Literature review on dividend policy. Analysis of Dividend Policy Literature review Example 2022-10-16
Literature review on dividend policy Rating:
A literature review on dividend policy examines the various theories and studies that have been conducted on the topic of how firms decide on their dividend payouts to shareholders. This review will explore the different approaches to dividend policy and the various factors that influence a firm's dividend decisions.
One approach to dividend policy is the residual dividend model, which suggests that firms should pay dividends only if they have excess cash after investing in profitable projects. This approach suggests that firms should prioritize investment in growth opportunities over dividend payments.
Another approach is the bird-in-the-hand theory, which posits that dividends serve as a signal of a firm's financial health and stability. According to this theory, firms with a history of steady or increasing dividends are viewed as more reliable and financially sound than those that do not pay dividends or have a history of fluctuating dividends.
There are also theories that focus on the role of dividends in reducing agency costs, which are the costs that arise when managers act in their own interests rather than the interests of shareholders. Dividends can serve as a way for firms to distribute profits to shareholders, which can align the interests of managers and shareholders and reduce agency costs.
In addition to these theoretical approaches, empirical studies have also examined the relationship between dividend policy and firm performance. Some studies have found that firms with a stable dividend policy tend to have better performance, while others have found no significant relationship between dividends and performance.
Other factors that can influence a firm's dividend policy include the firm's financial health, growth prospects, and industry characteristics. For example, firms in industries with a high level of uncertainty or risk may be less likely to pay dividends, as they may need to hold onto their cash to weather potential downturns or invest in growth opportunities.
Overall, the literature on dividend policy is complex and multifaceted, reflecting the various factors that can influence a firm's decision on dividends. While there is no one-size-fits-all approach to dividend policy, understanding the various theories and studies can help firms make informed decisions on their dividend payouts to shareholders.
Analysis of Dividend Policy Literature review Example
In the same vein , Ang et al 2000 , through their organisational study draw empirical evidence that higher managerial ownership reduces agency cost. . The results of this review explain that the yield model and replacement model need to be redeveloped with dividend policy, corporate governance characteristics and legal protection of investors with the result that varied and strong empirical evidence can be obtained. The rationale of the research is to analyse the dividend policy of the oil sector for the last five years. Similarly Brockman 2009 comments that agency cost of debt appears more important in the determination of dividend policy. .
La Porta et al 2000 as cited by Trojanowski and Renneboog 2005 The above scenarios underpin the importance of this study. Dividend policy is still an important issue that leads to agency conflicts. It is therefore submitted that the value of a share should be a multiple of the dividend paid on that share. . The size of the firm is also as important and most experts believe that it offers benefits of reduced cost of financing and operations because of economies of scale. In the UK, Trojanowski and Renneboog 2005 find that dividends still constitute a major proportion of the distribution among firms in the U.
. First the dividend irrelevance proponents challenged the norm that dividend payouts impact the value of the firm, contending that there is no relationship between the dividend policy of the firm and the value of its shares. Assignment 1 Examined topic or field of the literature review article The article is called Dividend policy: A review of Theories and Empirical Evidence. The first one is introduction, where the authors explain what results are reached and carefully introduce the readers to the structure of the article. Industry and Company Variations Payout ratios vary amongst different industries e. .
. These objectives may be conflicting. Under this ambit therefore insider ownership is recognised as a factor that can affect dividend policy. Thus the tax clientele argument introduces the factor of institutional holding effect depending on the side of the bracket they fall in, because of the shareholding influence — Amihud 2006 ,Short et al 2002 and Khan 2006 provide proofs. However, the motivating factor behind such performance is monetary compensation such a good salary to the manager.
Literature Review: Dividend Policy, Agency Theory and Corporate Governance
Dividend decision has remained one of the tough challenges for financial economists. Researchers have defined it as the element of uncertainty that the future profitability of the firm might deviate from the current state. Abstract Purpose: The main objective of present paper is to review, classify, and identify the gaps in the existing literature on dividend policy. . Institutional Features of Dividends Types of Dividend Policies Trends in Dividend Policies PART 2 — Is There An Optimal Dividend Policy? It is believed that since various classes of investors are taxed differently, those in low tax bracket would opt for high dividend paying stocks and vice versa for high tax payers. Various studies adopted quantitative method and examined by setting hypothesis and also few studies tried to construct models to demonstrate various relationship between dependent and independent variables. Do dividend policy play a role in achieving shareholders wealth? Their major role is to use business judgment to act in what they believe to be the best interests of Lowe 's and its shareholders.
These papers develop with several of theories which have been assumed to further explain the dividend policy changes whether impact on the value of the firm. Shareholders can Premium Dividend Dividend Policy Dividend Policy Factors Affecting Dividend Policy: 1. It is also assumed that dividend payments will be less preferable to firms since its payment places them at a competitive disadvantage in terms cost of raising funds through external financing. The utilisation of internal funds for growth opportunities is often seen as a control for the free cash flow of a firm such that managers are discouraged from frivolous activities that may be induced by excess cash. The study examines whether this is consistent in the context of Nepal or not and the implication particularly to the banking and non-banking sector. This review, also aim to discuss about the conflicts of the agency problems and information asymmetric will occur and possible solutions method that to resolve by dividend policy. Literature review This section on literature review is focussed on various models and theories that are relevant to our study.
Indeed, this may reflect good liquidity in terms of liability management. In the next section the hypotheses is derived. The income of an investor is the dividend that he receives. In addition, a persuasive argument claimed by Miller and Modigliani 1961 that dividend policy does not matter, in other words, dividend Free Cash Flow, Issuance Costs, And Macroeconomics Risk on dividend policy, equity issuance policy, stock prices and agency costs of free cash ow. Liquidity Risk Liquidity risk is the risk that the company is unable to meet its payment obligations associated with its financial liabilities when they hall due and to replace funds when they are withdrawn.
Besides that, dividend policy is thus seriousness to the shareholders was and with some scope, and driven through the advance money market. Through the several theories can look after whether the dividends are relevant or irrelevant when making financial decisions. Secondly, there will be a surge in the market to take up these shares with positive prospects. Anupam Mehta 2012 , carried out a research in order to chalk out the important determinants of dividend policy for the firms listed in Abu Dhabi Stock Exchange, UAE, for a period of 5 years from 2004-2009. . Legal constraints can be viewed in the context of three broad areas; Premium Finance Dividend Investment Dividend Policy Stability of dividend policy. The sample period will cover 2005 through 2010.