Abstract
This paper examines the relationship between dividend policy and financial leverage of 33 food companies listed in Tehran Stock Exchange with 242 data ‚during the period 2003 to 2010. Dividend policy‚ vastly followed by the companies ‚was tested by applying the extend model of Linter (1956) with the debt ratio of the firm ‚the current year’s dividend yield as its independent variables and change in earnings as a dummy variable. At first‚ the descriptive statistics for our entire variables were calculated and then correlation matrix was calculated to identify the preliminary relationship among all the variables‚ followed by regression analysis on panel data to examine the significance and magnitude through fixed and random effects model. Theoretical assertion were justified through random effect model that the level of corporate debt (leverage) and widely practiced dividend policy ‚ significantly ‚ affect the dividend policy of the Iranian firms. The factors affecting dividend policy with respect of sources and uses of funds set why and how to select a particular source‚ according to requirements of the outside environment and also dominant phenomena within the company. In such circumstances‚ this current research has tried to focusing on financial performance of companies listed in Tehran Stock Exchange and to examine the effects. This research aimed to explore the impact of financial leverage‚ dividend policy in food industry companies listed in Tehran Stock Exchange Market. For this purpose‚ independent variables in debt ratio‚ stock returns and changes in food group income from stock are collected. Dividend per share is considered as only variable dividend policy that accounts for behavior of corporate managers in corporate financial decision. Food industry companies have positive effect on variables in dividend yield and changes income‚ but debt ratio has no meaningful relationship on dividend per share. It has only positive relationship‚ if the rate of debt ratio is less than dividend yield. When rate of debt ratio is more than dividend yield‚ it will have negative relationship. Key words: Dividend policy, leverage, earnings, dividend yield, corporate debt, Tehran Stock Exchange
Highlights
Most stock assessment models are based on earnings per share, (Pourheydari et al, 2005)
Different theories about dividend policy are presented that each has focused on specific cases and taken into consideration
This study has considered effect of financial leverage on dividend policy in food companies listed in Tehran Stock Exchange, it is due to determine effect of debt ratio and stock returns on earnings per share dividend and will express analytical model between financial leverage and dividend policy
Summary
Most stock assessment models are based on earnings per share, (Pourheydari et al, 2005). Balance of retained earnings and interest payment are ideal ways to enhance a company’s stock value (Soyode, 1975; Oyejide, 1976). The importance of this issue is critical for corporate executives to use information gained through the process of corporate governance and market assessment of their performance (Rayli and Berton, 2010). Part of the power managers and company is focused on is an issue which is referred to as dividend policy. The company’s dividend policy has an important role in the company’s stock value. Different theories about dividend policy are presented that each has focused on specific cases and taken into consideration. ‘a bird in hand theory’ and ‘sweetmeat slap theory of
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