Dividend Policy Link Bewteen Theory & Practice

Topics: Dividend, Dividend yield, Stock market Pages: 4 (1072 words) Published: December 30, 2012
The study also examines the influence of liquidity, leverage, profitability, growth, and ownership structure, and market capitalization on the dividend rate. The study reveals that as per dividend irrelevance theory dividend policy has no influence on value of the firm for the reason of homemade dividend according to dividend relevance theory, value of the firm is influenced by dividend policy because of certainty, information content and clientele effect; liquidity, availability of worthwhile projects, availability of alternative funds, profitability, growth, leverage, reaction of market to dividend reduction, ownership structure nature of the industry, tax clientele effect are the main determinants of dividend payout ratio. Liquidity; leverage; profitability; and market capitalization influence the dividend rate negatively, while growth affect positively in case of a Bangladeshi company.


Dividend policy is formulated by the board of directors of a company in order to make decision how much earnings would distributed among the shareholders as their reward for making investment in the given company in the form of dividend and how much would be retained within the company as a retained earnings. Dividend policy is an important area of research in corporate finance. Even though a number of researches have been conducted on dividend policy, a limited number of studies have revealed the applicability of the dividend theory on some listed companies in an organized stock exchange.

Literature Review:

According to Baker, Farrelly and Edelman (1985), stakeholders are highly concerned with the Continuity of dividend, share value is affected by dividend policy, the concerned persons are generally aware of signaling and clientele effects and regulated firms should be segregated from non-regulated firms in order to examine the dividend policy. As per the outcomes of Naceu, Goaied and Belanes’s (2006) study, Tunisian firms consider both...
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