Relationship Between Dividend Payout (D/P) Decision and Market Price of Shares (Mps) – A Case Study of Selected Pharma Companies in India

Abstract

Many factors can cause the price of a stock in the capital market – ranging from specific news about a company’s earnings to a change in how investors feel about the stock market in general. Specifically, there are four factors that have a major impact on stock prices, viz., the stocks demand and supply, the company’s market capitalization, the stocks earning per share (EPS), and market/company news. Dividend refers to that portion of a firm’s net earning which are paid out to the shareholders. Whether dividends have an influence on the value of the firm is the most critical question in dividend policy. Hence, the present study is set out to examine the impact of the level of profit made, i.e., earnings after tax (EAT) and the amount of dividend actually paid out (D/P) on market price of share (MPS). Hence, the dependent variables of the study are earnings after tax and the amount of dividend actually paid and the dependent variable is the market price of share. Two hypotheses were tested: No significant impact of dividend payout ratio (D/P) on market price of share (MPS) and no significant association between profitability and market price of share (MPS). For the purpose of the present study, secondary data obtained from the published annual reports of the companies under consideration and other official websites publishing financial data of Indian corporate sector. The data has been analysed by using SPSS21 to find out the type of association exists between dividend and market price of share on one hand and profitability and market price of share on the other hand. The results show that there is positive association (correlation) between dividend payout and market price of share and profitability and market price of share.