Impact of Dividend Policy on Shareholders Wealth

Topics: Stock market, Dividend, Dividend yield Pages: 35 (11527 words) Published: July 2, 2013
IMPACT OF DIVIDEND POLICY ON THE MAXIMIZATION OF SHAREHOLDERS WEALTH.

BY
LASISI TIRIMISIYU KUNLE
REG NO: U08AC1128

Being A Research Project Submitted To The Department Of Accounting, Faculty Of Administration, Ahmadu Bello University Zaria, In Partial Fulfillment Of The Requirements For The Award Of Bachelor Of Science (B.Sc) In Accounting

DEPARTMENT OF ACCOUNTING
FACULTY OF ADMINISTRATION
AHMADU BELLO UNIVERSITY, ZARIA

JULY, 2012

TABLE OF CONTENT
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study--------1
1.2 Statement of the problem--------4
1.3 Objective of the Study--------5
1.4 Research Questions--------6
1.5 Research Hypothesis--------6
1.6 Significant of the Study--------6
1.7 Scope and limitation of the Study------7
1.8 Definition of Terms---------7
1.9 Organization of the study--------9
CHAPTER TWO: LITERATURE REVIEW
2.1Introduction---------11
2.2Theoretical Framework---------11
2.3Dividend Policy Theories--------13
2.4Review of Related Literature -------19
2.5Nigeria Scenario--- ------28
2.6Practical Factors Affecting Dividend Policy-----29
2.7Summary----------32
CHAPTER THREE RESEARCH METHODOLOGY
3.0Introduction---------34
3.1Research Framework--------34
3.2Research Design---------36
3.3Population of the study--------36
3.4Sample and Sampling Techniques------37
3.5Data Collection---------38
3.6Research Instruction for Data Collection-----38
3.7Statistical Tools for Data Analysis and Measurement---39 3.8Model Specification and Proxies Variable-----40
3.9Justification for Methodology-------41
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.0Introduction----------42
4.1Presentation of Demographic Data------42
4.2Findings: Attitude of Dividend and Share Value----45 4.4Findings: Attitude on Litner’s-------46
4.5Findings: Attitude on Signaling Effect------48
4.6Findings: Attitude on Clientele Effect------51
4.7Findings: Attitude on Residual Policy-----53
4.8Test of Hypothesis--------55
4.9Analysis of Regression Results-------57
CHAPTER FIVE SUMMARY, CONCLUSION AND RECOMMENDATION
5.1Summary----------59
5.2Conclusion-----------59
5.3Recommendation---------60
References----------61
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
The impact of dividend over shareholders’ wealth has been a controversial issue in financial research over last few decades. For more than half a century, financial economists have engaged in modeling and examining corporate dividend policy. (Black, 1976) hinted that “The harder we look at the dividend picture, the more it seems like a puzzle, with pieces that don’t fit together”. What might be important to mention, is that researchers have primarily focused on developed markets, while little attention has been paid to dividend policy in emerging market. Dividends are commonly defined as the distribution of earnings (past or present) in real assets among the shareholders of the firm in proportion to their ownership. (Adeagbo, 2000). 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 investment. However, the impact of firm’s dividend policy on shareholders wealth is still unresolved. (Frankfurter and Wood 2003). Shareholders wealth is represented in the market price of the company’s common...

References: Jun et al. (2006) examined a sample of 49 Australian institution equity funds and found evidence of the existence of the clientele effect, with institutions generally preferring to hold stocks that pay dividends and have full tax credit.
2.3.3 SIGNALING THEORY
Signaling theory states that changes in dividend policy convey information about changes in future cash flows (Bhattacharya, 1997, Miller and Rock, 1985)
In relation to the agency cost theory, Jensen et al (1992) and Smith and Waths (1992), added that when a firm has a force cash flow, its managers will engage in wasteful practices, even when the protection for investors improves.
2.4 REVIEW OF RELATED LITERATURE
Hansen, Kumar and Shome (1994) take a broader view of what constitutes agency costs, and apply a variant of the cost minimization model to the regulated electric utility industry
Empirical studies by Healy and Palepu (1988), Michaely, Thaler, and Womack (1995) and others document share-price increases on the announcement of dividend increases and dramatic share-price decreases when firms reduce dividends.
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