Abstract
Objective: This paper examines the dividend payment practices of corporate firms in Bangladesh over the period 2000-2014 and attempts to explain the observed behavior by analyzing the trends and growth of dividend and to find the relationship between the trends and growth of the prices of the shares. Methodology: This study uses Simple Growth Rate (SGR), Compound Growth Rate (CGR) and Trend Growth Rate (TGR) for measuring the growth of dividend and the price of the shares in the Dhaka Stock Exchange (DSE). To find the TGR we used time series data and to find the relationship between price and dividend by regression we used panel data. Our sample contains 92 listed non-financial companies from different sectors. In this study, we have observed the trend of price movement, industry-wise both for cash dividend paying and bonus dividend paying companies. Findings: Results show that the companies which are paying cash dividend are able to maximize their share values to a greater extent than the companies which are paying bonus dividends.
Highlights
Firms raise equity capital in order to invest in real assets that are expected to produce future cash flows
After analyzing the industry wise growth trends (Table 5) we can see industry trends indicate that companies in the Food and Allied, Textile, and Miscellaneous industry are most efficient in increasing stock values and their Compound Growth Rates (CGRs) are 23.09%, 19.22% and 24.23% respectively
Fuel and Power industry are most efficient in maximizing stock value and their Compound Growth Rates (CGRs) are 16.89%, 14.59% and 8.26%, respectively
Summary
Firms raise equity capital in order to invest in real assets that are expected to produce future cash flows. The firm's management has the power to determine whether these cash flows are paid directly to the shareholders as dividends or retained as a source of fund for further investment within the business. The managers can maximize shareholders’ wealth sometimes by paying dividends and sometimes by retaining earnings for further investment, depending on the growth prospects or available investment opportunities of the firm. If the firm has no suitable investment opportunities with positive expected returns it is better to distribute the earnings to shareholders as dividends (Gordon, 1962, Walter, 1963). The firms distribute a portion of earnings to the shareholders as dividends and retain the remainder for further investment or as a reserve to retire debt or to finance new investments. Dividend declaration always is given in percent on the face value
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