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Dividend Policy Plays A Crucial Role In Economy

1292 words - 6 pages

CHAPTER 1
INTRODUCTION

1.1 INTRODUCTION

Dividend policy is one of the most crucially importance and the most debatable issues in the corporate finance and it still keeps on prominent place in both developed and emerging markets. According Brealey and Myers (2005) described that dividend policy as one of the top ten most difficult unsolved problems in financial economics. This description is consistent with a famous extract by Black (1976) who stated that “The harder we look at the dividend picture, the more it seems like a puzzle with pieces that don’t fit together”.

Hence, dividend is a payment made by corporation to its shareholders members. It is the portion of corporate profit paid out to shareholders. When a corporation earns a profit or surplus that money can be locate by two uses. Which it can either be re-invested in the business that called retained earnings or it can be distributed to all shareholders. There are two ways to distribute cash to shareholders, such as share repurchases or give dividends. Many corporations retain a portion of their earnings and pay the remainder as a dividend.

There are many studies shows that many factors affecting on determinants of dividend payout ratio by some industries in different countries such as Pakistan, United States, Saudi Arabia, India and Kenya has also been conducted in order to illustrate the relationship between a number of factors and the company’s dividend payouts to shareholders. Even though many studies have been conducted, the results show that there are some differences between countries as regards which factors that have an impact on dividend payouts. According to Abdulrahman (2007) said that dividend payout and sectors are not related, but according to Pandey (2007) stated that dividend payout ratios are influences by sectors.

According Amarjit et al. (2010) reported that the factor that affecting dividends payout ratio for firm in the services industry and manufacturing in United State have significantly influenced by cash flow, tax, and profitability.

Previous research also indicate that in year 2008, according to Anil and Sujata says that, there are various factors other than profitability that are participate to affect dividend payout ratio in technology sector in India.

In 2010, Franklin and Muthusamy reported that the factors that affecting in the Indian paper industry employs more leverage for narrating the dividend payout ratios.

Based on non-financial listed firms, according to Mahira (2012) described that the factors affecting dividend payout ratio in Karachi Stock Exchange were significantly influenced on firm size and corporate tax. But these results are contrary to the study made by Maniagi et al, (2013) in Kenya. The study for non-financial firm on Nairobi Stock Exchange revealed there are significances influences on growth and current earnings. At the same time, according to Turki and Ahmed (2013) states that Saudi Arabia stock exchange (TASI), are...

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