Influence of Agency Costs on Dividend Policy - Research Proposal

Topics: Agency cost, Principal-agent problem, Free cash flow Pages: 8 (2496 words) Published: September 22, 2012
By S.Murdhen

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Table of Contents

1. INTRODUC TION .............................................................................................................. 3 2. B rief Objectives .................................................................................................................. 4 3.0 Brief Liter ature Rev iew ........................................................................................... 4 3.1 Cornerstones of dividend policy ................................................................................................. 4 3.2 Equity Agency Cost Theory........................................................................................................ 5 3.3 Remedies to Agency Conflicts and their Costs ........................................................................... 5 3.4 Jensen’s Free Cash Flow Hypothesis .......................................................................................... 6 3.4 Using the Tobin’s Q .................................................................................................................... 6 3.5 Further Studies ............................................................................................................................ 7 4.0 Research M ethodo logy ............................................................................................. 7 4.1 Data Collection Methods ............................................................................................................ 7 4.2 Sources of Data ........................................................................................................................... 8 4.3 Sample......................................................................................................................................... 8 4.4 Data analysis ............................................................................................................................... 8 4.5 Use of Models ............................................................................................................................. 8 5. Expected B enefits an d Outcome ........................................................................ 9 6. Ghantt Ch art .......................................................................................................................... 10 7. R efer ences: ............................................................................................................................. 10

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1. INTRODUCTION

The topic of dividend policy is one of the most enduring issues in the field of corporate finance and has led to the emergence of a number of competing theoretical explanations for dividend policy. Till now, no consensus has emerged about the rival theoretical approaches to dividend policy despite several decades of research. Brealey and Myers (2002) indicated that dividend policy has been kept as the top ten puzzles in finance while Black (1976) justly described it as the “puzzle whose pieces do not fit together perfectly”. Though a highly debatable issue in corporate finance, yet all authors agree that dividend policy plays a vital role in corporate decision making. One among the many branches of literature that have posited around the dividend policy theory is the agency cost theory. Agency cost theory concerns the relationship between shareholders and managers whereby the need for equity shareholders to monitor management’s behavior because though, in theory, managers are expected to act in the best interests of shareholders, in practice, such ideology may be unmet. Agency cost theory can be studied under the debt agency cost theory and the equity agency cost theory. Debt agency cost theory concerns the conflicts arising between a bondholder and a shareholder while equity agency cost looks at the conflicts between shareholder and manager. Bondholders often protect themselves effectively through extensive loan agreements and hence for...
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