Article

The Effect of Dividend Policy Asia-Pacific Journal of Management

Research and Innovation

on Stock Price: Evidence

15(1–2) 7–15, 2019
© 2019 Asia-Pacific
Institute of Management
from the Indian Market Reprints and permissions:
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DOI: 10.1177/2319510X19825729
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Narinder Pal Singh1

Aakarsh Tandon2

Abstract
One of the most debated issue in the field of corporate finance is the relationship between dividend policy and market price of share.
There is good amount of literature for and against this issue. The present study has been undertaken to evaluate the effect of dividend
policy on market prices of shares of Nifty 50 companies listed on the National Stock Exchange (NSE) for 2008–2017. The data have
been analysed by employing multiple panel data regression models namely pooled regression, fixed effect model and random effect
model. The Hausman test has been used to suggest the most appropriate regression model. The result of the Hausman test indicates
that random effect model is more relevant in describing the relationship among the given variables. The results of the random effect
regression model support the relevant approaches of dividend policy. Thus, we conclude that there is significant effect of dividend
policy on the stock price of firms.

Keywords
Dividend, regression, stock price, value of the firm, Nifty

Introduction investment point of view. It is the way of assessing whether

the company can generate cash or not. By having infor-
Dividend policy is one of the most widely researched mation on dividend yield (DY) and dividend payout ratio
topics in the field of corporate finance. But the question of
(DPO), an investor may perform a better and more accurate
whether dividend policy affects stock prices still remains
analysis of the firm’s financial performance. Payout ratio
debatable among managers, policymakers and researchers.
(POR) has a strong effect on the company’s future earnings
Every firm operating in a given industry follows some
growth also (Al-Twaijry, 2007). Since POR and DY are
dividend model or dividend policy and it is considered as
an indicator of the financial performance of the firm. An among the key factors that an investor would consider
increase in dividend payment is seen as a positive indicator during an investment decision, dividend policy may have
whereas a decrease in dividend payment as a negative an influence on share price volatility.
indicator on the future earning prospects of the company, In preliminary corporate finance, dividend policy was
thus leading to an increase or decrease in share prices just concerned with selecting between payments of earnings
of the firm (Vijayakumar, 2010; Sattar et al., 2017). By to shareholders as cash dividends or retaining the profit in
paying dividends, the company also has to pay a dividend firms. It determines the incidence of dividend payments
distribution tax. Thus, it increases the company’s cost and and the amount of dividends. However, in today’s corporate
therefore reduces the available funds for future investments. finance, dividend policy addresses more issues such as
Dividend policy is important for investors, managers, how firms can attract investors in different tax brackets,
lenders and other stakeholders. It is important for investors how firms can increase their market value and so on. The
because investors consider dividends not only as the source following section on the theoretical framework provides
of income but also a way to assess the firms from the insight into some popular dividend theories and models.

1 Jagan Institute of Management Studies, Rohini, Delhi, India.

2 Deloitte Tax Services India Pvt. Ltd., Gurugram, Haryana, India.

Corresponding author:
Narinder Pal Singh, Jagan Institute of Management Studies, 3, Institutional Area, Sector 5, Rohini, Delhi 110085, India.
E-mail: [email protected]
8 Asia-Pacific Journal of Management Research and Innovation 15(1–2)

Theoretical Framework the value of a firm. His proposition clearly states the
relationship between the firms’ (a) internal rate of return
Though there are several theories on dividend policy such as (i.e., r) and (b) its cost of capital or the required rate of return
the Modigliani and Miller (MM) theory, Walters’s model (i.e., k). In other words, an optimum dividend policy will
and Gordon’s model of dividend policy for the purpose of
have to be determined by the relationship between r and k. In
this study, Gordon’s dividend model has been adopted. This
short, a firm should retain its earnings if the return on
is premised on the uniqueness of its share price valuation
investment exceeds the cost of capital and in the opposite
method which is based on future streams of dividends.
case, it should distribute its earnings to the shareholders.
Miller and Modigliani (1961) proposed the dividend
Gordon’s (1963) theory on dividend policy is one of the
irrelevance hypothesis that provides the concept of divi-
theories which believes in the ‘relevance of dividends’
dends in a comprehensive manner. According to them, the
concept. Gordon supports Kirshman’s ‘bird-in-the-hand’
dividend policy of a firm is irrelevant since it does not have
any effect on the price of shares of a firm, that is, it does not argument that states the myopic vision of investors. In other
affect the shareholders’ wealth. They expressed that the words, the current dividends are important in determining
value of the firm is determined by the earning power of the the value of the firm. Gordon’s model is one of the most
firms’ assets or its investment policy and not dividend deci- popular mathematical models used to calculate the market
sions by splitting the earnings of retentions and dividends. value of the company using its dividend policy. Though this
They argued that it is either information effect, clientele theory has been duly criticised on the strength of the stated
effect or signalling effect by which dividend payments assumptions, it has been found to be the most reliable model
affect the value of the firm. Bhattacharya (1979), Miller for the valuation of the market value of a company.
and Rock (1985) and Williams (1988) tell us that a rising Therefore, the study intends to investigate the impact of
dividend conveys good news. dividend policy on the market performance of the share
The conclusion derived by MM is logically consistent price at the National Stock Exchange (NSE). It is, therefore,
and intuitively appealing. But the underlying assumptions of on this premise that this study examines the effect of earnings
the MM hypothesis such as perfect capital markets, no taxes, per share (EPS), DY, dividend per share (DPS), return on
investment policy and no risks are found to be unrealistic equity (ROE), profits after tax (PAT) and retention ratio
and impractical in the real world. For instance, under perfect (RR) in determining the market price of shares (MPSs).
market assumption, there are no transactions and flotation
cost. This implies that internal and external financing are
equivalent. So, whether the firm retains earnings or issues Review of Literature
new shares, the wealth of shareholders would remain the There has been an extensive debate on dividend policy and
same. However, in practice, it is the flotation or transaction its effects on the value of a firm. Since the middle of the
cost that makes internal financing cheaper than external last century, many studies have been conducted to examine
financing. Similarly, opposite to the assumption of the MM the impact of dividend policy on the market price of stocks.
hypothesis, taxes exist in practice. In most of the countries, Some researchers have argued that regular payment of
capital gain is taxed at a lower rate as compared to dividends. dividends to investors significantly increases the market
In such a tax scenario, investors in high tax brackets should value of shares (Gordon, 1963). On the other hand, while
prefer low-payout shares while those in the low tax bracket some others have debated on the irrelevance of dividends
should prefer high-payout shares. India is an exception (Miller & Scholes, 1978), others have opined that payment
where dividends are not taxed but capital gains are. Thus, of dividends leads to the reduction in shareholders’ wealth.
this study does not empirically test the MM hypothesis. A brief review of literature is presented in Table 1.
Another aspect of dividend payment was highlighted Though many research studies have been undertaken
by Jensen and Meckling (1976). He relates dividend pay-
in the field of dividend policy and market price, a few
ment with agency costs and problems. They argue that
studies explain the effect of dividend policy on the MPSs.
firms pay out dividends in order to reduce agency costs.
Therefore, to fill this research gap and contribute to the
A firm with free cash flows prefers to distribute dividends
literature, the present study attempts to analyse the effect
to its shareholders so as to reduce the possibility of these
of dividend policy on MPSs with special reference to
funds being wasted on unprofitable projects (Jensen, 1986).
selected companies in India.
Thus, this approach emphasises on the important role of
dividend policy to resolve agency problems and enhance
shareholder value. Research Methodology
The Walter (1963) model suggests that dividend policy
and investment policy of a firm cannot be isolated; rather, In this section, we discuss the data, the variables and the
they are interlinked. As such, the choice of the former affects research tools and techniques applied in this study.
Singh and Tandon 9

Table 1.  Literature Review

Data and Research

Year Author Objectives Methodology Findings
1999 Tsoukalas and Sil To investigate the predictive Hypothesis testing, The D/P ratio Granger causes stock
power of variables such as Granger causality tests and returns. It implies predictability which is
DYs, dividend growth rate, co-integration results only inconsistent with the simplest model
etc. using the ‘information of market efficiency.
hypothesis’ of dividends.
2007 Al-Twaijry To identify variables that Hypothesis testing The current dividends are affected by
have an impact on dividend their pasts and their future performance.
policy and POR in an PORs do not have a strong effect on the
emerging market. company’s future earnings growth but have
some significant negative correlation with
the company’s leverage.
2010 Vijayakumar To examine the extent to Correlation analysis, factor The selected variables have a positive
which some indicators of analysis and multiple linear relationship with the market price and DPS
the financial performance regressions and the P/E ratio have a negative impact on
influence the stock price. the market price of its equity shares.
2010 Ali and To examine the impact of Hypothesis testing and event Stock price does not vary on the
Chowdhury dividend announcements on study approach announcement of dividends.
the stock price.
2010 Abor and Bokpin To investigate the effects of Fixed effects panel They report a significantly negative
investment opportunities regression model association between the investment
and corporate finance on opportunity set and dividend payout policy.
the dividend payout policy of
the firm.
2011 Hussainey, To analyse the relation Multiple regression DY and stock price changes are positively
Mgbame, and between dividend policy and related while the dividend POR and stock
Chijoke-Mgbame share price changes in the price changes are negatively related.
UK stock market.
2011 Hussainey et. al To examine the relationship Multiple regression analysis There is a significant negative relationship
between dividend policy and between the POR of a firm and the
the volatility of stock price. volatility of its stock price and a negative
relationship between DY and the volatility
of stock price. Also, it is the firm’s growth
rate, debt level, size and earnings that
explain stock price changes.
2012 Zakaria, To examine the impact of Descriptive statistics and The model is able to explain only 43.43%
Muhammad, and the dividend policy as well as least square regression of the variation in the share price wherein
Zulkifli DPR of the share price. method DY, investment growth and earnings
volatility insignificantly influence the
changes in the company’s share price.
2013 Abor and Fiador To examine the impact of Panel regression model They suggest that corporate governance
corporate governance on structures lead to high-dividend payout in
the firm’s dividend payout the countries under study. However, in
policy. Nigeria, there is high-earnings retention or
low-dividend payment.
2014 Mehta, Jain, and To examine how the market Return analysis timeline for The announcement of stock dividends
Yadav reacts to the stock dividend event study, liquidity and lessens the viability of returns. This
announcements. risk analysis timeline facilitates price stability in the stock
market.
2014 Masum To empirically estimate Panel data methodology There is a significant negative relation
excess stock market returns between DY and stock price. ROE and EPS
for all the 30 banks listed in have positive effects on the stock price and
Dhaka Stock Exchange. PAT has a significant negative effect on the
stock market prices of select banks.
(Table 1 continued)
10 Asia-Pacific Journal of Management Research and Innovation 15(1–2)

(Table 1 continued)
Data and Research
Year Author Objectives Methodology Findings
2014 Nirmala, To examine the long-run Panel co-integration There exists bi-directional long-run
Sanju, and causal relations between and panel vector error causality between share price and
Ramachandran share price and dividends in correction model dividends. Share price and dividend thus
the Indian market. influence each other.
2014 Movalia and To know the impact of Regression analysis There is an impact of profitability, leverage,
Vekariya profitability, leverage, growth rate and rate of return on dividend
growth rate, rate of return payout on DPS of the companies listed on
and dividend payout on S&P BSE SENSEX.
dividend policy.
2015 Kaźmierska- To examine whether some Panel data analysis (fixed The results show statistically significant and
Jóźwiak factors such as profitability, effect and random effect negative relationships between DPR and
liquidity, size and leverage model) and Hausman test two analysed factors: profitability (ROE)
of the firm affect dividend and leverage (LEV).
payout decisions of Polish-
listed companies.
2015 Roy To investigate the Correlation and regression The results do not support the insider
relationship between analysis ownership, and the alignment between
ownership and dividend different classes of owners is an important
policy and find out the factor which influences the dividend policy.
impact of debt and the
firm’s characteristics on the
dividend policy.
2016 Harshapriya To analyse the relationship Hypothesis testing, There is no relationship between DY and
among DY, dividend payout regression analysis price volatility.
and price volatility.
2017 Sattar et al. To investigate the Logarithmic regression There is a significant negative impact of the
relationship between analysis dividend POR on the next year earnings
dividend POR and of a firm.
profitability of a firm.
2017 Anwar, Singh, To analyse the impact of Hypotheses and paired The cash dividend announcements have
and Jain the announcement of cash sample t-test positive AARs of the select manufacturing
dividends on stock price companies. Overall, the results lend
returns. support to the signalling and informational
content hypotheses of dividends.
2017 Farrukh, Irshad, To explore the relationship Hypothesis testing, The dividend policy is positively associated
Khakwani, of dividend policy with share Regression analysis with EPS and share price. Moreover,
Ishaque, and market price; EPS; and firm dividend policy is also significantly
Ansari performance. positively linked with ROE.
2017 Jitmaneeroj To examine the conditional Fixed effects model When the ROE is greater (less) than the
and nonlinear relationship required rate of return, the P/E ratio and
between price-earnings dividend POR exhibit a negative (positive)
(P/E) ratio and POR. relationship and positive (negative)
convexity.
2017 Adesina et al. To study dividend policy and Ordinary least square There is a positive relationship between
share price valuation (OLS) statistical tool EPS and MPS, but on the other hand, DY
in Nigerian banks. and RRs have a negative influence on the
MPS.
2018 Felimban, Floros, To examine the effect of They report some evidence for the stock
and Nguyen dividend announcement price reaction that partially supports
on share price and the signalling hypothesis. Also, the Gulf
trading volume. Cooperation Council (GCC) market is
informationally inefficient.
Source: The authors.
Singh and Tandon 11

Data and Variables Techniques Used for Analysis

The purpose of this research is to contribute towards a very Here we have applied tests such as descriptive statistics,
important aspect of corporate financial management known correlation, unit root tests and panel regression analyses on
as dividend policy with reference to the Indian stock given variables to analyse the effect of dividend policy on
market. In this study the emphasis is on analysing the the MPS.
relationship between dividend policy and MPSs of Nifty
Descriptive Statistics and Test for Normality
50 companies listed on the NSE for 2008–2017 (excluding
five companies, namely, Hindustan Unilever Limited, Descriptive statistics give mean, median, mode, standard
HCL, Ambuja Cement, Titan and Grasim). The selection of deviation, variance, kurtosis and skewness of the variables.
the data period and sample size (the number of selected In this skewness and kurtosis should be equal to zero for
companies) are subject to the availability of required data. normal distribution. Further, we use the Jarque–Bera test of
The data have been taken from the ACE equity database. normality based on ordinary least square (OLS) residuals.
The impact of dividend policy on the company’s share The null hypothesis of this test is that residuals are normally
price is analysed by panel data methodology. distributed.
In panel data regression, MPS is taken as the dependent Correlation Analysis
variable while DY, RR, EPS, DPS, ROE and PAT are taken
as independent variables. Correlation means the relationship between two variables.
MPS = market price per share which represents the end- The correlation shows two things; first it shows the
of-the-year price for each of the companies for the sample direction between two variables and second it shows the
period. strength of associations between two variables.
DY = dividend yield that is viewed as the rate earned on Unit Root Test
an investment. It is calculated by dividing DPS by the MPS.
It is important to study the unit root properties of the spot
and future series before employing regression. To run the
Dividend Price Share
DY =  regression, the variables must be made stationary in case
Price Per Share
they are non-stationary. This study uses Levin, Lin, and Chu
RR = the retention ratio calculated by dividing the total (LLC); the Breitung t-stat; Im, Pesaran, and Shin (IPS);
retained earnings by the total earnings at the end of the augmented Dickey–Fuller (ADF) and Fisher chi-square tests
financial year. Alternately, it can be expressed as:. to analyse the unit root properties of the given variables. The
null hypothesis of this test is that the variables are non-
RR = 1 – Dividend Payout Ratio stationary. If the variables are stationary on the first
difference, then, they are said be integrated variables of first
EPS = earnings per share which is calculated by dividing order, that is, Equation (1). In case of conflict among the
total earnings by the total number of outstanding shares of results of these tests, we infer on the basis of majority.
a firm’s stock at the end of the financial year. Regression Analysis: Pooled Ordinary Least Square, Fixed and
Random Effect
Dividends
DPS =  It is a statistical technique used to determine the strength of
Number of Shares
the relationship between the dependent variable (MPS) and
independent variables (DY, RR, EPS, ROE and DPS) of
DPS = dividend per share which is the sum of declared Nifty 50 as shown in the following equations.
dividends issued by a company for every equity share
outstanding. MPS = f (DY, RR, EPS, DPS, ROE, PAT)(1)
Dividends
DPS =  The model is further expressed as
Number of Shares
ROE = return on equity is calculated as: MPS it = a i + b 1 DYit + b 2 RR it + b 3 EPS it
(2)
Earnings Available to Equity Shareholders + b 4 DPS it + b 5 ROE it + b 6 PATit + !t
ROE = 
Net Worth where ai (i = 1, …, 45) is the unknown intercept for every
company, t represents the year analysed, bs are the
PAT = profit after tax is the net amount earned by a
coefficients for every independent variable and eit is the
business after all taxation-related expenses have been
error term.The null hypothesis for this test is that DY has
deducted.
no impact on MPS, that is, β1 = 0. Similarly, a set of
PAT = Operating Income * (1 – tax rate) hypotheses can be stated for other independent variables.
12 Asia-Pacific Journal of Management Research and Innovation 15(1–2)

Several methods are used to test the static models— which is found to be negatively correlated. Also, EPS shows
pooled OLS, fixed effects (FEs) and random effects (REs). a high positive correlation while DPS shows a moderate
The pooled OLS method is a form of mathematical regres- positive correlation with MPS. DPS is highly positively
sion analysis that finds the line of best fit for a dataset, correlated with EPS and RR is negatively correlated with
providing a visual demonstration of the relationship EPS. DY and ROE are positively correlated with DPS.
between data points. Fixed effect models explore the
relationships between independent variables and explained
variables in separate entities, assuming that companies Unit Root Test
have their own characteristics that influence the relation-
It is necessary that all the given variables are stationary
ships between variables. Here, the intercept is assumed to
before running regression analysis. To test it analytically,
vary across cross-sections but has a fixed value for a cross-
we employ LLC; Breitung t-stat; IPS W-stat; ADF; and
section (which does not change with time). Random effect
Fisher chi-square tests. It is evident from Table 4 that the
models imply a random variation across companies, uncor-
null hypothesis of unit root (non-stationarity) is rejected in
related with explanatory variables. Here, the intercept is
case of most of these tests at the 5 per cent level of
assumed to be random. The Hausman test will reveal the
significance. However, there are conflicts among the
better model from the latter two and therefore it is used for
results of different tests. So, we infer on the basis of
the appropriate selection of panel regression. The null
majority of results. Thus, we infer that all the given series,
hypothesis states that the RE model is appropriate while
namely DY, MPS, EPS, DPS, RR, ROE and PAT, are
the alternate hypothesis states that the FE model is more
stationary at the 5 per cent level of significance.
appropriate.

Empirical Findings Regression Analysis

Table 5 presents the main results of the different models of
Descriptive Statistics and Jarque Bera panel data regression analysis, that is, pooled OLS (POLS),
The results of descriptive statistics for variables are shown FE and RE models. As POLS is not considered to be a
in Table 2. The distributions are non-normal as the values reliable method, we run FE and RE regressions too. Across
of skewness and kurtosis are non-zero. The given variables all three models, regression results show that EPS has a
are positively skewed. Also, all the variables are leptokurtic positive impact on MPS, while DY, ROE and PAT have a
in nature. From Table 2, we can see that the probability negative impact on MPS at the 5 per cent or maximum 10
values for the JB test are zero. Hence, the null hypothesis per cent levels of significance. Hausman test indicates that
for residual normality is rejected, implying that the RE is more relevant in describing the relationship among
variables are not normally distributed. the given variables as the null hypothesis is not rejected.
Thus we follow the results of the RE model only and
discuss in detail. The random model is able to explain
Correlation Analysis 64.85 per cent of the total variation in MPS. Also,
The correlations between the select variables are presented F-statistics and Wald-test χ2 statistics are also found to be
in Table 3. The correlation results indicate that DY and PAT significant. Thus, overall, the model is a good fit. It is
are negatively correlated with MPS, while other variables evident from the results (Table 5) that EPS has a significant
such as EPS, DPS, ROE and RR are positively correlated positive impact on MPS at the 5 per cent level of
with MPS. We can observe from the results that ROE is significance. The results are similar to the results reported
positively correlated with all other variables except RR, by Pushpa and Sumangala (2012) and Adesina et al. (2017).

Table 2.  Statistics Summary

MPS EPS DPS DY RR ROE PAT

Mean 1006.48 57.75 15.53 4.25 77.71 21.30 4317.09
Std. dev. 2867.90 78.09 26.11 7.32 117.13 14.86 5292.80
Skewness 6.33 3.67 5.48 6.81 19.76 1.48 1.84
Kurtosis 46.29 19.89 45.76 70.51 410.09 8.87 7.39
J B Prob. 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Source: The authors.
Singh and Tandon 13

Table 3.  Correlation Matrix

MPS EPS DPS DY RR ROE PAT

MPS 1          
EPS 0.77 1        
DPS 0.50 0.81 1      
DY −0.13 0.32 0.56 1    
RR 0.00 −0.03 −0.07 −0.06 1  
ROE 0.18 0.29 0.32 0.07 −0.12 1
PAT −0.08 0.03 0.06 0.04 −0.07 0.15 1
Source: The authors.

Table 4.  Results of Unit Root Test

P-value
Variable LLC Breitung IPS ADF PP Inference
MPS 0.00 1.00 0.70 0.01 0.00 Stationary
EPS 0.00 1.00 0.00 0.08 0.04 Stationary
DPS 0.00 0.78 0.00 0.00 0.01 Stationary
DY 0.00 0.03 0.00 0.00 0.00 Stationary
RR 0.00 1.00 0.32 0.00 0.00 Stationary
ROE 0.00 0.93 0.03 0.00 0.00 Stationary
PAT 0.03 0.38 0.05 0.04 0.30 Stationary
Source: The authors.
Notes: LLC: Levin, Lin and Chu; Breitung: Breitung t-stat; IPS: Im, Pesaran and ShinW-stat; ADF: Augmented Dickey–
Fuller; and PP: Fisher chi-square.

Table 5.  Multiple Regression Results

MPS—Dependent Variable
Coefficient—Beta (Prob.)
Independent Variable OLS FE RE
EPS 32.48# (0.00) 31.22# (0.00) 31.62# (0.00)
DPS 5.38 (0.31) 3.06 (0.66) 4.76 (0.42)
DY −171.01# (0.00) −169.53# (0.00) −173.36# (0.00)
RR −0.15(0.79) −0.04 (0.93) −0.08 (0.88)
ROE −9.51* (0.05) −13.30* (0.05) −11.12# (0.04)
PAT −0.05# (0.00) −0.03(0.27) −0.04# (0.03)
Adj. R2 0.75 0.81 0.65
F-stat. (Prob.) 229.15 (0.00) 39.46 (0.00) 139.05 (0.00)
Wald test Chi-square stat. 1552.73 (0.00)  568.98 (0.00) 871.45 (0.00)
(Prob.)
Hausman p-value 0.76
Source: The authors.
Notes: 1. #Significance at the 5 per cent level.
       2. *Significance at the 10 per cent level.
14 Asia-Pacific Journal of Management Research and Innovation 15(1–2)

Further, the RE regression model analysis indicates that maximum 10 per cent levels of significance. Hausman test
the amount of dividend paid per share has no significant indicates that the RE model is more relevant in describing
effect on MPS of the stock. This result is in tandem with the the relationship among the given variables as the null
outcomes of Denis and Osobov (2008), Adesola and hypothesis is not rejected.
Okwong (2009) and Adesina et al. (2017). However, the null From RE regression model analysis, we conclude that
hypothesis of no impact of RR on MPS cannot be rejected. EPS has a positive impact on MPS; DPS and RR have no
Thus, we infer that there is no significant relationship effects on MPS while DY, ROE and PAT have a negative
between the RR and MPS. This result is in contrast with the effect on MPS. Thus, we infer that shareholders don’t look
results reported by Adesina et al. (2017), Taimur, Harsh, and at the absolute amount of dividend paid per share but the
Rekha (2015) and Mohammad (2013). DY that the stock yields. That is, dividend payment results
Also, the null hypothesis of no impact of DY on MPS in an increase in the market price of the stock, thus resulting
is rejected at the 5 per cent level of significance. DY is in a lower DY. In a nutshell, we conclude that the dividend
found to have a negative impact on MPS. This result is in distribution affects MPSs and hence the dividend policy
line with the results of Baskin (1989). Similarly, the null has an impact on stock price. The results are similar to the
hypothesis of no impact of ROE on MPS is rejected at the findings by Baskin (1989), Benaruzi (1997), and Chen
5 per cent level of significance. ROE is found to have a et al. (2009) and Khan et al. (2011), while in contrast to the
negative impact on MPS. This result is in contrast with the findings of Ali and Chowdhury (2010). The results of this
results of Raballe and Hedensted (2008) and Khan, Amir, study support dividend relevance theories and models like
Qayyum, Nasir, and Khan (2011). Likewise, the results those by Gordon and Walter.
indicate that the control variable PAT has a negative sig- The results of this study are useful and important for
nificant effect on MPS. This result is in contrast with the investors, managers, lenders and other stakeholders. It is
results of Khan et al. (2011). Since most of the explanatory important for investors because they consider dividends
variables are significant with the moderate value of R2, not the only source of income but also a way to assess
and none of the explanatory variables have perfect or firms from the investment point of view. The results are
near-perfect correlation, the random model does not have a imperative for the management to formulate the dividend
multicollinearity problem. policy in such a way as to maximise shareholders’ wealth.
The future study can focus on a larger group of companies
Thus, we conclude from the regression analysis that
or it can be industry specific.
EPS have a positive impact on the MPS; DPS and RR have
no effects on the MPS while DY, ROE and PAT have a Declaration of Conflicting Interests
negative effect on the MPS. Thus, we conclude that the
The authors declared no potential conflicts of interest with respect
shareholders don’t look at the absolute amount of dividend
to the research, authorship and/or publication of this article.
paid per share but the DY that the stock gives. This is
because dividend payment results in an increase in the Funding
market price of stock, thus resulting in a lower DY. In a
The authors received no financial support for the research,
nutshell, we conclude that the dividend distribution affects
authorship and/or publication of this article.
the MPS and hence the dividend policy has an impact on
stock price. The results are similar to the findings of Baskin
(1989), Benaruzi (1997), Chen, Huang, and Cheng (2009), References
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Ali and Chowdhury (2010). The results of this study corporate finance, and dividend payout policy: Evidence
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dividend policy in Sub-Saharan Africa? International Journal
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