Impact of Dividend Policy On Value of The Final)

Adil Zahoor; MBA llnd semester; Roll No.
420
IMPACT OF DIVIDEND POLICY ON VALUE OF THE FIRM ...AS REFLECTED IN TERMS OF THE
MARKET PRICE OF THE EQUITY SHARES.
PROJECT INCHARGE: Dr.
Bashir
MEMBERS: Adil Zahoor Shams-ul-Irfan Abass Ali Mudassir Hamid Hadi Hussain
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Adil Zahoor; MBA llnd semester; Roll No. 420
ABSTRACT
In the present contemporary business scenario, the impact of every decision taken within the jurisdiction of the management of a company has its bearing on the value of the firm. Taking the efficient market hypothesis into account, the market associates premium or discount to each and every bit of information that gets passed into the market. The information may be regarding the financial decisions, investment decisions, ethical and environmental considerations, operational procedures, dividend decisions and on. The paper attempts to analyze the effect of the dividend decisions on the value of a firm as reflected in terms of the market price of its shares. The analysis has been carried out on various public and private sector banks for the period of last five to six years and the revealed results are reflected accordingly. History: The word dividend comes from a Latin word dividendum meaning the thing Source: www.wikipedia.com which is to be divided among all. Concept: The term dividend refers to that part of profits of a company which is distributed by the company among its shareholders. It is the reward of the shareholders for investments made by them in the shares of the company. The investors are interested in earning the maximum return on their investments and to maximize their wealth (which normally should be the objective of the operations of a company). A company, on the other hand, needs to provide funds to finance its long-term growth. Dividend policy of a firm, thus affects both the long-term financing and the wealth of the shareholders. As a result, the firm s decision to pay dividends must be reached in such a manner so as to equitably apportion the distributed profits and retained earnings. Dividend is allocated as a fixed amount per share or a fixed percentage of the face value of a share. Thus shareholders receive dividend in proportion to their shareholding. (For a joint stock company), payment of dividends is not an expense, rather, it is the division of after tax profits among shareholders. This is the reason that dividend is not a chargeable expense (i.e. it cannot be debited to P&L a/c); instead it is an appropriation of profits and is thus reflected in the P&L appropriation a/c .
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Source: www.wikipedia.com and Management Accounting by SHARMA and GUPTA Dates associated with dividend: There are four important dates associated with dividend. These are: 1. Declaration date: it is the day on which the Board of Directors of a company declare their intention to pay dividend. On this day, a liability is created and the company records that liability in its books; it now owes the money to the stockholders. On the declaration date, the board will also announce the date of record and the payment date. 2. In-dividend date and ex-dividend date: it is the last day, which is one day before the ex-dividend date, where the stock is said to be cum dividend (i.e. including dividend). In other words, existing shareholders, and anyone who buys stock on this day will receive dividend. The ex-dividend date, normally 2 to 4 days before the record date is the day on which all shares bought or sold no longer come attached with the right to be paid the most recently declared dividend. This implies that existing stockholders will receive the dividend even if they now sell the stock on this date, whereas anyone who now buys the stock on this date will not receive the dividend. 3. Record date: it is the date when the company sets forth the list of shareholders that will be paid the dividend. Shareholders who are not registered on this date will not receive dividend. 4. Payment date: it is the date when the payment cheques will actually be mailed to the stockholders of the company or credited the brokerage accounts. www.wikipedia.com Types of dividends: Dividends may be classified in various forms. Dividends paid in the ordinary course of business are known as profit dividends, while dividends paid out of the capital are known as liquidation dividends. Dividends may also be classified on the basis of the medium in which they are paid. Cash dividend: it is the most common form of payment of dividends and the amounts are paid out through cheque. Such dividends are a form of investment income and are usually taxable to the recipient in the year they are paid. Scrip dividend: a scrip dividend promises to pay the shareholders at a future specific date. It is used at the time of lack of funds in the company. The objective
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of scrip dividend is to postpone the immediate payment of cash. A scrip dividend bears interest and is accepted as a collateral security. Property dividend: property dividends are paid in the form of some assets other than cash. These are distributed under exceptional circumstances and are not popular in India. Stock dividend: stock dividend means the issue of bonus shares to the existing shareholders. Stock dividend amounts to capitalization of earnings and distribution of profits among the existing shareholders without affecting the cash position of the firm.
Source: Management Accounting by SHARMA and GUPTA
Dividend policy: Dividend policies are the regulations and guidelines that a company develops and implements as the means of arranging and making dividend payments to the shareholders. It determines the proportions of the profit that are to be distributed among the shareholders as dividend and the portions that are to be retained for future applications (investments) in the business operations. Establishing a specific dividend policy is to the advantage of both the company and the shareholders. In order to make sure that the policy is workable, a company should develop a viable policy and then run this policy through a number of test scenarios in order to determine what impact the dividend policy would have on the operations and the share prices of the company. In many cases, companies choose to explicitly state the provisions within the dividend policy. This is clearly to the advantage of the shareholders, as a well defined policy makes it much easier to project the amount of payout profits generated for the period under consideration and thus be able to determine the size of the dividends that will be issued. However, there are cases where the dividend policy is not so well documented. When this is the case, investors sometimes base their assumptions on upcoming dividend payments on what has occurred in the past. Types of dividend policy: The various types of dividend policies are discussed below: Regular dividend policy: payment of dividend at the usual rate is termed as regular dividend. The investors such as retired persons, widows and other economically weaker persons prefer to get regular dividends. However, regular dividends can be maintained only by companies of long standing and stable earnings.
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Stable dividend policy: the term stability of dividends means consistency or lack of variability in the stream of dividend payments i.e. payment of certain minimum amount of dividend regularly. A stable dividend policy may be established in any of the following three forms: Constant dividend per share: it means paying fixed dividend per share irrespective of the level of earnings year after year. Such firms, usually, create a reserve for dividend equalization to enable them pay the fixed dividend even in the year when the earnings are not sufficient or when there are losses. Constant payout ratio: it means payment of a fixed percentage of net earnings as dividend every year. The amount of dividend in such a policy fluctuates in direct proportion to the earnings of the company. Stable rupee dividend plus extra dividend: it refers to the payment of constant low dividend per share plus an extra dividend in the years of high profits. Such a policy is most suitable to the firm having fluctuating earnings from year to year. Irregular dividend policy: this is followed on account of the following; Uncertainty of earnings. Unsuccessful business operations. Lack of liquid resources. Fear of adverse effects of regular dividends on the financial standing of the company. No dividend policy: a company may follow a policy paying no dividends presently because of its unfavorable working capital position or on account of requirements of funds for future expansion and growth. Determinants of dividend policy: The following are the important factors that determine the dividend policy of a firm. Legal restrictions. Magnitude and trend of earnings. Desire and type of shareholders. Nature of industry. Age of the company. Future financial requirements. Government s economic policy. Taxation policy. Inflation.
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Control objectives. Requirements of institutional investors. Stability of dividends. Liquid resources.
REVIEW OF LITERATURE:
DIVIDEND DECISION AND VALUATION OF FIRMS

The value of the firm can be maximized if the shareholders wealth is maximized. There are conflicting views regarding the impact of dividend decision on the valuation of the firm. According to one school of thought, dividend decision does not affect the shareholders wealth and hence the valuation of the firm. On the other hand, according to the other school of thought, dividend decision materially affects the shareholders wealth and also the value of the firm. The former approach is known as the irrelevance concept of dividend or the theory of irrelevance and the later is known as the relevance concept of dividend or the theory of relevance. Theory of irrelevance: It includes the following two approaches: 1. Residual approach: according to this theory, dividend has no effect on the wealth of the shareholders or the prices of the shares, and hence it is irrelevant so far as the valuation of the firm is concerned. This theory regards dividend decision merely as a part of financing decision because the earnings available may be retained in the business for re-investment. But, if the funds are not required in the business they may be distributed as dividends. Thus, the decision to pay dividends or retain the earnings may be taken as a residual decision. This theory assumes that investors do not differentiate between dividends and retentions by the firm. Their basic desire is to earn higher return on their investment. In case the business has profitable investment opportunities giving a higher rate of return than the cost of retained earnings, the investors would be content with the firm retaining the earnings to finance the same. However, if the firm is not in a
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position to find profitable investment opportunities, the investors would prefer to receive the earnings in the form of dividends. 2. Modigliani and Miller approach (MM model): Modigliani and Miller suggest that the dividend policy has no effect on the market price of the shares, and hence the value of the firm is determined by the earning capacity of the firm or its investment policy. The MM model operates under the following assumptions: There are perfect capital markets. Investors behave rationally. Information about the company is available to all without any cost. There are no floatation and transaction costs. No investor is large enough to affect the market price of shares. There are either no taxes or there are no differences in the tax rates applicable to dividends and capital gains. The firm has a rigid investment policy. There is no risk or uncertainty in regard to the future of the firm (this assumption was later dropped). The theory of relevance: The advocates of this school of thought include Myron Gordon, Jone Linter, James Walter and Richardson. According to them dividends communicate information to the investors about the firms profitability and hence dividend decision becomes relevant. The following are the two theories representing this notion. Walter s approach: Prof. Walter suggests that the relationship between the internal rate of return earned by the firm and its cost of capital is very significant in determining the dividend policy to sub serve the ultimate goal of maximizing the wealth of shareholders. Prof. Walter s model is based on the relationship between the firm s Return on investment i.e. r . The cost of capital or the required rate of return i.e. k . Prof. Walter suggests that; If r>k, firm should retain the earnings. If r<k, firm should pay higher dividends. If r=k, firm is indifferent.
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Walter s model is based on the following assumptions: The investments of the firm are financed through retained earnings only and the firm does not use external sources of funds. The internal rate of return (r) and the cost of capital (k) of the firm are constant. Earnings and dividends do not change while determining the value of the firm. The firm has a very long life. Walter s formula for determining the value of the share;
P= [D+r {(E-D)/Ke}] Ke
Or P= (D/Ke) Where; P= market price per share D= dividend per share r= internal rate of return E= earnings per share Ke= cost of equity capital
+{r (E-D)/Ke} Ke
Gordon s approach: The basic valuation model of Myron Gordon is based on the following The firm is an all equity firm. No external financing is available or used. The rate of return on the firm s investments (r) is constant. The retention ratio (b), once decided upon is constant. Thus the growth rate of the firm {g=br}, is also constant. The cost of capital for the firm remains constant and it is greater than the growth rate i.e. k>br. The firm has perpetual life. Corporate taxes don not exist. Gordon s basic valuation formula is as follows;
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P= {E (1-b)}/ (Ke-br)
Or
P0 = D1/ (Ke-g) = {D0 (1+g)}/ (Ke-g)
Where: P= price of shares E= earnings per share b= retention ratio ke= cost of equity capital br= g= growth rate in r i.e. rate of return on investment of an all-equity firm D0= dividend per share D1= expected dividend at the end of year 1. The implications of the Gordon s valuation model can be summarized as: When r>k, the price per share increases as the dividend payout ratio decreases. When r=k, the price per share remains unchanged and is not affected by dividend policy. When r<k, the price per share increases as the dividend payout ratio increases. GRAHAM AND DODD MODEL: This model assigns more weight on dividends than on retained earnings. Investors discount distant dividends at a higher rate than they discount nearby dividends. This is because nearby dividends are more certain than distant dividends. Formula: Where, P = market price per share m = multiplier D = dividend per share E = earnings per share Assumptions: Investors are rational.
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P=m x (D + E/3)
Under conditions of uncertainty they turn risk averse. LINTERS MODEL: If a firm sticks to its target payout it will have to change its dividend with every change in earnings. Since shareholders do not like a drop or a wild fluctuation in dividends, the company increases the dividend only to the extent it believes is maintainable in the future. A conservative company would have a lower adjustment factor. Formula:
D1 = D0 + {(EPS x target payout) D0 } x AF

Where: D1 = dividend I year 1 EPS = earnings per share D0 = dividend in current year AF = adjustment factor Findings: Firms have a long-term target dividend payout ratio. Managers are concerned with changes in dividends rather than in dividends per share. Dividends do increase with earnings but not in perfect tandem. Managers are reluctant to effect dividend changes that may have to be reversed. Radical approach: If tax on dividend is higher than tax on capital gains, a company offering capital gains rather than dividends will be priced better. If tax on dividend is less than tax on capital gains, a company offering dividends rather than capital gains will be priced better. Assumptions: It considers both corporate tax and personal tax. It also considers the fact that dividends and capital gains are not taxed at the same rate.
Source: article-dividend policy by CA. Kunal Aggarwal Page 10
IMPACT OF DIVIDEND POLICY ON THE VALUE OF FIRM

An analysis of the private and public sector banks
Banks analyzed:
Public sector: Bank of Baroda Canara Bank Private sector: HDFC Bank Karnataka Bank
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BANK OF BARODA
Bank of Baroda is one of the most prominent banks in India, having its total assets as Rs. 143146 Crores as on 31st of March 2007. The bank was founded by Maharaja Sayajirao Gaekwad III (also known as Shrimant Gopalrao Gaekwad), the then Maharaja of Baroda on 20th of July 1908 with a paid capital of Rs. 10 Lacs. On 19th of July 1969, Bank of Baroda was nationalized by the Government of India. Financial Details As of March 2007, the bank had total deposits worth Rs. 1,24,915 Crores while it had a total number of 2956 branches located worldwide as on April 2009, out of which 626 were located in Metro cities, 524 in Urban areas, 642 in Semi-Urban locations, 1092 in Rural areas and 72 were located outside India. The bank has 10 Zonal Offices and 43 Regional Offices which help it control its operations nationally. Other Details Bank of Baroda had a total workforce of 38063 employees offering their services to the institution as of September 2006. Out of these, 13525 were Officers, 16497 were Clerks while 8041 were Sub-Staff members. Head Office Bank of Baroda Suraj Plaza-1, Sayaji Ganj, Baroda-390005 Bank Of Baroda Baroda Corporate Centre, Plot No - C-26, G - Block, Bandra - Kurla Complex, Bandra (East), Mumbai-400051 Website: www.bankofbaroda.com. Source: www.iloveindia.com
BANK PERFORMANCE
EXIBIT NO. 1
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We can see from the annual results that the bank has increased its sales, operating profits and gross profits over the last 5 years. This performance can also be revealed through the profitability ratios of the company.
EXIBIT NO. 2
Source: www.rediffmoney.com
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EXIBIT NO. 3
With the declaration and payment of these dividends the stock prices of the company varied in the following manner
EXIBIT NO. 4
Stock prices between feb 05 and aug 05

Month
Feb 05 Mar 05 Apr 05 May 05
Open Price
204.90 220.00 219.05 175.00
High Price
221.00 256.25 226.65 204.80
Low Price
191.00 200.00 171.10 170.50
Close Price
218.05 218.05 172.25 195.65
Average price
206.00 228.13 198.88 187.65
No. of Shares
56,55,644 1,02,24,393 35,71,579 71,83,085
No. of Trades
68,094 98,347 41,517 65,259
Total Turnover (Rs.)

1,18,43,11,764 2,33,98,22,753 71,88,33,078 1,35,29,80,866
* Spread (Rs.) H-L

30.00 56.25
C-O
13.15 -1.95
55.55 -46.80 34.30 20.65
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Jun 05 Jul 05 Aug 05
197.30 198.00 257.70
212.45 263.70 274.00
188.00 196.00 240.00
196.30 257.05 245.05
200.23 229.85 257.00
35,79,511 53,65,145 52,33,073
36,918 45,332 45,739
72,54,80,807 1,25,80,77,251 1,35,00,03,348
24.45 67.70
-1.00 59.05
34.00 -12.65
Dividend declared in May 2005 @ 32%.

Exibit no. 5
source: www.bseindia.com
Stock prices between jan 06 and july 06

Month
Jan 06 Feb 06 Mar 06 Apr 06 May 06 Jun 06 Jul 06
Open Price
242.80 251.00 224.90 232.00 233.00 226.50 200.00
High Price
265.90 252.75 234.00 243.60 277.00 233.90 229.00
Low Price
233.15 216.70 218.10 212.10 201.00 181.10 175.75
Close Price
249.75 223.20 230.30 231.50 227.05 198.80 222.00
Average price
249.52 234.72 226.05 227.85 239.00 207.50 202.37
No. of Shares
67,48,307 94,17,326 73,35,379 62,61,456 1,25,48,807 42,68,025 47,49,396
No. of Trades
61,250 81,462 69,843 66,367 1,19,012 60,387 74,153

1,68,14,12,672 2,20,04,00,653 1,66,65,16,337 1,45,76,78,443 3,15,96,45,581 88,38,05,286 97,32,44,586
* Spread (Rs.) H-L

32.75
C-O
6.95
36.05 -27.80 15.90 31.50 76.00 5.40 -0.50 -5.95
52.80 -27.70 53.25 22.00
Dividend declared in april 06 @ 50%
Exibit no. 6
Stock prices between dec 06 and july 07

Month
Dec 06 Jan 07 Feb 07 Mar 07 Apr 07 May 07 Jun 07 Jul 07
Open Price
263.80 243.70 251.30 213.20 209.40 234.40 278.00 273.50
High Price
275.40 259.75 260.50 229.00 251.00 292.50 284.10 319.40
Low Price
213.10 223.00 210.00 188.50 193.00 234.40 247.10 265.10
Close Price
239.90 249.85 219.75 215.40 235.95 275.20 270.25 299.95
Average price
244.25 241.37 235.25 208.75 222.00 263.45 265.60 292.25
No. of Shares
39,93,615 42,76,910 29,04,027 45,32,738 40,76,650 38,26,058 23,46,649 65,90,076
No. of Trades
56,349 46,982 46,780 79,397 76,784 71,455 50,703 93,231

96,83,14,786 1,02,73,80,870 67,08,91,683 94,61,71,439 92,42,91,011 1,02,12,09,451 62,45,51,622 1,94,90,86,134
* Spread (Rs.) H-L C-O
62.30 -23.90 36.75 6.15
50.50 -31.55 40.50 58.00 58.10 37.00 54.30 2.20 26.55 40.80 -7.75 26.45
Dividend declared in mar 07 @ 30% and april 07 @ 30%
Page 15
EXIBIT NO. 7
Stock prices between Feb 08 and Aug 08

Month
Feb 08 Mar 08 Apr 08 May 08 Jun 08 Jul 08 Aug 08
Open Price
392.00 360.00 282.00 320.00 271.00 203.50 251.00
High Price
434.80 360.00 320.90 329.90 273.80 270.00 309.50
Low Price
341.25 255.55 267.00 254.20 199.30 188.30 245.00
Close Price
365.75 283.90 315.15 270.05 203.25 255.50 284.30
Average price
388.03 307.78 293.95 292.05 236.55 229.15 277.25
No. of Shares
51,40,646 48,70,448 39,30,984 39,24,989 37,83,980 55,64,352 64,13,917
No. of Trades
89,371 94,668 78,896 80,326 81,018 1,04,593 1,23,463

1,96,43,03,764 1,44,69,59,315 1,16,55,02,049 1,15,87,55,972 86,92,09,752 1,26,54,15,925 1,76,27,89,544
93.55 -26.25 104.45 -76.10 53.90 33.15
75.70 -49.95 74.50 -67.75 81.70 64.50 52.00 33.30
Dividend declared in may 2008 @ 80%.
Exibit no. 8

Month
Open Price
283.10 252.55 216.00 236.00 333.00 445.00 449.00
High Price
297.30 255.30 249.85 334.80 464.30 463.00 454.00
Low Price
225.35 207.70 180.50 227.10 314.00 400.00 371.10
Close Price
252.55 220.40 234.55 327.00 438.30 445.30 436.00
Average price
261.32 231.50 215.17 280.95 389.15 431.50 412.55
No. of Shares
57,80,079 32,93,161 65,94,241 61,94,430 70,81,233 42,52,091 31,16,114
No. of Trades
1,09,323 75,253 1,14,137 1,08,786 1,01,807 61,816 59,627

1,46,19,37,988 76,10,61,801 1,41,41,34,404 1,80,49,30,655 2,68,96,29,576 1,83,75,24,148 1,30,33,69,887
* Spread (Rs.) H-L

71.95 47.60 69.35 107.70 150.30 63.00 82.90
C-O
-30.55 -32.15 18.55 91.00 105.30 0.30 -13.00
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EXIBIT NO. 9
Stock prices from Jan 10 to Jun 10

Month
Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10
Open Price
512.00 577.00 586.00 643.15 690.50 710.00
High Price
589.00 605.00 653.00 701.95 722.70 753.35
Low Price
508.00 546.40 585.00 616.00 655.20 678.50
Close Price
575.90 583.90 639.25 691.55 710.40 695.65
Average price
548.50 575.70 619.00 658.98 688.95 715.93
No. of Shares
17,63,342 23,26,137 22,25,977 26,03,626 21,46,775 14,60,105
No. of Trades
43,025 44,510 48,528 55,900 52,519 39,384

96,39,81,099 1,33,94,61,639 1,37,14,19,778 1,71,91,92,749 1,49,25,76,349 1,05,49,37,224
* Spread (Rs.) H-L

81.00 58.60 68.00 85.95 67.50
C-O
63.90 6.90 53.25 48.40 19.90
74.85 -14.35
Dividend decalred in April 2010 @ 150%
EXIBIT NO. 10
Particulars (In Percentage)
Dividend payout Ratio (including Corporate Dividend Tax)
31.03.2006
25.11%
31.03.2007
24.59%
31.03.2008
23.75%
31.03.2009
17.22%
31.03.2010
20.90%
Source: www.bankofbaroda.com
CANARA BANK
Canara Bank is one of the most prominent commercial banks of India. The bank was established in the year 1906 at Mangalore, Karnataka by a well known personality Mr. Ammembal Subba Rao Pai. Initially, it was founded with the name Canara Bank Hindu Permanent Fund, but later on the name was changed to Canara Bank Limited. Key Attributes Apart from setting other benchmarks in the field of providing comprehensive banking services to the consumers, Canara Bank has a number of achievements to its credit, which include being the first bank in India to have launched Inter-City ATM network, being the first bank to have been awarded ISO Certification for one of its branches, providing credit card for farmers for the first time in India along with offering Agricultural Consultancy Services. Vital Details Canara Bank has established a strong presence in the country, with 2710 branches across the nation as of September 2008. The bank boasts of having the maximum number of ATM installations among all the nationalized banks summing up to more than 2000 of them at 698 centers. Also, 1351 branches of the bank provide Internet and Mobile Banking (IMB) services, while Anywhere Banking services are being provided at 2027 of its branches. All the branches of Canara Bank are enabled with Real Time Gross Settlement (RTGS) and National Electronic Fund Transfer (NEFT) transaction facilities, insuring smooth and swift money transfer from any corner of the nation to another corner. Page 17
Head Office Canara Bank Head Office 112, J C Road BANGALORE - 560 002 Website: http://www.canarabank.com Source: www.iloveindia.com
BANK PERFORMANCE EXIBIT NO. 11
Page 18
EXIBIT NO. 12
Page 19
EXIBIT NO. 13
Stock prices from Feb 05 to Aug 05

Month
Open Price
210.20 220.00 205.00 182.00 200.00 212.00 250.10
High Price
220.90 241.55 212.50 204.40 220.90 256.90 258.00
Low Price
197.25 187.55 172.25 170.10 197.00 210.15 211.00
Close Price
218.25 200.40 174.95 199.55 210.90 252.10 224.60
Average price
209.08 214.55 192.38 187.25 208.95 233.53 234.50
No. of Shares
57,89,570 84,56,756 33,96,812 45,95,225 43,75,074 34,63,968 20,75,074
No. of Trades
54,524 64,912 26,098 34,239 30,599 27,790 15,546

1,20,80,09,712 1,85,71,09,436 64,44,89,127 87,82,62,603 91,85,80,951 81,11,38,611 49,16,83,210
* Spread (Rs.) H-L

23.65
C-O
8.05
54.00 -19.60 40.25 -30.05 34.30 23.90 46.75 17.55 10.90 40.10
47.00 -25.50
Dividend declared in may 05 @ 30%.

EXIBIT NO. 14
Stock prices from Jan 06 to Jul 06

Month
Open Price
243.00 251.00 286.50 267.95 256.30 232.00 201.10
High Price
252.00 300.00 291.80 282.00 279.95 232.95 212.00
Low Price
221.35 232.10 261.00 214.00 185.00 187.00 165.10
Close Price
249.15 286.15 266.90 254.10 229.25 200.80 196.65
Average price
236.68 266.05 276.40 248.00 232.48 209.98 188.55
No. of Shares
49,76,661 1,01,41,162 35,19,011 23,09,937 20,84,538 12,26,047 15,48,978
No. of Trades
34,159 73,439 39,271 24,808 23,320 18,118 28,374

1,16,90,32,500 2,76,18,94,785 97,92,93,204 60,07,81,883 52,65,24,070 25,37,65,701 29,45,85,285
* Spread (Rs.) H-L

30.65 67.90
C-O
6.15 35.15
30.80 -19.60 68.00 -13.85 94.95 -27.05 45.95 -31.20 46.90 -4.45
Dividend declared in April 06 @ 66%.

Exibit no. 15
Stock prices between feb 07 and aug 07

Month
Feb 07 Mar 07 Apr 07 May 07
Open Price
243.00 209.70 188.00 219.80
High Price
249.00 216.90 231.90 280.00
Low Price
200.00 174.00 176.55 205.00
Close Price
210.50 194.70 217.65 244.20
Average price
224.50 195.45 204.22 242.50
No. of Shares
16,63,254 19,76,786 17,28,699 27,26,163
No. of Trades
20,549 35,889 26,962 37,475

37,24,09,268 38,14,58,294 34,91,77,115 67,33,69,849
* Spread (Rs.) H-L

49.00 42.90 55.35 75.00
C-O
-32.50 -15.00 29.65 24.40
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Jun 07 Jul 07 Aug 07
254.40 273.95 260.00
277.00 300.00 286.70
231.20 253.50 222.00
269.65 261.75 244.00
254.10 276.75 254.35
17,90,642 28,84,356 17,01,207
28,023 38,044 26,389
45,86,10,916 80,19,86,504 42,86,35,974
45.80 46.50 64.70
15.25 -12.20 -16.00
Dividend declared in may 07 @ 70%

EXIBIT NO. 16
Stock prices from jan 08 to jul 08

Month
Open Price
334.00 293.55 269.90 229.00 240.50 218.05 178.40
High Price
421.45 324.00 271.65 245.85 249.95 221.80 196.90
Low Price
230.00 253.25 198.20 213.60 210.50 173.50 158.00
Close Price
289.45 278.10 225.20 237.10 216.00 178.00 183.75
Average price
325.73 288.63 234.93 229.73 230.23 197.65 177.45
No. of Shares
65,21,929 83,39,606 34,02,566 26,47,043 11,78,849 29,87,115 38,71,835
No. of Trades
70,128 51,204 41,880 29,256 16,142 26,351 42,060

2,10,39,60,752 2,41,23,83,041 77,24,15,090 60,98,53,544 27,53,83,567 56,58,77,668 68,69,52,925
191.45 -44.55 70.75 -15.45 73.45 -44.70 32.25 8.10
39.45 -24.50 48.30 -40.05 38.90 5.35
Dividend declared in April 08 @ 80%

Exibit no. 17

Month
Open Price
190.00 180.00 161.35 165.00 207.00 288.50 265.00
High Price
222.90 194.50 169.40 211.80 297.20 295.00 289.00
Low Price
167.40 148.60 144.25 158.50 200.30 232.00 235.00
Close Price
180.25 165.35 165.90 197.55 283.95 262.45 285.50
Average price
195.15 171.55 156.82 185.15 248.75 263.50 262.00
No. of Shares
69,91,420 18,01,266 36,79,512 37,55,169 46,36,795 38,44,523 31,04,236
No. of Trades
80,914 26,699 39,139 38,480 46,585 43,669 39,593

1,30,58,84,342 31,84,93,839 56,76,58,804 69,25,64,693 1,13,43,89,506 99,32,07,600 83,73,02,981
* Spread (Rs.) H-L

55.50
C-O
-9.75
45.90 -14.65 25.15 53.30 96.90 4.55 32.55 76.95
63.00 -26.05 54.00 20.50
Page 21
EXIBIT NO. 18
Stock prices from Jan 10 to Jun 10

Month
Open Price
392.00 391.85 400.00 412.00 429.00 408.00
High Price
414.00 411.90 441.50 433.10 442.95 436.50
Low Price
360.00 369.00 393.05 386.65 386.05 345.00
Close Price
390.45 391.95 410.35 429.55 408.20 433.50
Average price
387.00 390.45 417.28 409.88 414.50 390.75
No. of Shares
17,58,573 9,55,750 13,74,514 15,98,472 16,79,620 9,79,806
No. of Trades
25,734 17,704 24,544 28,470 34,066 18,104

68,62,76,062 37,51,33,439 56,91,77,838 65,75,62,248 70,58,43,547 41,47,76,414
* Spread (Rs.) H-L

54.00 42.90 48.45 46.45 56.90 91.50
C-O
-1.55 0.10 10.35 17.55 -20.80 25.50
Dividend declared in April 10 @ 100%.
HDFC BANK
Housing Development Finance Corporation Limited, more popularly known as HDFC Bank Ltd, was established in the year 1994, as a part of the liberalization of the Indian Banking Industry by Reserve Bank of India (RBI). It was one of the first banks to receive an 'in principle' approval from RBI, for setting up a bank in the private sector. The bank was incorporated with the name 'HDFC Bank Limited', with its registered office in Mumbai. The following year, it started its operations as a Scheduled Commercial Bank. Today, the bank boasts of as many as 1412 branches and over 3275 ATMs across India. Amalgamations In 2002, HDFC Bank witnessed its merger with Times Bank Limited (a private sector bank promoted by Bennett, Coleman & Co. / Times Group). With this, HDFC and Times became the first two private banks in the New Generation Private Sector Banks to have gone through a merger. In 2008, RBI approved the amalgamation of Centurion Bank of Punjab with HDFC Bank. With this, the Deposits of the merged entity became Rs. 1,22,000 crores, while the Advances were Rs. 89,000 crores and Balance Sheet size was Rs. 1,63,000 crores. Capital Structure At present, HDFC Bank boasts of an authorized capital of Rs 550 crores (Rs5.5 billion), of this the paid-up amount is Rs 424.6 crores (Rs.4.2 billion). In terms of equity share, the HDFC Group holds 19.4%. Foreign Institutional Investors (FIIs) have around 28% of the equity and about 17.6% is held by the ADS Depository (in respect of the bank's American Depository Shares (ADS) Issue). The bank has about 570,000 shareholders. Its shares find a listing on the Stock Exchange, Mumbai and National Stock Exchange, while its American Depository Shares are listed on the New York Stock Exchange (NYSE), under the symbol 'HDB'. Head Office HDFC Bank Ramon House, 169, Backbay Reclamation, H T Parekh Marg, Churchgate Page 22
Adil Zahoor; MBA llnd semester; Roll No. 420 Mumbai - 400020 Phone: +91 (22) 66316000, 66636000, 66316060 Fax: +91 (22) 22048834 Website: www.hdfc.com Source: www.iloveindia.com
Page 23
Page 24
EXIBIT NO. 20
EXIBIT NO. 21

Month
Open Price
522.00 567.00 589.00 544.95 549.90 536.00 625.00
High Price
570.00 599.00 629.95 573.25 564.00 643.00 724.90
Low Price
461.15 550.65 508.00 512.05 515.00 534.05 600.00
Close Price
564.40 586.90 544.25 537.20 540.05 634.10 685.50
Average price
515.58 574.83 568.98 542.65 539.50 588.53 662.45
No. of Shares
27,49,649 21,93,879 1,36,42,846 18,41,564 13,31,706 1,74,62,842 45,14,247
No. of Trades
35,820 24,927 21,484 10,560 6,687 14,505 21,171

1,41,11,64,800 1,24,57,72,799 8,31,25,07,982 1,00,31,32,832 71,66,86,025 10,89,28,66,541 2,95,06,04,859
* Spread (Rs.) H-L

108.85 48.35
C-O
42.40 19.90
121.95 -44.75 61.20 49.00 108.95 124.90 -7.75 -9.85 98.10 60.50
Page 25
EXIBIT NO. 22

Month
Open Price
710.90 767.90 738.00 765.00 835.00 740.00 740.00
High Price
774.00 776.00 790.00 865.00 898.00 810.90 819.00
Low Price
707.00 705.25 726.00 740.90 710.00 620.00 693.10
Close Price
762.55 736.05 773.50 826.60 740.20 791.15 795.05
Average price
740.50 740.63 758.00 802.95 804.00 715.05 756.05
No. of Shares
27,50,074 23,20,754 1,70,09,416 31,74,611 38,55,140 29,28,796 35,23,646
No. of Trades
28,258 23,615 19,604 23,118 25,947 33,036 34,294

2,02,45,58,679 1,71,81,29,727 12,81,06,17,347 2,63,70,09,015 3,24,66,35,471 2,10,58,94,033 2,74,26,06,664
* Spread (Rs.) H-L

67.00
C-O
51.65
70.75 -31.85 64.00 124.10 35.50 61.60
188.00 -94.80 190.90 125.90 51.15 55.05

Exibit no. 23

Month
Open Price
1,070.00 1,079.70 957.00 930.00 1,035.00 1,156.00 1,153.00
High Price
1,104.95 1,124.00 1,030.00 1,045.00 1,274.00 1,181.00 1,257.00
Low Price
980.55 903.60 890.00 895.00 980.30 1,050.35 1,120.00
Close Price
1,078.15 932.60 949.40 1,026.15 1,139.75 1,144.10 1,198.65
Average price
1042.75 1013.80 960.00 970.00 1127.15 1115.67 1188.50
No. of Shares
29,10,408 58,55,279 32,88,791 43,35,788 42,24,941 16,10,148 21,09,087
No. of Trades
32,807 32,103 37,528 30,551 39,466 27,483 33,432

8.15
3,06,65,06,314 124.40
5,98,93,23,640 220.40 -147.10 3,11,66,02,597 140.00 4,20,73,43,853 150.00 -7.60 96.15
4,38,54,52,232 293.70 104.75 1,78,07,01,284 130.65 2,49,23,11,132 137.00 -11.90 45.65

EXIBIT NO. 24

Month
Jan 08 Feb 08 Mar 08
Open Price
1,728.00 1,599.00 1,439.40
High Price
1,825.00 1,615.00 1,470.00
Low Price
1,325.05 1,358.00 1,100.00
Close Price
1,568.00 1,453.45 1,319.95
Average price
1575.03 1486.50 1285.00
No. of Shares
31,22,114 29,91,571 19,33,819
No. of Trades
47,019 53,630 62,732
5,17,12,44,107 499.95 -160.00 4,40,76,25,037 257.00 -145.55 2,58,81,97,112 370.00 -119.45
Page 26
Apr 08 May 08 Jun 08 Jul 08
1,320.00 1,540.00 1,562.00 1,006.10
1,561.10 1,575.00 1,562.00 1,265.00
1,271.00 1,308.00 993.40 890.00
1,514.85 1,357.85 1,002.30 1,095.25
1416.05 1441.50 1277.70 1077.50
20,71,938 15,19,813 31,77,269 72,78,963
76,388 39,874 82,364 1,94,605
2,86,74,97,294 290.10 194.85 2,17,01,44,251 267.00 -182.15 3,60,49,87,808 568.60 -559.70 7,61,86,33,104 375.00 89.15

Exibit no. 25

Month
Open Price
1,007.25 917.00 867.00 978.00 1,119.00 1,455.00 1,499.00
High Price
1,124.00 957.00 1,014.00 1,138.00 1,498.00 1,580.00 1,548.80
Low Price
865.00 835.10 774.00 952.00 1,110.10 1,352.80 1,333.00
Close Price
924.60 884.85 967.85 1,100.70 1,442.35 1,491.75 1,499.60
Average price
994.50 896.05 894.00 1045.00 1304.05 1466.40 1440.90
No. of Shares
60,22,729 37,05,318 1,11,99,257 46,07,582 1,77,05,412 28,64,087 39,36,288
No. of Trades
2,02,634 1,01,247 1,99,338 1,31,399 1,18,521 97,168 1,23,698

-82.65 -32.15
5,83,15,68,779 259.00 3,32,03,52,942 121.90
9,60,54,53,532 240.00 100.85 4,94,67,49,851 186.00 122.70 20,52,06,42,072 387.90 323.35 4,26,60,45,213 227.20 5,61,31,76,912 215.80 36.75 0.60

EXIBIT NO. 26

Month
Open Price
1,690.25 1,615.00 1,720.00 1,939.00 1,990.00 1,880.00
High Price
1,794.70 1,733.00 1,986.00 2,009.90 1,995.00 2,009.00
Low Price
1,552.25 1,550.00 1,706.50 1,893.30 1,785.00 1,825.00
Close Price
1,630.85 1,704.65 1,932.50 1,991.60 1,885.40 1,947.80
Average price
1673.48 1641.50 1846.25 1951.60 1890.00 1917.00
No. of Shares
24,83,906 24,04,312 17,82,555 13,47,109 14,26,241 16,28,884
No. of Trades
54,083 55,148 68,738 50,714 46,908 44,496

-59.40 89.65
4,19,13,83,013 242.45 3,96,20,06,591 183.00
3,28,44,09,133 279.50 212.50 2,63,13,37,438 116.60 52.60
2,71,94,68,100 210.00 -104.60 3,16,80,27,812 184.00 67.80
Page 27
KARNATAKA BANK
Karnataka Bank Limited is a leading private sector bank in India. It was incorporated on 18th February 1924 at Mangalore, a town located in the Kannada district of Karnataka. The bank emerged as a major player during the freedom movement of 20th Century India. During its process of expansion, the Karnataka Bank merged with other banks like Sringeri Sharada Bank Ltd., Chitradurga Bank Ltd. and Bank of Karnataka. Today, Karnataka Bank has emerged as one of the top financial service institutions in India. Karnataka Bank: Branches and Business Karnataka bank has expanded its reach to various parts of India, over the 85 years of its existence. Today, the bank has a total of 447 branches, spread across 19 states and 2 Union Territories, with a total business of about Rs. 31248 Crores. The bank presently employs over 4,900 employees and is answerable to about 71,822 shareholders and over 3.7 million customers. The bank has specialized branches like Agricultural Development Branch, Overseas Branches, Foreign Exchange Branches, Specialized SSI Branches, Asset Recovery Management Branches, Currency Chests, Central Processing Centre spread across the length and breadth of the country. Corporate Office Mahaveera Circle Kankanady Mangalore - 575 002 Ph: 0824 - 2228222 Fax: 0824 - 2228284 E-mail: info@ktkbank.com URL: www.ktkbankltd.com Source: www.iloveindia.com
Page 28
Page 29
EXIBIT NO. 28
EXIBIT NO. 29
Stock prices from Jan 06 to Aug 06

Month
Open Price
112.50 106.40 102.00 99.50 99.00 92.50 95.00
High Price
113.50 108.70 111.45 110.00 100.90 98.00 114.00
Low Price
101.20 96.85 90.00 75.55 74.10 80.10 94.50
Close Price
106.00 100.15 98.50 98.65 91.65 95.00 110.75
Average price
107.35 102.78 100.73 92.78 87.50 89.05 104.25
No. of Shares
18,98,274 31,66,353 30,63,157 54,67,321 22,72,644 11,25,202 30,62,234
No. of Trades
14,028 16,552 18,522 28,344 18,636 10,679 16,688

20,44,43,266 32,50,60,152 31,66,30,018 54,32,16,032 19,66,70,564 10,18,78,100 31,75,36,025
* Spread (Rs.) H-L

12.30 11.85 21.45 34.45 26.80 17.90 19.50
C-O
-6.50 -6.25 -3.50 -0.85 -7.35 2.50 15.75
Dividend declared in May 2006 @ 30%

EXIBIT NO. 30

Month
Feb 07
Open Price
173.00
High Price
193.00
Low Price
160.05
Close Price
175.00
Average price
176.53
No. of Shares
36,13,315
No. of Trades
23,888

65,79,18,193
* Spread (Rs.) H-L

32.95
C-O
2.00
Page 30
Mar 07 Apr 07 May 07 Jun 07 Jul 07 Aug 07
176.00 161.05 172.50 172.00 176.00 181.60
180.80 184.40 186.30 177.90 203.40 193.00
154.50 160.00 164.00 164.00 170.00 165.15
171.05 168.10 170.35 174.90 185.20 190.60
167.65 172.20 175.15 170.95 186.70 179.08
16,66,972 24,41,772 30,10,899 12,14,311 46,19,294 33,76,368
10,889 18,919 22,471 12,070 39,329 12,692
28,29,22,603 41,93,53,328 52,69,11,441 20,88,63,907 88,09,83,374 60,56,78,506
26.30 24.40 22.30 13.90 33.40 27.85
-4.95 7.05 -2.15 2.90 9.20 9.00

Exibit no.31
Stock price between feb 08 and aug 08

Month
Open Price
253.00 264.00 200.10 205.85 200.00 138.00 125.75
High Price
286.00 264.00 215.00 218.00 207.95 152.95 149.00
Low Price
241.00 187.00 195.10 191.25 138.00 117.00 125.00
Close Price
263.95 199.95 202.00 202.15 138.15 125.90 140.45
Average price
263.50 225.50 205.05 204.62 172.97 134.97 137.00
No. of Shares
19,10,524 16,89,379 2,23,138 3,55,664 13,93,868 6,17,374 4,44,867
No. of Trades
11,125 10,273 4,156 5,646 10,770 7,937 5,858

49,16,20,195 38,39,78,348 4,59,99,559 7,30,88,015 24,20,13,784 8,07,57,073 6,20,43,316
* Spread (Rs.) H-L

45.00 77.00 19.90 26.75 69.95 35.95 24.00
C-O
10.95 -64.05 1.90 -3.70 -61.85 -12.10 14.70
Dividend declared in may 08 @ 50%

EXIBIT NO. 32

Month
Open Price
70.30 62.85 66.20 83.10 139.90 140.50 137.10
High Price
72.40 70.75 91.55 155.00 154.00 149.45 143.25
Low Price
60.50 55.15 65.30 83.10 129.05 125.65 122.45
Close Price
63.35 65.20 82.10 137.70 139.90 136.50 126.05
Average price
66.45 62.95 78.43 119.50 141.53 137.55 132.85
No. of Shares
1,78,332 3,90,579 11,27,737 72,82,173 19,91,220 7,99,053 11,71,170
No. of Trades
4,382 5,030 11,096 24,652 16,264 9,331 7,204

1,18,99,498 2,48,53,661 9,37,84,241 89,64,25,933 28,04,10,553 11,14,86,557 15,05,17,207
* Spread (Rs.) H-L

11.90 15.60 26.25 71.90 24.95 23.80 20.80
C-O
-6.95 2.35 15.90 54.60 0.00 -4.00 -11.05
Page 31
EXIBIT NO. 33

Month
Feb 10 Mar 10 Apr 10 May 10 Jun 10
Open Price
128.50 112.50 119.00 137.00 173.40
High Price
130.00 132.00 141.35 175.40 188.85
Low Price
108.45 112.50 119.00 128.30 154.65
Close Price
111.70 119.80 137.80 170.60 178.50
Average price
119.23 122.25 130.18 151.85 171.75
No. of Shares
7,97,239 48,69,683 32,20,521 1,39,71,750 2,48,83,210
No. of Trades
9,777 23,270 26,111 1,02,342 2,15,383

9,31,33,451 59,90,34,469 43,55,71,342 2,17,99,78,114 4,26,52,52,034
21.55 -16.80 19.50 22.35 47.10 34.20 7.30 18.80 33.60 5.10
ANALYSIS AND RESULTS:

The declaration and payment of dividends has a varied impact on the market price of the shares depending upon the various underlying and inherent factors that operate in the market and within the firm itself. The entire data above reveals that how the market prices of the shares of a company fluctuate with the payment of dividends. These fluctuations have been interpreted by various analysts in terms of the models they have developed over the past few decades. The analysis of the companies under consideration can be carried out on the basis of those models and their application in varied firms could be sought. The facts revealed from the data summarised above can be looked into from different perspectives showing the impact of dividends on the market price of the shares of a company.
BANK OF BARODA:
The graphical representation of the impact of dividend declarations on the market price of the shares of BANK OF BARODA can be shown as under;
Page 32
In the year 2005, the bank declared a dividend @ 32% (exibit no. 3), which had an impact on the market of the shares. In the prior quarter, the share prices were fluctuating between Rs.198 to Rs.206 but in may it went down to Rs.187. The share prices again went up in the following quarter showing that the dividend had not a lasting impact on the share prices but was very much temporary in nature. This may also be in view of the fact that the shareholders thought of behaving in a rational approach, in the light of earlier dividend declared in that year in the month of january @18% (exibit no. 3), and do not attach a lasting negative semtiment to the low rate of dividend in may itself. In the year 2006, the rate of dividend paid was 50%. In this year the earnings per share(EPS) of the company were Rs. 22.62 crores which led to the payment of dividend @ Rs. 5 per share (i.e 50% of the face value of the shares. The stock prices of the bank were decreasing in the prior quarter ( i.e. from Rs. 249.52 to Rs.226.05----exibit no. 5) following which the dividend was declared in the month of april and it resulted in the increase in share prices to Rs. 239.00 in the month of may but the company could not sustain the impact of the dividend and the ahsre prices again went down to Rs.207.50 and then further to Rs.202.37. This reveals that the dividend did not had a lasting impact on the share prices and because the share prices showed a very sharp decrease, it may also be because of
Page 33
the reason that some negative information may have flown into the market leadin to the attachment of discount. It may be because of the two consecutive payments of dividend in the months of march 07 and april 07 that the decreasing trend of the share prices showed a sharp and consistent increase --- exibit no. 6. The dividend payments resulted in the share price increase from Rs.208.75 to Rs.222.00 to Rs.263.45 which finally reflected at Rs. 292.25 at the end of the quarter. The 2008 dividends were not much effective as the decreasing share price trend continued to decrease almost to the end of the quarter. However, 2009 dividends had an indellible impact on the share prices which rose from Rs.261.32 at the start of the prior quarter to Rs.412.55 at the end of the following quarter. 2010 did not experience heavy impact as the share prices were increasing prior to dividend declaration and further continued to increase. Such kind of varied impacts of dividend declaration on the share prices was experienced by the bank of baroda because of the various reasons and the different conditions under which the dividends were declared. Some of them may be enumerated as under: There were two dividends declared in the year 2007, may be because the company wanted to compensate the negative sentiment associate with their shares as a result of the dividend payments in the preceeding year. It may also be because of the increase in the sales and EPS (from Rs. 22.62 crores to Rs. 28.08 crores---exibit no. 1) of the company. The 2008 dividends were not effective because the rate of dividend was not in complete correlation with the increase in the performance of the bank. The dividends stood @ 80% while the improvement in bank performance was more better i.e EPS increased by Rs. 11.32 crores in comparisson to the previous year while the dividend per share increased by only Rs.2. On the same lines but in opposite direction, the improvement in the bank performance was clearly reflected in the share prices. No doubt that the dividend rates were not quite high in 2009 also but upto this period of time the shareholders might have understood that the company performance is improving quite decently and hence it may be having more investment opportunities, therefore, positive sentiment was attached to the retention of the earnings resulting in the increase in share prices. Dividend @150% might was sufficient to continue the increasing trend of the share prices.
Page 34
CANARA BANK:
The graphical representation of the dividend and share price combo is as under;
The fluctuating share prices of the bank showed an increasing trend after the declaration of the dividend in the month of may in 2005 @ 30% ---- exibit no. 12 and 13. However, in the year 2006 the share prices were increasing in the preceeding quarter but with the declaration of the dividend the share prices went down very sharply and continued to do so during the whole qurater ranging from Rs. 248.00 to Rs. 188.55. This signifies that intense negative sentiment was associated with the dividend declaration. This could be because of the reason that a dividend of Rs. 6.60 per share might not have been in the line of acceptance for the shareholders keeping in view the EPS of Rs. 32.76 crores. While as the share prices showed a rise in the following couple of months from the dividend declaration in the month of may 2007 @ 70%. The reason is quite evident i.e despite the meager increase of Rs. 1.89 crores (exibit no. 11) in the EPS, the company managed to pay a dividend higher by 4% as compared to the last rate. Whereas no significant impact of 80% dividend in the month of april 2008 was reflected in the stock prices as the same continued the trend of decline for the whole of prior and following quarter.
Page 35
But the same rate of dividend led to increase in the stock prices in the year 2009. This was because of the fact that the shareholders had realised that the increasing sales (from Rs. 14200.73 crores to Rs. 17119.06 crores) and gross profit margin (from 7.69% to 9.68%)---(exibit no. 11) will lead to increasing capital gains for them therefore they favored the retention decission of the company. On the same lines when the company increased the dividend rate to 100% in the following year i.e 2010, the shareholders attached a negative sentiment to it as the earning spree was continuing at higher rates. The same wwas reflected in the decline in share prices in 2010 following quarter i.e the share prices dropped from Rs.417.28 to Rs.390.75. As said above, it was because of the increasing earnings i.e. EPS increased by Rs.23.14 crores exibit no.11, gross profit increased from Rs. 3963.77 crores to Rs.5060.81 crores. The overall dividend policy of the bank was not quite satisfactory as they were not able to percieve the sentiments of their shareholders accurately and cuold have devised a better dividend policy.
HDFC BANK:
The graph containing the impact of dividend on the share prices takes the following shape;
Page 36
In the year 2005 the company declared a dividend @ 45% in the month of april which had a very short run impact on the share prices as the same dropped from Rs. 568.98 to Rs. 542.65 and further to Rs. 539.50 in the months of march, april and may respectively exibit no. 21. However, the share prices again went upto Rs.588.53 and then to Rs.662.45 in the following two months which signifies that the dividend declaration could not sustain its impact on the shareholders. The situation in 2006 is quite rare as there hardly seems to be any impact of dividend on the share prices. There does not seem to be any pattern in the change in the share prices following the dividend declaration and the fluctuating prices in the prior quarter still continue to wobble in the following quarter as well. While there seems to be no significant reason for such behavior of the shareholders. It might be because of the economic circumstances prevailing during that time period that the shareholders neither discunted not attached any premium to the dividend payments. The decreasing trend showed a little stabilisation with a spice of increase as a result of the declaration of dividend in the month of april 07. The prices in the prior quarter were decreasing from Rs.1042.75 in jan07 to Rs.960.00 in march 07. But once the dividend was declared in april, the trend showed a slight increase to Rs.970 in april itself and then to Rs.1127.15 in may 07 which again wobbled in june but yet again increased in july to Rs.1188.50. this reveals a short run impact of dividend on the shareprices. The 2009 dividends have proven quite effective for the company as the decreasing trend of the share prices showed some kind of reversal. The share prices were dipping from Rs.994.50 to Rs.894.00 in the prior quarter but shooted upto Rs. 1466.40 in the following quarter. This might be because of the fact that the dividend rate matched the expectations of the shareholders keeping in view the increase in the EPS of the company from Rs. 44.87 crores in the the year 2008 to Rs.52.78 crores in the year 2009. This increased the dividend per share by Rs. 1.50. There is no doubt that the operating profit per share decreased in the year 2009 as compared to 2008 (i.e. from Rs.107.32 crores to Rs.92.36 crores--exibit no.19), still the company paid a dividend of 100%. This could have been because of the reason that the earlier dividends did not have a lasting impact on the share prices and that might have forced the company to take such a step and it paid for the company. Because of certain unrevealing reasons, the share prices of HDFC bank in the year 2010 did not showed a specific trendas it is fluctuating in both the prior
Page 37
and posterior quarters. It certainly signifies the influence of some other factors than dividend that have their role in manipulating the stock prices. And because of the EFFICIENT MARKET HYPOTHESIS into account the market attaches a sentiment to each and every bit of information that is flown into the market.
KARNATAKA BANK:
The dividend-share price graph of the Karnataka bank takes the following shape
The general impact of the dividend declarations on the share prices of the Karnataka bank has been quite fluatuating as is evident from the exibits 29, 30, 31, and 32. These reveal that the share prices have not been lastingly affected by the dividend declarations and there have been surely certain other factors operating in the market that have had a greater influence on the share prices than the dividend policy of the company. It could be vsualised from the exibit no. 29 that the share prices decrease from Rs.107.35 to Rs.102.78 and further to Rs.100.73 in the next month, but with the declaration of the dividend in the commnig month the share prices further reduce and then increase in the last month of the quarter. This reveals that the
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dividend declaration could not sustain its impact on the market prices of the company. The next year i.e. 2007 is even more paradoxical in nature I terms of the impact of dividend on the share prices as is reflected in the exibit no. 30. The share prices first decrease then increase then decrease then increase and then again decrease which means no definite pattern of changes in the prices takes place in the market. Same is the case with the year 2009, however, with some kind of difference. i.e. even though there has been no specific pattern in the share price changes but the wobbling share prices have shown a fluctuating increasing trend. This could be seen from the exibit no. 32. It shows that the share price in the month of feb 2009 was Rs.66.45 which went down to Rs.62.95 in the next month, then it increased to Rs.78.43 and then to Rs.119.50 and then even to Rs.141.53 in the month of june. This might have come as a relief for the company as though their dividend policy is not working as per the expectations but it they have managed to incresed their share prices. However, they have to also keep this fact in view that more wobbling in the share prices might affect the credibility of the company in terms of it value creation. The only year that has shown only increasing trend in the share prices right through the prior and the posterior quarter is the year 2010. Exibit no.33 reveals that the share prices continue to increase from Rs.119.23 to Rs.122.25 to Rs.130.18 to Rs.151.85 and finally to Rs.171.75 in the month of june 2010. However, this could be because of the reason that despite the decrease in the EPS of the company from Rs.21.94 crores in 2009 to Rs. 12.47 crores in 2010, the company still managed to pay a dividend of 40% to its shareholders. This led to the attachment of a positive sentiment to the decision and operations of the company.
Conclusions
Following the above analysis, it can be safely said that the changes in the share prices follow a specific pattern many a time but also fluctuate randomly at some other time. This reveals the varied impact of dividend decisions of a company on its share prices. However, it must also be taken care of that dividend policy of a company does not work in isolation. It has various other other factors associated with it that have a very infulential bearing on the share prices of the company but in those factors do not fall under the ambit of the project.
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Assuming those factors to be constant, in certain cases the dividend decisions don not impact on the share prices, reverberating the NON-RELEVANCE approach that was put forth by MODIGILLIANI and MILLER. Such kind of senario was seen in case of the companies that have a strong holding in the market and investors have firm belief in the operations of the company e.g. in HDFC bank (only in some years). This also assumes the markets to be efficient i.e. operating under the EFFICIENT MARKET HYPOTHESIS and the investors being rational--which seem to quite acceptable in the present world condidtions. However, the other assumptions do not seem to be on a sound rationale---ref page no.7. In most of the cases, the dividend decision had a bearing on the market price of the shares and hence is vindication of the RELEVANCE SCHOOL OF THOUGHT under which various models have been developed over time by the researchers to understand the dividend policy of a company and its bearing on the share prices i.e. the value of the firm. As mentioned by Richard Fairchild in his article DIVIDEND POLICY, SIGNALLING AND FREE CASH FLOW: AN INTEGRATED APPROACH that sometimes a miscommunication about the future projects can be a cause of change in the share prices and hence by paying relatively low rates of dividend, company may not be able to capitalise on the share prices. This kind of situation is reflected in HDFC bank in the year 2008----exibit 24. Hence, it can be concluded that changes in the share prices are a function of the dividend policy of a company but at the same time other factors like investment opportunities, capital structure, leverage etc have a very strong bearing on the market price of the shares. Thus dividend policy does not impact share prices in isolation. The various unpredictable changes in the share prices reflected in this project are a clear vindication of the same.
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Impact of Dividend Policy On Value of The Final)

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Adil Zahoor; MBA llnd semester; Roll No.

PROJECT INCHARGE: Dr.

Adil Zahoor; MBA llnd semester; Roll No. 420

Adil Zahoor; MBA llnd semester; Roll No. 420

Adil Zahoor; MBA llnd semester; Roll No. 420

Adil Zahoor; MBA llnd semester; Roll No. 420

Adil Zahoor; MBA llnd semester; Roll No. 420

Control objectives. Requirements of institutional investors. Stability of dividends. Liquid resources.

DIVIDEND DECISION AND VALUATION OF FIRMS

Adil Zahoor; MBA llnd semester; Roll No. 420

Adil Zahoor; MBA llnd semester; Roll No. 420

Adil Zahoor; MBA llnd semester; Roll No. 420

P0 = D1/ (Ke-g) = {D0 (1+g)}/ (Ke-g)

Adil Zahoor; MBA llnd semester; Roll No. 420

D1 = D0 + {(EPS x target payout) D0 } x AF

Adil Zahoor; MBA llnd semester; Roll No. 420

IMPACT OF DIVIDEND POLICY ON THE VALUE OF FIRM

Adil Zahoor; MBA llnd semester; Roll No. 420

Adil Zahoor; MBA llnd semester; Roll No. 420

Adil Zahoor; MBA llnd semester; Roll No. 420

Stock prices between feb 05 and aug 05

Total Turnover (Rs.)

* Spread (Rs.) H-L

55.55 -46.80 34.30 20.65

Adil Zahoor; MBA llnd semester; Roll No. 420

Jun 05 Jul 05 Aug 05

197.30 198.00 257.70

212.45 263.70 274.00

188.00 196.00 240.00

196.30 257.05 245.05

200.23 229.85 257.00

35,79,511 53,65,145 52,33,073

36,918 45,332 45,739

72,54,80,807 1,25,80,77,251 1,35,00,03,348

Dividend declared in May 2005 @ 32%.

Stock prices between jan 06 and july 06

Total Turnover (Rs.)

* Spread (Rs.) H-L

36.05 -27.80 15.90 31.50 76.00 5.40 -0.50 -5.95

52.80 -27.70 53.25 22.00

Dividend declared in april 06 @ 50%

Stock prices between dec 06 and july 07

Total Turnover (Rs.)

* Spread (Rs.) H-L C-O

62.30 -23.90 36.75 6.15

Dividend declared in mar 07 @ 30% and april 07 @ 30%

Adil Zahoor; MBA llnd semester; Roll No. 420

Stock prices between Feb 08 and Aug 08

Total Turnover (Rs.)

* Spread (Rs.) H-L C-O

93.55 -26.25 104.45 -76.10 53.90 33.15

75.70 -49.95 74.50 -67.75 81.70 64.50 52.00 33.30

Dividend declared in may 2008 @ 80%.

Stock prices between jan 09 and july 09

Total Turnover (Rs.)

* Spread (Rs.) H-L

Dividend declared in april 09 @ 90%

Adil Zahoor; MBA llnd semester; Roll No. 420

Stock prices from Jan 10 to Jun 10

Total Turnover (Rs.)

* Spread (Rs.) H-L

Dividend decalred in April 2010 @ 150%