Impact of Capital Structure and Dividend Policy on Shareholders’ Value

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Title: Impact of Capital Structure and Dividend Policy on Shareholders’ Value 1. Introduction
Dividend policy has been an issue of interest in financial literature as many theories have been established to estimate weather this effects the overall value of the firm.Dividend policy connotes to the payout policy, which managers pursue in deciding the size and pattern of cash distribution to shareholders over time. Managements’ primary goal is shareholders’ wealth maximization, which translates into maximizing the value of the company as measured by the price of the company’s common stock. This goal can be achieved by giving the shareholders a “fair” payment on their investments. However, the impact of firm’s dividend policy on shareholders wealth is still unresolved. On the other hand, Capital structure is a topic in finance which holds a significant impact on the value of the firm. Capital structure or CS is basically the mixture of debt and equity in the financing decision of a firm. As we have taken 18 individual companies in Bangladesh, we tried to find the combination of debt and equity. According to the value maximization concept, a firm’s value is maximized at that time when the value of the shareholder’s worth is maximized. So it’s pretty obvious that capital structure will have impact on Shareholder’s value. We were told to analysis data of 20 companies of year 2010 & 2011, but as we were failed to collect the annual report of two companies which are Renwick Jajneswar & Co (Bd) and Fine food products, we have collected and analyzed data for 18 companies. Using these data we have done regression analysis and distributive analysis. Taking a null hypothesis and an alternative hypothesis we have differentiated among the impact of Capital structure and Dividend policy on firm’s value.

2. Objective
The objective of analyzing the data of given companies of Bangladesh, and running regression analysis & distributive analysis on Stata, and then interpreting them is to find the impact of CS and D/P policy on the firm’s value. Hypothesis 1: Dividend policy affects the value of firm

Hypothesis 2: Capital Structure affects the value of firm
With given two hypothesis, in each case we have taken a null and an alternative, and from the given models, Model 1: EPS = α +β1DP+ β2 CS+ β3CSIZ+ β4AGE + β5ROA+ Є Model 2: TQ = α +β1DP+ β2 CS+ β3CSIZ+ β4AGE + β5ROA+ Є We tried to chose or decide which one of Dividend policy or capital structure is key to maximize the value of the firm. 3. Literature Review and Hypothesis;

As for the literature review, we have collected the annual reports for the following companies for the year 2010 and 2011. The annual reports are submitted as the hard copy.  Eastern Cables |
 Golden Son Ltd.|
Kay and Que|
Monno Jute Stafflers|
Navana CNG Limited|
National Polymer|
 National Tubes|
Olympic Industries|
 Quasem Drycells|
Rangpur Foundry|
 S. Alam Cold Rolled Steels Ltd.|
Singer Bangladesh|
 AMCL (Pran)|
Apex Foods|
 Bangas|
British American Tobacco Bangladesh LTD.|
 Beach Hatchery Ltd|
 Chittagong Vegetable |

Annual reports for the above companies were analyzed thoroughly to get the dependent and independent variables of the models. E.g.: CS, D/P ratio, ROA, TQ, CSIZ etc. We also went through the Google scholar for relevant topics connected with this term paper. We went through several articles that are similar in the context of Dividend policy and Capital structure. Hypothesis:

For hypothesis 1, we have selected null hypothesis and alternative hypothesis as follows: Null hypothesis; Ho: Capital structure affects the value of the firm Alternative hypothesis; H1: Capital structure doesn’t affect the value of the firm For hypothesis 2, we have selected null hypothesis and alternative hypothesis as follows: Null hypothesis; Ho: Dividend policy affects the value of the firm Alternative hypothesis;...
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