Impact of Dividend Policy Determinants on Indian Capital Market

Abstract

In the growing arena of Corporate Finance dividend decision is considered to be one of the most complicated decision. Irrespective of the size and nature of the market the dividend policy demonstrates an unpredictable impact. Many scholars have put efforts to unveil the problems related to the dividend policy determinants, even though still do not have a satisfactory elucidation on the analyzed dividend nature of various firms. The principal decision that the firm has to deal with is the creation of trade-off between the profit to shareholders and ploughing back of profit. There are still contradictory opinions are prevailing in the field of dividend determinants and its effect on market value of the firm based on the share price. In one school of thought, the dividend decisions are irrelevant and does not need to pay much attention. On the other end certain theories considers dividend decisions are relevant and have significant impact on the market value of the firms in terms of share prices. The present study aims to shed some lights into the relationship between dividend policy and volatility of share price. For this purpose, a sample of five companies from FMCG sector which are listed in the NSE were selected and empirical study is steered to test the hypothesis using the balance sheet of respective companies for 10 years from 2007–2008 to 2016–2017 and the following ratios which include EPS, dividend yield, dividend payout ratio, ROE, Profitability ratios and the value of share have been calculated to test the same. The analyses conducted, parameter estimates are then studied using AMOS 21. The study proved that Price Earnings Ratio(PER) is act as the most influential determinant of dividend which impact the market value of FMCG firms in India.