Dividend Policy Essay

2366 WordsMay 17, 201210 Pages
Dividend policy and its effect on share price Table of Contents Introduction …………………………………………………………………………………. 1 Aims of Dissertation ……………………………………………………………………… 1 Literature review …………………………………………………………………………. 4 Agency cost …………………………………………………………………………. 4 Bird-in-hand …………………………………………………………………………4 Clientele Effect ……………………………………………………………………. 5 Bored size …………………………………………………………………………… 5 Industry type ………………………………………………………………………. 5 Pay-out ratio ……………………………………………………………………….. 6 Debt ratio …………………………………………………………………………..…6 Research Hypothesis …………………………………………………………………….. 6 Strategy and Methodology …………………………………………………………….. 6 Defining variables ……………………………………………………………... 7 Expected results ………………………………………………………………… 8 Result analysis …………………………………………………………………… 8 References ……………………………………………………………………………………. 9 Introduction ‘’ The harder we look at the dividend picture, the more it seems like a puzzle, with pieces that just don’t fit together’’ (Black, 1976).The first Theory about dividend was established by Miller and Modigliani in 1961 which explains the irrelevant relationship between share price and dividend policy (Al shabibi and Ramesh, 2011). M&M theory assumptions we based on a perfect market; no taxes or transaction cost, information about future investment will be available to investors, manager’s act to achieve shareholders objectives, and investor’s rationality. But Agency cost, information asymmetry, and taxes are examples which show that the market can be inefficient; Agency problem is the main problem between managers and shareholders (Douglas, 2009), and managers pay dividend just to eliminate it. Many factors affect the company’s policy towards dividend pay-out; return on equity, size of board,

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