Dividend Policy and Firm Valuation—A Study of Indian Electrical Equipment Manufacturing Industry

Abstract

Dividend policy relevance has been researched extensively, but little consensus has been built from the findings. There are many factors that affect a given firm's dividend policy which can be found in the literature such as risk faced by the firm, cash flow situation of the firm, agency costs etc. According to Bhattacharya (1979) dividend decision of a firm can be seen as a source of signal which shows that profitable firms with good project investment opportunities will pay higher dividends to present themselves distinct from other firms which are having projects with lesser profits. This paper attempts to analyze whether the dividend policy of a firm affects the market value of a firm and the shareholders' wealth. We have set our objective to find out the impact of dividend policy on the shareholders' wealth in the Indian electrical equipment manufacturing industry. For this, we have adopted a sample of dividend paying electrical machinery manufacturing companies listed in Bombay Stock Exchange (BSE). There were totally 439 companies in the industry of electrical machinery manufacturing. Out of them 194 companies were listed in the Bombay Stock Exchange (BSE) and there were 72 companies paying dividends frequently. Therefore the data of these 72 companies were taken into consideration. Our study revealed the empirical evidence with some of the dividend irrelevance theories such as M&M. The results indicate that there is a negative non-linear association between market value of a share and the dividend yields.

Shareholders return and value of manufacturing firms listed on the Nigerian stock exchange

“…It is evident that sales growth has a negative but insignificant effect on market value of Nigerian listed manufacturing firms, which is consistent with the report of Abdolreza (2016), Ramezani et al (2002), Paminto et al (2016); while Bezawada and Tati (2017) reported a significant negative relationship. The findings of this study negates the reports of the studies of Amidu (2007), Rizqia and Sumiati (2013), Chowdhury and Chowdhury (2010) and Rehman (2016) who obtained a positive relationship between sales growth and market capitalization.…”

Firm Size and Market Value of Firms Trading at the Nairobi Securities Exchange: Does Dividend Policy Offer an Indirect Path?

“…Other findings contradicting the results included: Naz and Siddiqui (2020), Farrukh et al (2017), Chaabouni (2017, and Kanakriyah (2020), who showed that dividend policy strongly affected the financial performance of firms. The non-significant effect of dividend policy on market value failed to support the results of Bezawada and Tati (2017) and De Wet and Mpinda (2013), who showed that dividend policy affects market value albeit negatively. This contradiction could perhaps be explained by using one variable to measure the dividend policy used in this study.…”

“…At the same time, Setiyowati et al (2018) confirmed the findings of De Wet and Mpinda (2013) that dividend policy affected market value, albeit negatively. According to Bezawada and Tati (2017), dividend policy had negative and non-linear effects on market value. This study focused on electrical equipment and the manufacturing industry.…”

كيف يُعدل هيكل رأس المال العلاقة بين سياسة توزيع الأرباح وأداء الشركات في مصر؟ باللغة الانجليزية)

“…It is consistent with the premise that investors favor dividends that provide a regular revenue source. (Morovvati and Pouralim2015;Bezawada & Tati, 2017;Amollo, 2016;Fajaria & Isnalita, 2018;Monoarfa, 2018;Adiputra & Hermawan, 2020;Endang et al, 2020;Hansda et al, 2020;Husain & Sunardi, 2020;Aprilyani et al, 2021;Kusumawati & Harijonom, 2021;Liviani & Rachman, 2021;Abdullah et al, 2023;Hanafi et al, 2023;Mahirun et al, 2023). However, a few studies found insignificant or adverse effects of dividend policy on firm performance (Modigliani & Miller, 1961).…”