739 4.578706 0.034011251
Residual 148 28791.83777 194.5394
Total 149 29682.57675

Standard
Coefficients Error t Stat P-value
Intercept 12.44111 1.753757647 7.093973 5E-11
EPS 0.050347 0.023529138 2.139791 0.034011

HO: There is significant relationship between Net Profit Ratio and Stock prices.

HA: There is no significant relationship between Net Profit Ratio and Stock Prices.

Alpha is taken as 95%.

If P value is less than alpha alternate hypothesis is accepted. In the above table the significant
value (P value) is less than Alpha. Hence, HA is accepted.

This implies that where is a significant relationship between Net Profit Ratio and stock prices.

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 CH 5-FINDINGS

• Through this analysis it can be interpreted that there is a significant relationship between
the dividend policy determinants and the share price.

• The above analysis shows that there is positive correlation between the dividend payout
ratio and the share price that means more the dividend payout a company declares higher
will be its market price.

• There is a negative correlation between retained earnings per share and the share price
which means that if company retains its earnings the market price of that company will
fall
.
• The above analysis shows that there is a positive correlation between earning per share
and the share price that means more the earning per share higher will be market price.

• The regression model shows that there is significant relationship between the dividend
policy determents and the market price.

• The Regression Analysis shows the level of impact each dividend policy determinant has
on the share price and it can be interpreted that the Net Profit Ratio and the Dividend
Payout Ratio have the highest impact on the Share Prices.

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 CH-6 CONCLUSION

It can be concluded from the above research that the various Dividend Policy Determinants have
an impact on the share prices of a firm. Whenever a company’s managers have to take decision
regarding the dividend policy of the company the various factors of the dividend policy like the
Net Profit, Earning Per Share, Dividend Payout, Retained Earnings, Dividend Yield, Return on
equity etc are to be taken into consideration and to take further managerial decisions it is
important to analyze which factors impact the market price of the firm and to what extent, this
study analyzes that there is a significant relationship between these factors and how they affect
the share prices of a company, this will help the managers in taking further decisions as they
know what impact each factor will have on share prices.

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 SCOPE OF FURTHER RESEARCH

• In this study only three sectors have been taken to conduct the research namely :
Pharmaceuticals, Information Technology and Automobile, so various other Industries
can also be taken
• The study analyses impact dividend policy has market prices for the last ten years i.e.
2009-2018, for further research more years can be taken
• This study takes into consideration the companies which are listed in the National Stock
Exchange(NSE), for further research some other index of some other region can also be
taken.
• This study is on the Indian capital market, for further research some other market can be
taken and an inter comparison can also be done.

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