Divided policy is an instrument use by the management of a company to respond the behavioural pattern of the owner of shares i.e shareholder. While divide is the portion or reaction of company’s profit that is distributed to the shareholders. There are various method of divided policy depends on the policy of organization this is to say that dividend policy varies from one company to the other. But there is common established fact with regards to the dividend policy. Ti is purely an indoor management affair.
A lot has been said by some renowned theorists authors operators and regulators of the economy as regard to dividend policy and its effect on market value of shares.
Modigliani and Miller model a theorist postulate in their irrelevance theory that dividend has nothing to do with market value of shares based on assumption while of shares based on assumption while Walter’s and Gordon’s models are of relevant theory that a value of shares respond proportionality to the dividend trend. Gordon models goes further by testing his thesis by way of econometric equation to substantiate his argument likewise efficient market hypotheses (E.M.H) shows how the forces of demand and supply dictates the value of shares in relations to dividend policy and the problem encounter in random walk.
Though the research work reveal other factor that is to be considered to determine the value of shares like investment opportunity viability of the company and strength.
This research work was carried out using two companies as a case study with their five years financial statement. This enable us to critically establish the real effect of dividend on market value of shores from one company to the other and econometric equation of Gordon’s model was used to analyze the data by way of matrix
TABLE OF CONTENT
4.2 Introduction
4.3 Data presentation
CHAPTER ONE
INTRODUCTION
Dividend policies decision is concerned with the determination of the corporate earnings that is generated through the successful operation of the company in a financial year, which is to distribute among the key players that ensure the realization of the successful outcome of he operation of the organization and the amount of the proportion of this earnings to be retained.
Dividend earnings decision policy is widely considered in the business world as strategic in corporate finance as well as corporate performance and growth. Dividend policy directly influences the behavioural pattern of the investor ie. Shareholders. Because the purchaser of the company i.e shareholder actually buys a dividend expectation; because of the dividend policy decision implication on the behavioural pattern of the shareholder be it positive or negative the corporate world impose the responsibility of this great task of he board room affairs.
Dividend policy decision as a tool in the strategic corporate finance as well corporate performance and growth affect the share price as well as cost of capital. In other words on option dividend policy is the policy that maximizes the wealth of shareholder.
Due to obvious reasons shareholders consider impotence to dividend. The importance that the individual shareholder places on dividends depends on his level of wealth and preference for capital gains amongst others. In an environment with progressive personnel income taxes the individual with more wealth will tend to profess capital appreciation on shares then dividend. At a lower level of income the capital gain tax rate is higher then the personal income tax rates however the reverse is the case with increased income. The wealthy individual among the diverse shareholders may then prefer capital appreciation on his share due to the at mentioned reasons.
Though the bulk of he shareholder nay not be in this category the company is then placed in a situation of reconciling the difference or taking the potion that seems more favovrable to the company. This is ht some things as saying that the management of the company will take the option that optimizes the value of he company’s shares.
It is often claimed that the company’s investment decisions and dividend decision are independent of the shareholder’s decision. It should be noted that this might not be entirely true some there is replay procedures that protected the aggrieved shareholders.
Beside these the shareholders might exercises their right through the selling of their shares on the stock exchange and this has negative consequences on the value of the company’s share in the market which in turn affect the fortune of he company.
The primary aim of this research work is to find out whether the in dividend pays out stimulates responses on shares value. It is believes in some garters that the dividend pay out has something to do with value of shares yet some people stated otherwise. Dividend in this content means the amount distributed to shareholders of a company by way of return investment that are not so interested in the measure of soundless of he company. This issue is even more pronounced when criticism that are normally levied against accounting measure of profitability are mentioned.
There are many criticisms regarding the measure of profitability in the accounting sense. E.g. profit measurement by accountant depends on the assumption and policies used. Hence the ability of he company to pay dividend can be stated to measure the sounded and profitability of a company.
Though dividend policies decision is guided by legal framework as prescription in the company and allied matters decree (CAMD) of 1990 as to what constitute dividend in the corporate rate earning and the method in which the dividend policies decision can be taken.
Although there are many constraints inherent in dividend policies research work reveals other factors to be considered in order to determine and study will only concern on two opposing view or argument associated with dividends policy decision.
These arguments can be highlighted as thus:
i. IRRELEVANT ARGUMENT/ SCHOOL OF THOUGHT
This posted that given the investment decision of the firm the dividend pay out is a merely details that dividends policies does not affect the wealth of the shareholders that is it is of need.
ii. RELEVANT ARGUMENT
Posited that high tax payer prefer low dividend yield while institutional investor who do not pay tax prefer high yield or profit
The objective of he study include the following:
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