Chapter–II

Literature Review

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Chapter–II

Literature Review
2.1- Introduction
Dividend policy still one of the most important financial policies not only for the
perspective of the company, but also for the shareholders, the consumers,
employees, regulatory bodies and the Government. According to Alii, K.L., Khan,
A.Q. & Ramirez, G.G, 1993, it is like a center point of decision making process
and rest off financial policies rotate around it. What percentage of dividend
should be declared for distribution among shareholders of company? This
question is based on an argument to the different companies. Specifically, all
those factors which are affecting dividend distribution decision are a most
important argument among the companies. To find out the correct answers for all
those factors which affect the dividend distribution decision many academics and
practitioners developed a number of theories, in support of dividend decision
which were based on empirical test. Therefore to provide clear and accurate
guidance the academic literature has been very helpful on practical issues and for
the reason literature review sector is being carried out, which consist of valid and
authentic books & journals concerning past studies on dividend policy.
A wide range of study material (literatures and models) about dividend
policy is available which is appraisable efforts to provide an analytical overview
for the dividend policy of the companies and what are the factors and how it is
related with the dividend policy. Qualitative and quantitative data are used for
explanation of dividend policy from the shareholders point of view. In this
chapter, I explained the dividend policies and models from the shareholder‘s point
of view and factors which have been use as dependent and independent variables.
Before describing these models, theories and factors of dividend policy, first I
explained the meaning of dividend policy.

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  Dividend Policy
Dividend Policy is one of the most complex aspects in finance. Van Home
(1971) noted that dividend policy entails the division of earnings between
shareholders and reinvestment in the firm. Financing of corporate growth up to
some extant depends on retained earnings which are a significant source of funds,
but dividend constitutes the cash flows that accrue to shareholders.
Three decades ago, Black (1976) wrote, ―The harder we look at the
dividend picture, the more it seems like a puzzle, with pieces that just don‘t fit
together‖. It is also the part of the dividend policy of a corporation to decide
whether to pay direct cash dividend to its shareholder and, if so then how much to
pay and how often (i.e. monthly, quarterly, semiannually or annually) to pay or
increase the shareholder‘s wealth by purchasing the shares from the market i.e by
increasing the price of the shares in market (Canina, Advani, Greenman, &
Palimeri, 2001). Brealey and Myers (2002) have enlisted dividend policy as one
of the top ten puzzles in finance.
Dividend Policy is defined as ―Dividend policy is the determination of the
proportion of profits paid out to shareholders – usually periodically‖ and it‘s the
board of the directors who set the dividend policy of the business (Brealey &
Myers, 2003). ―Shareholder‘s wealth is the discounted value of after-tax cash
flows paid out by the firm. After-tax cash flows available for consumptions can be
shown to be the same as the stream of dividends paid to shareholders‖ (Copland,
Weston, & Shastri, 2005, P.20). The common stock shareholder bears more risk
than the bondholders as the bondholders receive fixed income irrespective of the
operations and profits of the business and the common stockholder has no
promised for any payments in future (Emery, D.Finnerty, & Stowe, 2007). even
with the fact that banking company are distributing dividend but there is few
banking companies are growing practice of paying stock dividend in India. It is
because stock dividend distributions are the good substitution of low cash
dividends. It seems that firms want to keep going on good percentage of earnings
and satisfaction of shareholders, they issue stock dividends. In present scenario

43
officials of firms are strongly agree that stock dividends have a positive
psychological impact on investors receiving them. Stock split is another feature of
dividend policy. Practitioners are agreed on that the purpose of stock split is the
way to bring firm‘s share price into an ―Optimal trading range.‖ Specifically,
small investors of small means are presumably penalized by high stock prices that
deny them the economies of buying stock in round lots. Thus, stock split is the
popular practice of developed capital market. Share repurchase is another form of
dividend. If a firm has unutilized cash in reserve, securities premium than
according to section 77A of the Indian company Act, 1956 a company can
purchased its own shares from either of Existing equity shareholders on a
proportionate basis, Open Market, Odd lot shareholders, Employees of the
company, it is called ‗Buy-Back of Shares‘.

2.2-Conceptual Framework
The strategy of a company on the division of its proceeds between
retention for its further investment and distribution to shareholders as dividend is
known as dividend policy. Dividend policy is like a key of all aspects and
questions related to payment of dividend. Cash distribution of dividend in cash
and retain earning have adverse relationship to each other. If retain earnings are
using by company for investment purpose, in this case there will be less
distribution of cash dividend. Managerial finance is core area for decision
regarding distribution of dividend it holds many other important decision but
dividend decision is one of the most important decision by managerial finance. It
can be more clearly understand by that the firm has to go with the decision of
distribution of dividend or using of its profit for the expansion of business by
investing it in capital investment. In other words use of profit back into business.
Wealth maximization is one of important objective of management. Its
functioning is like a base for strong decision regarding dividend distribution. Use
of net profit may be towards the wealth maximization of share holders‘ wealth by
the way of dividend distribution. Another use of profit may be to retain back in
business for the investment purpose. Therefore relationship between dividend and
firm value is criteria for decision making. Expectation of mostly shareholders in

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the sense of returns on their investment of may be in two forms. These are capital
gains and dividends. Profit at sale of common stock is capital gain. Another face
of coin at the same time is expectations of a distribution of the firm‘s earnings in
the form of a dividend. Expectation of regular dividend to be declared and paid on
their investment is one of the important factors behind investment of share holders
in established and better performing corporations. This expectation takes main
concern other than the planning of retains earnings to finance expansion and
growth. Hence, expectation of shareholders can be satisfied through either capital
gains or dividends. Since returns on investment in the form of dividends would be
added interest of stockholder toward company, therefore one might think that
there would be trend for corporations to increase distribution of dividends year by
year accordingly. But one might similarly pressure that gross dividends would be
reduced to some extent, with an increase in net after tax dividends still available
to stockholders, and increase in retained earnings for the corporation. It is
therefore, contains of balance policy should be shareholders‘ interest and
corporate growth from internally generated funds. If there is lack of good
investment opportunities there will be no use of retain earning than dividend
distribution is better option for the use of unused retains earning. In view of the
fact, shareholders have many other investment opportunities to invest their
surpluses. Therefore it becomes duty of company management that they should be
concerned with the activities of corporation that affect the interests of
stockholders. This interest of shareholders‘ can be measured by some extent of
amount of the dividend received, but a more exact determination is the market
value of stock. Shareholders habitually think that the dividend yield is less
uncertain than capital gain.
Walter and Gordon were those persons who give the two major dividend
relevance theories. Their models expose that dividends paid by the firms are
viewed completely both by the investors and the firms. Retaining more income,
hence default in payment of dividends increases a company‘s uncertainty, while
payment of dividends reduces the uncertainty amongst shareholders hence the
earnings of the firm can be discounted at a lower discounting rate Ke increasing

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the value of the firm hence the stock prices. In Walter Model, Walter (1956)
contends that selection of dividend policies nearly always affects the value of a
firm. His model indicates the significance of the relationship between a firm‘s
cost of capital (k) and its internal rate of return (r) in formative the dividend
policy that will maximize shareholders‘ wealth. Walter expresses market price per
 Share MPS as P = (DPS/K) + (r {EPS – DPS} / K) / K
Where DPS indicating dividends per share, r is stands for internal rate of
return, EPS is the company‘s earnings per share, and k is the company‘s cost of
capital.
On the other hand, the theory has couple of criticisms. First, if source of
financing are the only retain earnings for the firm than, only this type of condition
is suitable for this the model. Otherwise adding new equity or debts collapses the
formula. Also, the model is based on an assumption that the firm‘s internal rate of
return (r) and its cost of capital (k) are constant. Further, all the retained earnings
are either distributed as dividend or reinvested within without delay. To this end,
the assessment mixes dividend policy with investment policy of the firm.
Moreover, although the values of DPS and EPS can change, the model holds that
the start earnings and dividends must never change, and that the firm has a very
long or endless life. Finally, the model would collapse at a point where rate of
return is equal to cost of capital. Another model in support of relevance theory is
Gordon‘s (1959) model. The theory suggests that investors would have preference
current dividends and that there is direct relationship between a firm's dividend
policy and its market value.
The dividend relevance theory suggests that investors are risk averse and
would rather have dividends today (―bird-in the- hand‖) than probable future
capital gains owing share price appreciations in future. In his model, Gordon
wants to propose that a firm‘s dividend policy affects its share prices. Therefore,
according to this theory, a best achievable dividend policy which can make sure
about the maximization of shareholder wealth should be determined. Although
many others empirical studies do not support dividend relevance theory Kothari

46
(1988) comments that proceedings of market participants suggest that there is
some connection between dividend policy, and share price and the value of firm.
The assumptions of Gordon model are alike to those of Walter separately
from the detail that the product of maintenance ratio and the rate of return give the
growth rate of the firm g. Also, the cost of capital ke, should be constant and
greater than growth rate, ke>g. In his model, Gordon advanced that investors are
risk reluctant and consider that incomes from dividends are sure rather than
incomes from future capital gains. Due to the doubt component of future gains
from share price increase. Therefore, they estimate the predicted worth of future
capital gains using higher rate of return; when retention rate increases, investors
require a higher discounting rate. Gordon formulate the stock price as,
 P=E(1-b) / Ke-br
Where; P is the stock price in the market, E is the earnings per share, b is
the retention ratio (1-payout ratio), r is the rate of return of firm‘s investments, ke
is the cost of equity, and br is the growth rate of the firm (g).Therefore the model
shows a relationship between payout ratio, rate of return, cost of capital and the
market price of the share. Thoughts behind the models by Walter and Gordon are
alike and they obviously state the relationship between dividend policies and
market value of the firm.
In 1961 Modigliani and Miller‘s gives world famous hypothesis regarding
irrelevancy of dividend with the value of stock. The theory of irrelevancy is
highly improve by Modigliani and Miller in a famous determining paper in1961
Self proven that there is no impact of the dividend policy of a firm on the
wealth of shareholders. In their paper they cleared that neither any impact of share
price of firm or any impact of its cost of capital on dividend policy. Accordingly,
they postulated that firm value is only affected by its ability of earning incomes
and riskiness of its activity to this end, MM advanced that apart from the
company‘s investment policy which affects a company‘s earnings, whatever the
amount of dividends issued or earnings retentions, cannot affect the value of a
firm. Accordingly, MM hypothesis is a suggestion that investors are not
concerned with a company's dividend policy since they can sell a part of their

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selection of equities if they need cash. Somewhat, they are indifferent between
returns from capital gains or returns from dividends. On the other hand, MM
approach can work under certain conditions; no taxation, no transaction costs, and
no flotation costs. Also, firms and investors have an identical lending and
borrowing rates, and have equal information.
Eugene (1992) identifies that companies that allocate high dividends
usually put into practice of less price appreciation.
According to MM approach, the total sum of capital gains and dividends is
the same whether the corporation pays more dividends or retains additional to
earn stock returns through capital gains. Hence an investor is indifferent. If an
investor required cash and amount of dividend which is use to get as return on
investment is comparatively less than to capital gain which he/she can get after
selling a portion of his/her stock, and vice versa. MM theory concludes that even
hypothesis of perfect assurance is dropped, and uncertainty considered, dividend
policy continues to be unrelated. However, some researchers emphasis on their
results about dividend relevancy under condition of uncertainty on the basis of
their experimental studies.
 In MM model, the returns from a stock are expressed as;
Ri = Dividend + Capital gains (Loss) / Beginning of period share price
Ri = D1 + (P1 – P0) / P0
Where; Ri represent the stock return, D1 is the dividend for the period, P1
is the stock price at the end of the period, while P 0 is the stock price at the end of
the period.
The rich and vivacious literature in contemporaneous corporate finance
has its root in the basic paper by Franco Modigliani and Merton Miller (1958,
1963), (M-M henceforth). This direction of finance is on track with the
assumption of perfect information and complete market. It is conceptual truth that
in a traditional market in absences of agency cost, transaction cost, and banking
cost and in presences of perfect competition, the average cost of capital for any
firm is completely independent of its capital structure. On the basis of same
assumptions M-M (1963) argued that the value of the firm is unaffected by the

48
dividend policy. On the other hand, in the modified M&M framework and in
subsequent research are shows that there is a impact of capital structure on
dividend policy. Result of various studies in developed countries documented that
the effect of different strategic factors influencing the firm values. Rappaport
(1981, 1987) found that growth rate, operating profit, income tax rate and fixed
capital investment are main factors which affect the firms‘ value. In recent times
some of the research studies are centered on promising market to investigate the
factors that influenced the firms‘ value. Ben Naceur and Goaied (2002) analyzed
unbalanced panel data using a random probit model for Tunisian stock exchange.
It considered that if the market value of the share exceeds the book value of the
corporation and vice versa. Researcher found profitability, financial policy, and
dividend policy as main determinants of firms‘ value
According to modified M-M framework, and other researchers study has
shown that financial policies and dividend policy are main factors for firm‘s
performance. Ross (1977) argued that firms‘ value is effected by the more
leverage and it would signal the investors about the improved firm performance.
Increase the income of the investors‘ is the result of increase in dividend payout
ratio. Further he found that Profitability is one of the main factors shaping the
firm value. Ben Naceur and Goaied (2002) make clear that profitability and debt
have optimistic effect on the future value of the firms‘, the pay-out have reverse
effect on the same. Sahu (2002) used a sample of companies listed in BSE to
explain the abnormal stock returns by dividend stability and found no statically
significant result. Another study by Tuli and Mittal (2001) used 101 Indian firms
and found price earning ratio is significantly influenced by variability of market
price and dividend payout ratio. However, the authors did not find any significant
effect of industry and ownership pattern on price to earnings ratio.
In 1996 Myers noted in his Pecking order theory that dividend is attractive
and sticky for shareholders. After confirmation of future performance about
company and about payment of dividend with increasing rate of dividend
Managers of companies only increase the dividend. Therefore this act of
managers or increasing dividend or decreasing dividend is a good signal or bad

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signal respectively (Miller and Rock, 1985). Myers, 1984; Myers and Majluf,
1984 suggested that generally firm give preference to use of internal fund in
needed. If in case there is a requirement of external funds management of
company will prefer debt financing in place of issue new equity.

2.3-Empirical Review
Petit, (1976) present by his study that management may have more
knowledge and information about internal decision other than the rest of the
market as to the present level of earning and future level of earning power; they
may use dividend payments as intermediate among their expectations and
shareholders. Recent facts indicate that announcements of dividend distribution
communicate information over and above that enclosed in alternative
announcements. A number of researchers have recommended that a considerable
amount of information is conveyed by changes in dividends. In light of this, the
internal management of a firm may use dividend payments (or a lack of them) as
a way of demonstration their estimates of the firm‘s earning power and liquidity.
Grinblatt, et al. (1984) shows some empirical evidence in their study that
―the total market value of a company‘s equity increases when the stock dividend
or split occurs (roughly a 2 to 6 percent increase).In spite of the fact that stock
dividends and splits do not change the underlying assets, liabilities, or equity of
the firm. Schall and Haley, (1991) explain in their study that effects of a stock
dividend or a stock split is no change in the firm‘s assets or liabilities or in
shareholders‘ equity (assets less liabilities) and there is fall in per share earnings,
book value, and market price, and an offsetting rise in the number of shares held
by each shareholder.
Generally dividends represent that that part of net profit of a firm‘s which
are paid out to the shareholders (Khan and Jain, 1992). Cash payment is normal
form of dividend which is used by companies. Therefore it makes deficiency in
the cash balances of the company. Dividend policy affects the financial structure,
the flow of funds, corporate liquidity, and investors‘ attitudes. Thus, it is one of
the essential decision area related to policies looking for to maximize the value of
firm‘s common stock.

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 In either case, after stock dividend or split old holding of each
shareholders will remain unchanged. Thus, for example, a 10 percent stock
dividend would mean that each shareholder was given one share of stock for
every ten shares already owned. Under a two-for-one stock split, each shareholder
would be given one additional share of stock for every share already owned, thus
doubling the number of shares owned by each shareholder. Distribution of stock
dividend or split does not make any change in the assets of the firm, because in
this case nothing is received by the firm for new shares issued. But it is another
alternative to paying dividends by corporate resulting repurchase of its own
shares. Firm can purchase its own shares from market for this purpose firm‘s can
use surplus cash (or it can borrow), It is educational to see why share repurchases
may be use as an alternative to paying dividends. If firm‘s buyback its shares
from open market it is resulting by reducing the number of shares outstanding. If
there is no change in Price Earning (P/E) ratio after the buyback of shares, it will
definitely increase in the stock price. It has been explain that ―if there is excess
balance of cash and unavailability of profitable investment opportunities to justify
the use of these funds, it is in the shareholders‘ interests to distribute the funds.
The distribution can be done by two ways either by the buyback of shares or by
paying the funds out in increased dividends. It is thus corporate share repurchase
is often viewed as an alternative to paying dividends. A buyback of shares is a
signal that managers, who hold an insider‘s information of the firm, are
influenced that their stock is worth more than its current price. In addition, their
assurance is strong enough to lead them to pay a premium for the stock despite
the risk of strength if they are wrong.
It has often been noted that a company that increase the percentage of its
dividends often experiences an increase in its shares price and that a company that
lowers its dividends percentage has a declining shares price. This seems to
suggest that dividends are matter of attention, in that they affect stock price. This
causal relationship has been disaffirmed by several researchers on the grounds
that dividends do not affect stock prices.

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 It has been suggests that a managing authority can take any decision
regarding out of dividend decisions as long term financing or as short-term wealth
maximizing decision. in case of long-term financing, firm will use the dividends
as way to generate of finance and it will only happened when it does not have
profitable investment opportunities. But it does not make any sense when firm
paid dividend and raise an equal amount by the issue of shares. On the other hand,
if wealth maximization is the basis of dividend decision than it will work as
wealth improver of shareholders, in view of the fact that it has a positive impact
on the share price. So to maximize the price per share, the firm pays more and
more dividends and retains less.
Barker (2005) hypothesized that the position argues over the primacy of
structure or agency in determining human actions cannot be unnoticed. While the
arrangement is the repeated patterned arrangements which control or limit the
choices and opportunities accessible, agency is evaluated in relation to the
capability of individuals to act autonomously and to make their own free choices
(Barker, 2005). Generally, principal and agent are two important parties to frame
a structure of agency as it is a mutual relationship between two parties. The role
of agents becomes significant when there is a transaction with third on behalf of
principal (Li, 2011). Agency theory concerns the connection between a principal
and an agent of the principal where, principal is a shareholder and agents are
managers of company. In this kind of relationship in business in the relationship,
the principal transfers the responsibility to the hired agent who performs the work
on behalf of the principal. The fundamental vision is that whereas the
shareholders would aspiration the managers to present their proficiency with
greatest honesty, solely for the profit of the shareholders, the executives may
engage in associations that can improve their term or/and their pay packages and
other benefits (Li, 2011). The theory has witnessed numeral studies and
evaluations from scholars and professionals. Most studies have required setting up
how the goals and objectives of the principal and agent are not in disagreement
(agency problem) through settlement of the agent and principal‘s different
acceptance to risk. The configuration of agency relationship between shareholders

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– who want utmost returns from their investment in a particular, stock vis-a-vis
company executives, who want job safety with good working surroundings and
talented pay packages, is indeed critical (Kathleen, 1989). Namazi (2013) Suggest
that the best explanation lays between the limits of where executive compensation
is attached to presentation, but some monitoring is necessary. In addition to
monitoring, Pepper & Gore (2013) adds that mechanisms that support managers
to act in shareholders' wellbeing such as: performance-based motivation plans,
direct involvement of shareholders, danger of dismissal, and the threat of
occupation can be a advantage. It is significance noting that decisions on dividend
policy of an organization are bestowed upon company executives and a
company‘s dividend policy affects earnings retention. In addition, some
experimental literatures link retained earnings with stock performance (Ball,
2013).
Balancing theory introduce by Brigham et al. in 1999 in which they tried
to predict the changing behavior of management on the basis of organizations
risk. If is a chance of more risk, the suggestion of theory towards use of less debts
and in case of less risk the suggestion of theory in support of more debts. Kalay
(1982) also in support of payment to shareholders out of proceeds of a new issue
of a senior debt as dividends (debt financed dividend), in that way it increase the
risk of the outstanding bonds. Easterbrook (1984) declared that dividend is
beneficial to equity holders because they have strength to pressurize managers
always to obtain new capital in cutthroat markets. The forecast of agency theory
and residual theory is almost same regarding payment of dividend that dividend
has significant positive effect on financing decision.
―Do the views of managers about dividend issues differ among different
industry groups?‖ to find the answer of this question in 199 Baker and Powell
conduct an empirical study and they found out in their outcome that the responses
of the groups of industries selected which were utilities, manufacturing and
wholesale/retail trade differ insignificantly. Thus they recommended that type of
industry has very low impact on the views that managers have about hypothetical
and experimental issues concerning dividend policy.

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 In 1994 I.M. Pandey and Ramesh Bhat conduct an empirical research to
find out managers perceptions about dividend decision for a sample of 425 Indian
companies for the period of 5 years (1986-87 to 1990-91). In their empirical study
they carry out with a survey of managers about their perceptions of dividend
decision. They found that most of managers in support of perceiving current
earnings as the most significant factor at the time of dividend decision. ―Indian
firms have higher adjustment factors and lower target‖ it was one of important
analysis by researchers in their empirical study. They also found that there is a
significant impact of monetary policies on the behavior of dividend payment by
Indian firms which cause about a 5-6 per cent decrease in the payout ratios.
Amidu and Abor (2006) carry out research; this study inspected the
determinants of dividend payout ratios of listed companies in Ghana. The
investigations are carrying out with data of six years which was derived from the
financial statements of firms listed on the GSE. They apply Ordinary Least
Squares model to estimate the regression equation. Their chief findings of the
study were that there is a positive relationship between dividend payout and
profitability, cash flow, and tax. The results suggest that, profitable firms tend to
pay high dividend. A good liquidity position increases a firm‘s ability to pay
dividend. The results also show negative associations between dividend payout
and risk, institutional shareholding, growth and market-to-book value. Firms
practicing earning instability find it difficult to pay dividend, such firms would
therefore pay less or no dividend. The higher the institutional holding the lower
the dividend payout ratio, meaning firms pay dividends in order to reduce the cost
associated with agency problems. The results again recommend that, growing
firms have need of more funds in order to finance their enlargement and therefore
would typically retain larger amount of their earnings by paying low dividend.
Firms with higher market-to-book value tend to have good investment chance and
would therefore pay lower dividends. The results of this study same as the
previous experimental studies. The implication of this article is that dividend
payout policy decision of Ghanaian listed firms is influenced by the profitability,
cash-flow position, growth prospects, and investment opportunities of the firms.

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 According to Lalitha Mani & Priya (2010) in case of TATA STEEL there
are positive relationship earnings per share with high amount dividend
declaration. While SAIL has the impressive growth rate during the study. They
conduct the study using the statistical tools such as ANOVA, Trend Analysis,
Coefficient Variation, Mean, and Standard Deviation on five Indian steel
companies to analyze the dividend behavior of the industry.
In the Indian environment, many research works have been done by
researchers to identify the dividend behavior of organizations. Chawala and
Srinavasan (1987) analyzed the impact of dividend and retention on share price.
The purpose of their study were to estimate a model to enlighten share price,
dividend, and retained earnings relationship, to examination the dividend, retained
earnings hypotheses and to observe the structural changes in the estimated
relations over time. On the basis previous of financial theories they anticipated the
coefficients of both dividend and retained earnings to be constructive in the price
equation. in the same way in the dividend distribution purpose also they
anticipated a constructive sign for existing earnings and earlier dividend. They
select chemicals and sugar industries out of which they analyzes 18 chemicals and
13 sugar companies and anticipated cross-sectional association for the years 1969
and 1973. The necessary data were collected from the official directory of BSE
(Bombay Stock Exchange). They applied two stage least square techniques for
assessment. They also used lagged earnings price ratio instead of lagged price
earnings ratio, i.e., (P/E) t-1. After applying two stages least square, they originated
that in the case of chemical business the estimated coefficients had the right sign
and the coefficient of determination of all the equations were exceptionally high.
It means that the stock price and dividend distribution difference can be making
clear by their independent variables. But in case of sugar industry they originate
that the mark for the retained earnings is negative in both years. So they left sugar
industry for more study. For chemical industry, they found that the coefficient of
dividend was important at one percent level in both years. While the coefficient of
retain Incomes was noteworthy at 10% level in 1969 and at 1% level in 1973. In

55
conclusion, they completed with result that the dividend hypothesis hold good in
the chemical industry. Both dividend and retained earnings significantly explain
the difference in share price in chemical industry. They also stressed that the
impact of dividend is more definite than that of the retained earnings but the
market has started shifting towards more weight for retained earnings.
Mahapatra and Sahu (1993) suggested that cash flow which is followed
by net earnings are main determinant of dividends. Narasimhan and Asha
(1997) find that there is a impact of tax rate on demand of dividends it is observe
on the basis of uniform tax rate of 10 percent on dividend as planned by the
Indian union budget 1997-98, alters the requirement of investors in support of
high payouts. Mohanty (1999) finds that firms, which issued bonus shares, have
either maintained the pre-bonus level or only decreased it marginally there by
increasing the payout to shareholders. Narasimhan and Vijayalakshmi (2002)
concluded on the basis of their work which was related to check the impact of
ownership structure on dividend payout and analyzed that there is no influence of
insider ownership on dividend behavior of firms. On the other hand, it is still not
clear as to what procedure related to dividend followed Indian firm about
payment, omission, increase, and decrease in payment of dividend and why do
they initiate. Hence it is proposed to analyze the dividend payout of firms
in India and analyze the dividend initiations and omissions and other
changes in dividends and the signals that these events convey. On the same way
Fama and French (2001), find in their study that there is significant impact of
profitability, size and growth on the dividend payout of firms. likewise,
subsequently Healy and Palepu (1988) an effort is made to examine the
signaling hypothesis, i.e. earnings information conveyed by dividend
initiations and omissions. Since, initiations and omissions interpret severe
dividend events, changes in dividends i.e., increases and decreases and the
information that they convey is also examined following DeAngelo,
DeAngelo and Skinner (1992). There have been several changes in the tax regime
in the last few years. The union budget 1997-98 made dividends taxable at the
hands of company paying them and not in the hands of investors receiving

56
them. Similarly there have been changes in the capital gains tax and exemption of
dividend income under Section 80 L of the Income Tax Act 1961. All these
changes have implications for the dividend policy of corporate firms.
According to tax-preference or trade-off theory, positive dividends tax should
direct to higher payouts. Hence it is proposed to analyze the impact of tax regimes
on dividend policies of corporate firms.
In 1981 Banz find that average returns on large stocks are lower than
average returns on small stocks which are higher. It was size effect of Banz
(1981) was most prominent among the different experimental contradictions to
the Asset Pricing Model of Sharpe (1964), Lintner (1965) and Black (1972).
Stattman (1980) and Rosenberg, Reid, and Lanstein (1985) find that there is a
positive relation between leverage and average returns on US stocks and firm‘s
book value of common equity to its market value is documented by. In the same
way, Chan, Hamao, and Lakonishok (1999) find the strong part of book-to-market
equity in explaining the cross-section of average returns on Japanese stocks. Basu
(1983) also finds earning-price ratio in explaining cross-section of average returns
on US stocks. Again, Ball (1978) finds that earnings-price relation is likely to be
higher for stocks with higher risks and expected returns. Though there are these
findings in the context of developed and big capital markets, their applicability is
yet to be seen in the context of smaller and underdeveloped capital markets.
DeAngelo, DeAngelo and Skinner (1992) found the association between
dividends and losses and the information conveyed by dividend changes about the
earnings activity. They examine the pattern of dividend payment of 167 NYSE
firms. The duration of their study was 1980 to 1995. in this period of study they
considered at least one annual loss during 1980-95 and 440 firms with no
losses during the same period, where all the firms had following consistency
to maintain pathway of ten or more years of constructive income and
dividends payments. Their results shows that 50.9% of 167 firms with at least
one loss during 1980-95 compact dividends, compared to 1% of 440 firms
without losses. Their conclusions support signaling theory in that dividend
changes improve the capability to forecast future income performance. Glen et al.

57
(1995) focused on behavior of dividend payment of firms in emerging markets.
Their result retrieve that in these markets firms have a target dividend payout
rate, but less scared with instability in dividends over time. They also find
that shareholders and governments use a great agreement of authority on
dividend policy and watch that dividends have little signaling satisfied in these
markets. Benartzi, Michaely, Thaler (1997) analyzes the issue of whether
dividend changes indication the prospect or the precedent. For a example of
7186 dividend declaration made by NYSE or AMEX firms throughout the
period 1979-91, they locate a lagged and simultaneous relation between
dividend changes and earnings. Their examination also shows that in the two
years subsequent dividend increases, earnings changes are not related to the signal
and extent of dividend changes. Baker, Veit and Powell (2001) revise the
factors that have a behavior on dividend policy decisions of corporate firms
traded on the Nasdaq. The study, based on a example investigation (1999) reply
of 188 firms out of a total of 630 firms that rewarded dividends in every
quarter of calendar years 1996 and 1997, discover that the following four
factors have a major impact on the dividend conclusion: pattern of earlier period
dividends, constancy of earnings, and the rank of current and future probable
earnings. The learning also finds statistically noteworthy differences in the
significance that managers connect to dividend policy in different industries such
as monetary versus non-financial firms. Ramacharran (2001) analyzes the
difference in dividend yield for 21 rising markets (including India) for the period
1992-99. His macroeconomic moves toward using nation risk data come across
confirmation for pecking order hypothesis – lower dividends are rewarded when
higher growth is predictable. The studies also locate that political risk aspect have
no significant impact on dividend payments of firms in rising markets. Lee and
Ryan (2002) analyze the dividend signaling-hypothesis and the issue of
track of causality between earnings and dividends - whether earnings source
dividends or vice versa. For a sample of 133 dividend beginning and 165
dividend lapse, they find that dividend payment is subjective by current

58
performance of earnings, and free cash flows. They also locate proof of
optimistic (negative) earnings enlargement earlier dividend initiations (omissions)
earlier Indian Studies Kevin (1992) investigate the dividend allocation
pattern of 650 non-financial corporation‘s which closed their accounts between
September 1983 and August 1984 and net sales income of one crore rupees or
more. He discovers verification for a attractive dividend policy and finish that a
change in profitability is of slight importance. Mahapatra and Sahu (1993)
analyze the determinant of dividend policy with the help of the models
developed by Lintner (1956), Darling (1957) and Brittain (1966) for a
sample of 90 companies for the period 1977-78 – 1988-89. They find that
cash flow is a major determinant of dividend followed by net earnings.
Further, their study shows that dividend of earlier period and not earnings of
earlier period is a significant factor in influencing the dividend judgment of firms.
Mishra and Narender (1996) analyze the dividend policies of 39 state-owned
enterprises (SoE) in India for the period 1984-85 to 1993-94. They find that
earnings per share (EPS) are a major factor in determining the dividend payout of
SoEs.
In this study I used net earnings, net worth, earning per share, book value per
share, dividend payout ratio, market price per share, earning ratio, dividend yield
ratio as independent variables, and dividend payout ratio as dependent variable. In
this context a rich literature review is part of this chapter.
Firm‘s financial policy is positively related with dividend policy, because
dividend policy is part of financial policy. If there is slightly change in dividend
policy it will significantly change in financial policy of firms. Many studies of the
literature and models in relation to dividend policy reveals a range of different
thoughts in effort to explain why firms are performing such changes—why some
firms reducing dividends payment while others are omitting them. Studies which
are previously been done, suggest a many diversified potential answers. Out of
them, most meritorious effort of Lintner (1956) explains it that because of
changes in earning firms makes change in their decision of dividends payment.
Level of income is the most important determinant of dividend changes, and

59
investors prefer those firms who have a stable dividend policy and managers who
are not in favour of dividends cut. In 1961, Miller and Modigliani‘s presents a
signaling theory which reveal, that dividend payments works as signal of firm‘s
future earning and management‘s view about the firm‘s future earnings. A big
group of researchers and practitioners was in support of the signaling theory,
which showing that dividends payments work as passing on information. Few
more Prior research which were also on the apex has analyzed the information
content of dividends includes that of Bhattacharya (1979; 1980), Miller and Rock
(1985), and Bar-Yosef and Huffman (1986), among others. Fama and Babiak
(1968) studied the determinants of dividend payments by individual firms during
1946-64. For this purpose, the statistical techniques of regression analysis,
simulations, and prediction tests were used. The study concluded that net income
seems to provide a better measure of dividend than either cash flow or net income
and depreciation included as separate variable in the model. Dhameja (1978)
explained in his study that dividend payout is significant associated with industry
and size while growth was also found significant but inversely. He tested the
dividend policy on the basis of dividend behavior of Indian company by dividing
them in groups. Which were size group, industry group, growth group and control
group.
In order to find variables closely associates (positive or negative) with
dividend trend in firms Smith and Watts (1992) found in their study that size of
the firm has positive effect on dividend yield. Cash flow is another important
determinant of dividend because it was related with net earning Mahapatra and
Sahu (1993). Mangers perceive current earnings as the most significant factor in
determinant of dividend payment. It was the result of survey which is undertook
by Bhat and Pandey (1994) Another study by Tuli and Mittal (2001) used 101
Indian firms and found price earnings ratio is significantly influenced by
variability of market price and dividend payout ratio.
Gonzalez‘s (2003) found in his research theoretical model that liquidity
position of stock market is negatively correlated with dividend payment.

60
 Many researchers are also found that change in liabilities is positively
associates with dividend payment but not significantly. Changes in total assets
also positively associates with dividend payment but significantly. It means that
firms who are performing well and potentially growing are in the position of
paying dividend. Corporate earning and losses has positive and negative
relationship with dividend payment .earning play an important role to pay
dividend. It is main determinant of to pay dividend, while losses are responsible
for reduction and omissions in dividend payment. De Anglo et al. (2004).
Tunisian researchers found in their study on Tunisian firms that when panel data
is considered profitability,
Size, growth, and stock market liquidity have a significant impact on the
dividend policy in Tunisian firms. Naceur, Goaied and Belanes (2006) further
they found that residual cash flow theory of dividend strongly supported by
profitability which affects dividend payments significantly with high dividend in
result of high cash flow and payment of less dividend payment in result of low
cash flow. They didn‘t find any relationship between dividend policy and Market
to book value of share which was clearly in support of statement that
opportunities of future growth is not significantly related with dividend policy.
Pandey and Bhatt (2007) examined in their study the dividend behavior of
Indian companies. they were in search of potential answer of very prominent
question ―Do Indian firms follow stable dividend policies?‖ is there any
monetary policy restrictions affect the dividend payouts of the firm? For resolving
their quarries they used the Lintner‘s (1956) model, GMM estimator for test
dividend stability of firms in India and heterogeneity respectively which is most
suitable in a dynamic setting. Their results followed the standard answer and the
validity of the Lintner model in the emerging Indian market, and prove the
underlying dynamic relationship between current dividends as dependent variable
and current earnings and past dividends as independent variables. Further, their
results also show that the Indian firms have lower target payout ratios and higher
adjustment factors. R. Azhagaiah, Sabari Priya, 2008 found in their study that
―there is a significant difference in average market value relative to book value of

61
equity between dividend payers and non-payers of (Organic and Inorganic)
chemical companies in India.‖ They also found that ―There is significant impact
of dividend policy on shareholders‘ wealth in Organic Chemical Companies in
India.
Same decision followed by few researcher, they also examined that
profitability which is represented by net earnings strongly affects the decision to
pay dividend. They also found that profitable firm‘s follows the trend of paying
dividend. Kirkulak, Kurt (2010). In context of Indian banks return on investment
is positively associated with dividend payment. Honarbakhsh, Samira, et al. 2013
explained in their study classified the research into statistical models to test the
research, the first model was the Liabilities and stable earning standing in the
market value of the company were exceptionally positive and significant, while
financial assets were negative and significant. In the second model, Liabilities, the
net operating cash flow and Investment on market value of the company were
positive and significant. And finally, the third model, the relationship between the
significant and positive market value and Investment Company, and Liabilities
showed that the company's book value of equity is negative and significant. Thus
it can be accomplished that when the dividend is based on the percentage of
current earning, with the increase in Liabilities investments the company's market
value will increase. These results are reliable with the results of the, Yun-sheng &
et al (2005) study, that reviewed ". The relationship between dividend policy and
equity valuation models" were not experimental results of their research. It says
that for the three models developed, all three models, book value of shares,
Liabilities and investment were mainly positive and the stock price for the total
sample are related. Bulan, Laarni T.,et al. (2009) analyzed in their study that there
is a positive coefficients of firm‘s size, cash-to-total assets and market to book
value ratio, with dividend while return on assets (profitability) has a negative
coefficient with dividend. They proved it with statistical tools like one standard
deviation increase in return in assets it decrease the probability of a dividend cut
by 34%. While on other side if there is a incensement of one standard deviation in
cash-to-total assets and market to book value it will increase the probability of

62
reduction in dividend by 19.5% and 43.5% respectively. A Firm with many
profitable investment opportunities will retain earnings to invest in the best of its
investment prospects. Dickens, Casey and Newman (2003) and Theis and Dutta
(2009) find investment opportunities measured by the market to book value ratio
are significant in determining dividends.
Javed, Muhammad (2012) found in his study that increase in the earning
per share reflect that the companies have a good amount for distribution as
dividend among the shareholders. He test empirically in his research paper that
dividend per share is positively impacted by dividend yield. If one unit change in
dividend yield it will positively impact by 2.69 units in the dividend per share.
The conclusion of their study is that the high debt ratio is the reason of low
profitability which leads to decrease the dividend per share. Dividend yield and
earnings per share is positively associated with the dividend per share.
Kumaresan, Sinthuja (2014) According to her study, that there is a significant
impact of dividend policy on shareholders' wealth. She found in her study that
return on equity, dividend payout ratio, and dividend per share are positively
correlated with shareholders wealth, But, retention ratio is negatively correlated.
Gul Sajid, et al. (2012) examined in their study with shareholders wealth as
dependent variable which is explained by market price per share while
explanatory variable dividend policy is measured by dividend per share. They
used in their study few more explanatory variables like Lagged Price earnings
ratio, Retained Earnings and Lagged Market Value of equity. They found that the
difference in average market value (AMV) comparative to book value of equity
(BVE) is extremely significant between those companies who are dividend paying
and non-paying companies. Retained earnings have insignificant influence on
market value of shares. There is significant influence of dividend policy on wealth
of shareholder‘s, as far as the dividend paying companies are concerned. Lagged
Price earnings ratio did not appear to have any significant influence on dependent
variable, whereas lagged market value of equity has a significant impact on
market price per share.

63
 Retained earnings relate to the segment of the net income that is retained
by an organization rather than distributed to shareholders as dividends (Chasan,
2012).The reason is for an organization to reinvest the income for the business
expansion opportunities that an organization has. It is a vital in-house financing
which an organization obtains at least probable cost (Mohamed, 2010). Both
theory and literatures have exposed that retained earnings later add to the wealth
of shareholder‘s but it has adverse effect on dividend policy because if percentage
of retained earnings is increase by management of an organization, it resulted as
significant deficiency of available cash for distribution as dividend among
shareholders. According to Baker, 2009 if an organization uses its earnings for the
purchasing of capital assets, which are generally known as return generating
assets, than more income are produced which in turn causes a rise in stock prices
but falls in dividend distribution percentage. A ratio called return on retained
earnings (RORE) indicates how well the profits of the preceding year were
reinvested (Poker, 2011). It is denoted as a percentage. A high percentage would
express that a company would be better off reinvesting into the business, whereas
a low one would show that paying out dividends may be in the best interests of
the company. In making their decisions, investors should look for organizations
with high return on retained earnings (RORE) that is reinvested regularly.
According to Murray & Block, 1989The Price to Book ratio compares the
market's assessment of a company to the worth of that company as shown on its
financial statements.
According to (Sullivan & Steven, 2003) this ratio is calculated by simple
formula
 BVPS= Price per share / Book value of equity
Book value of equity = (Book value of assets – Book value of liability) /
Number of outstanding equity shares as per the balance sheet
(Book value of assets such as cash, accounts receivable, inventory, equipment,
etc. and the Book value of liabilities such as loans, accounts payable, mortgages,
etc.)

64
 Murray & Block, 1989 suggested that book value of equity is the
equivalent value of the available assets; the worth of the firm belonging to equity
holders after paying off all the amount outstanding if the company is liquidated.
Book value is a significant dimension as it measures what the investors actually
be the owner of the company. When divided by the number of shares gives the
value of the ownership per share. It is this value that is divided by the price per
share. According to Murray & Block (1989) the price per book ratio is normally
connected with value investing. A short Price to Book ratio could indicate that the
stock is undervalued. However, it could also mean that something is basically
wrong with the company. As with most ratios, this ratio may be different on the
basis of industry nature. This ratio also gives some suggestion of whether an
investor paying too much for what would be left if the company went bankrupt at
once. To this end, book value per share could influence investors‘ choice to buy
stocks of a company. Moreover Book Value per Share is a good baseline value for
a stock. While it's not technically the same thing as the liquidation value of the
shares, it is a proxy for it (Murray & Block, 1989). In many cases, stocks can and
do deal at or below book value. If the company's balance sheet is not upside-down
and its business is not broken, a short price/BVPS ratio can be a good pointer of
undervaluation. Remarkably, book value and BVPS do not think about the future
scenario of the firm - they are only snapshots of the ordinary equity claim at any
given point in time. A going concern is whether a company should always do
business at a price/BVPS ratio in excess of one time if the market appropriately
reflects the future prediction of the company and the upside possibility of the
stock (Murray & Block, 1989).
It is also known as net asset value per share because it measures the
amount of assets, which the corporation has on behalf of each equity share. BV
shows the investment per share made in the business by the shareholders. A high
book value usually indicates that the company has a good record of past
performances, i.e. high reserves therefore high market price (Grewal, 1986).
Various studies have considered this ratio as a determinant of share price (Zahir
and khanna 1982; Dixit 1983; Bal Krishan 1984). It is calculated as follow:

65
  Book Value per Share = (Equity Share Capital + Shareholders Reserves) /
Total No. of Equity Shares Outstanding
Hackbarth & Johnson, 2011 reveals that ―A dividend is a payment made by a
company to shareholders out of their excess incomes.‖ It's usually expressed as a
per-share amount. An investor can compares dividends distributed by company,
dividend yield or basically the yield issued. Dividend yield is the dividend amount
divided by the price of stock. It shows the proportion of the share purchaser‘s
purchase price – the investment in the company; the return obtained as dividends.
According to Cohen, 2002, that investment in stock will be resulted as dividend
yield as the return on investment which generally accurse in the absence of any
kind of capital gains. It is a financial ratio which shows how much an
organization paid-out in dividends each year comparative to its share price. It is
considered by dividing the dividend amount issued for the period over the stock
price; if at all possible the price at the opening of the period (Cohen, 2002). It is a
way to know that how much cash flow shareholders do get for their investment in
an equity position. Cohen, 2002 suggested in his research that stable dividend
yield may be supplement of income for those who wants a minimum stream of
cash flow as return from their investment selection can protected this cash flow by
investing in stocks paying comparatively high.
According to Cohen (2002), Net Assets Value, Price to Book Value, and
Dividend Yield are related to stock returns which is directly related to dividend
policy due to signalling practice connected with these ratios. Their values
communicate information on anticipated profits for the company. Studies make
available evidence to the concept that the forward-looking equity jeopardy
premium is the probable dividend yield (Baker, 2009).Cohen (2002) explains that
the dividend mystery in relative to the observed decline in both, the dividend yield
and the forward-looking equity risk premium.

66
 Summarized Findings of Previous Research Work
Research
Country Researchers year Variables Sample Findings
Methodology
India Chawala and 1987 Two stage least Lagged earnings 18 chemicals and In the case of chemical industry the estimated
srinavasan square price ratio dividend, 13 sugar coefficients had the correct sign and the
techniques share price companies coefficient of determination of all the equations
Cross-sectional were very high. It implies that the stock price
relationship for the and dividend
years 1969 and
1973
India Mahapatra 1993 Regression Investment demand 90 companies for Investment demand (id), flow of net debt (fnd),
and sahu models (id), flow of net debt the period 1977/78 interest (i), liquidity (l) have significant impact
(fnd), interest (i), to 1988/89. on dividend decision
liquidity (l), behavior of share price (sp) and changes in
behavior of share sales do not have any significant bearing on the
price (sp) and dividend decision
changes in sales,
dividend payment
India Pandey and 2007 Lintner‘s Current dividends as Indian companies Their results also show that the indian firms
bhatt (1956) model dependent variable have lower target payout ratios and higher
to test for and current earnings adjustment factors. This points the low
dividend and past dividends smoothing and instability of dividend policies
stability as independent in india.
variables
Ghana Amidu and 2006 Ordinary Least Dividend payout listed companies Major findings of the study were that there is a
Abor Squares model ratio, cash flow, tax in Ghana positive relationship between dividend payout
and profitability, cash flow, and tax

67
 Research
Country Researchers year Variables Sample Findings
Methodology
Olson and 1994 Granger Dividend, Earning The inclusion of the dividend data improves the
mccann causality test, predictability of earnings
bi-variate
model
Nepal Pradhan 1990 Ordinary Least Market equity, 17 enterprises There is positive relationship between the ratio
Squares model market value to from 1986 through dividend per share to market price per share,
is used to book value, price- 1990 interest coverage, liquidity, profitability,
estimate the earnings, and turnover ratios, interest coverage
regression dividends with
equation. liquidity,
profitability,
leverage, assets
turnover, and
interest coverage.
Nepal Shrestha 1992 Multiple policies and Banks of Nepal Bank management to rethink the matters related
Regression financial to payment of the dividend.
performance
Nepal Manandhar 2001 OLS announcement of Nepalese corporate announcement of bonus share issue has a
bonus share and firms, eleven significant impact in market price of share
market price of years from
share 1987/88 to
1997/98
Nepal Gautam 1998 Multiple DPS, share price Banks of Nepal No commercial bank sample for this study has
Regression clearly dividend strategy. On the other hand
there is significant relationship perceives
between earnings and dividend
68
 Research
Country Researchers year Variables Sample Findings
Methodology
Nepal Timilsina 1997 simultaneous dividends per share 16 enterprises relationship between dividend per share and
equation model and stock prices from 1990 through stock prices is positive
as developed 1994
by Friend and
Puckett (1964)
Nepal Adhikari 1999 Multiple Dividend payout Nepalese firms This study found that the financial position of
regression ratio, Net worth, high dividend paying companies is
Dividend per share, comparatively better than that of low dividend
Book value per paying companies.
share
Nepal Rajbhandari 2001 Multiple Earning per share, Three joint venture The analysis of dividend payout ratio shows
Regression Dividend per share commercial banks none of the banks or insurance companies has
and three constant payout ratio each year
insurance
companies.
Canada Baker and 2007 Multiple Profitability and Canadian firms found that the higher the return on equity, the
Gandi ( Regression dividend payout greater is the firms retained earnings for
ratio reinvestment or the lower is the dividend
payout.
Greek Rodríguez- 2005 Correlation Profitability and Greek firms Found positive relationship between
Pose, A. and and Regression dividend payout profitability and dividend payout ratio
N. Gill, ratio
USA Aivazian, and 2003 Regression Profitability and USA firms Profitability is positively related to the dividend
cleary dividend payout payout ratio
ratio

69
 Research
Country Researchers year Variables Sample Findings
Methodology
Japan kun li and 2012 Correlation Share holder wealth Asia pacific firms Significant relationship between dividend
chung-hua and Regression and Dividend payout Payout and Shareholder wealth.
ratio
Pakistan Hafeez 2008 OLS Size and Dividend Pakistan firms Results show that there is a negative and
andattiya payout ratio significant relationship between dividend
Payout and size.
Kenya Maniagi G. 2013 Correlation Size, Risk and Firms listed in Firm‗s size SZ and business risk BR are the
and Regression Dividend payout NSE main determinants of dividend payout
ratio
Banglad Abdullah Al 2014 Panal Data EPS, Return on All the listed Overall results of this study indicate that
esh Masum Approach Equity, Retention commercial banks Dividend Policy has significant positive effect
(FEM) Ratio, Dividend of Dhaka Stock on Stock Prices.
Yield and PAT Exchange
Pakistan Dr. Rashid 2014 Probit Model Profitability, 21 financial sector Results Show that cash flow have significant
Saeed test is applied Liquidity, Size, firms listed at Negative relationship and earnings per share
on the panel Cash Flow, Asset Karachi Stock have a significant positive association with the
data tangibility, Earnings Exchange dividend payout of the company, while asset
per and dividend tangibility, profitability and size have in-
payouts significant negative relationship and liquidity
Has insignificant positive relationship with
dividend payouts

70
 Research
Country Researchers year Variables Sample Findings
Methodology
India Dr. Pushpa 2012 Correlation Earning per share. 50 companies Note that there are a number of accounting
Bhatt, and Regression Market value per Most valuable variables impacting market value of an equity
Sumangala JK share companies as per share other than EPS. When we consider all of
the Business them together, the explanatory power of the
Today Survey of multiple regression equation will certainly
2010 improve.
Malaysia ENG S.H. 2013 Panel data Dividend payout Malaysian The results show statistically significant
YAHYA ratio, lagged Financial positive relationship between dividend payout
M.H. A.R.A. dividend Institutions and revenue growth
HADI Profitability lagged dividend shows positive significant
relationship with dividend payout

71
Variables Description

Variable Description Proxy Used By

Dividend payout As the dependent DPR Rozeff (1982),
variable to (Dividend Payout D‘Souza (1999),
represent the Ratio) Collins,M.C., A.K.
dividend Sacena and J.W.
distribution Wansley, (1996), S.
Franklin John and
K. Muthusamy
(2010)
Smith (1992),
Eriotis (2005)
Renneboog and
Natural Log
Size Total Assets Trojanowski (2005)
Assets
Lamia Fahim, Md
Kashif Khurshid,
Hina Tahir (2015)
profitability Return on assets ROA Fakhra et al., 2013
(Folorunso, 2012;
Growth Growth Rate Net Worth Amidu & Abor
2006).
Gupta & Banga
(2010), El Essa,
Earning per Share Earning per share EPS Hameedat,
Altaraireh, & Nofal
(2012)

2.4-Research Gap
After an extensive review of literature it is observe that no empirical study has
been done before considering as many as nine variables. Also there are very few
evidence, where regression models has been proposed by considering four (book
value per share, market value per share, dividend yield ratio, earning ratio)
controlled variables. This process and influence of regression model fit in
properly to fulfill the research gap in the literature of dividend policy.

72