TITLE:
Dividend Policy and Firm Valuation—A Study of Indian Electrical Equipment Manufacturing Industry
AUTHORS:
Brahmaiah Bezawada, Ravi Kumar Tati
KEYWORDS:
Dividend Policy, Firm Valuation, Wealth Maximization
JOURNAL NAME:
Theoretical Economics Letters,
Vol.7 No.5,
July
31,
2017
ABSTRACT: Dividend policy relevance has been researched
extensively, but little consensus has been built from the findings. There are
many factors that affect a given firm’s dividend policy which can be found in
the literature such as risk faced by the firm, cash flow situation of the firm,
agency costs etc. According to Bhattacharya (1979) dividend decision of a firm
can be seen as a source of signal which shows that profitable firms with good
project investment opportunities will pay higher dividends to present
themselves distinct from other firms which are having projects with lesser
profits. This paper attempts to analyze whether the dividend policy of a firm
affects the market value of a firm and the shareholders’ wealth. We have set
our objective to find out the impact of dividend policy on the shareholders’
wealth in the Indian electrical equipment manufacturing industry. For this, we have adopted a sample
of dividend paying electrical machinery manufacturing companies listed in
Bombay Stock Exchange (BSE). There were totally 439 companies in the industry
of electrical machinery manufacturing. Out of them 194 companies were listed in
the Bombay Stock Exchange (BSE) and there were 72 companies paying dividends frequently.
Therefore the data of these 72 companies were taken into consideration. Our study revealed the
empirical evidence with some of the dividend irrelevance theories such as
M&M. The results indicate that there is a negative non-linear association
between market value of a share and the dividend yields.