Impact of Dividend Policy on Capital Structure

Topics: Dividend yield, National Stock Exchange of India, P/E ratio Pages: 2 (574 words) Published: January 22, 2011

Dividend payment pattern of all IT companies that are listed for trading on one of the two major exchanges namely National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) during the period 2004-2008 (I refer each year henceforth with the end year i.e., for 2004-2005 to 2005) are employed for analysis. The data has been sourced from Prowess database of the Centre for Monitoring Indian Economy (CMIE). For the purpose of this study,only final dividend and interim dividend. Unlike the firms in developed countries that pay quarterly dividends, Indian IT companies typically pay only one dividend during a year. A few firms do pay interim dividends, however, data grading these are not readily accessible and it is extremely difficult to get such data for a reasonable number of years. Hence, in the present study stock repurchases are not considered for analysis. Stock price data for the prior year of dividend announcement are also taken from the Prowess database.

Methodology for Analysis of Trends
To analyze the trends in dividend payment pattern, number of companies paying dividend as percentage of total firms, average dividend paid, dividend per share, payout ratio, and dividend yield are computed for the period 2004 to 2008. Dividend per share (DPS) is calculated as:

DPSj,t = Dividendj,t
Where, DPSj,t refers to dividend per share for company j in year t; Dividendj,t refers to amount of dividend paid by company j in year t; and EQCapj,t refers to paid -up equity capital for firm j in year t.Equity capital is employed instead of the usual number of outstanding shares in the denominator as it facilitates comparison of rupee dividend paid per share by removing the impact of different face or par values Dividend payout ratio (PR) is computed as:

PR j,t = Dividendj,t...
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