One question that has bothered most finance managers over several decades is the decision on whether to pay or not to pay dividends. Dividend decisions are important because they determine what funds flow to investors and what funds are retained by the firm for investment. Dividend yield has a significant positive effect on share price while retained earnings ratios have a significant negative effect on it. The purpose of the study is to determine short term and long term the effects of dividend policy on the market performance of company. Dividend policy is a widely-researched topic in the field of investments and finance but still it remains a mystery that whether dividend policy affects the stock prices or not. There are many internal and external factors, which simultaneously affect stock returns and it is almost impossible to segregate the effect of each. This study mainly focuses on analyzing the impact of dividend policy on the value of the firm. For analyzing purpose of this study, short-term effect and long term effect on market price of company or market performance of company were examined. To understand the effect of dividend declaration a sample of various companies from various industries, comes under nifty50 was taken for the study. A long term and short term analysis was done to understand the effect of dividend declaration on market value. In this study attempts were made to find out correlation between dividend declaration and changes in market value of the share. The research is purely based on secondary data. It was found in this study that dividend policy is an important tool to affect the market performance of company but its impact has become irrelevant due to available of other factors in market.
Cite this article:
Nilam Panchal. How does Dividend Policy Impact the Value of the Firm? – An analysis of selected Indian Sectors. Asian Journal of Management. 2018; 9(1):99-106. doi: 10.5958/2321-5763.2018.00015.X