An Analysis of Dividend Policy and Its Effect on Shareholder Value in the Indian Corporate Sector

Authors: Dr. Sushma Karnati

Country: India

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Abstract: This study explores the impact of dividend policy on shareholder value within the Indian corporate sector, a topic of significant relevance in the context of emerging markets. Utilizing panel data from 50 companies listed on the National Stock Exchange (NSE) spanning the years ten, the research investigates how various dividend strategies influence both market valuation and financial performance. The core objective is to evaluate the effect of three key dividend-related variables : Dividend Payout Ratio (DPR), Dividend Yield (DY), and Earnings Per Share (EPS) on two primary indicators of shareholder value: Market Price per Share (MPS) and Return on Equity (ROE).

The study employs multiple regression analysis to quantify the relationships between the dividend policy components and shareholder value metrics. The results indicate that consistent and well-structured dividend policies are positively associated with shareholder value. Notably, EPS emerged as the most significant predictor of both MPS and ROE, reflecting the centrality of profitability in shaping investor perception.
The insights gained have practical implications for corporate finance managers formulating dividend policies, as well as for investors seeking to optimize returns. The study affirms that dividend policy, when aligned with firm performance and investor expectations, plays a pivotal role in enhancing shareholder value in the Indian corporate landscape.

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Paper Id: 232473

Published On: 2024-10-10

Published In: Volume 12, Issue 5, September-October 2024

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