Analysis of Dividend Policy Impact on Indian IT Sector Wealth

This report investigates the impact of dividend policy decisions on shareholder wealth within the Indian IT sector. It examines the relationship between dividend payouts and market value, exploring how dividend policies influence investment decisions. The report analyzes various research papers, including studies on the US technology sector and dividend behavior in the Indian manufacturing and service sectors. It delves into the methodologies, findings, and conclusions of these studies, focusing on the correlation between dividend policy and shareholder wealth. The analysis considers factors such as dividend per share, market price per share, and retained earnings, providing a comprehensive overview of the topic. The report concludes by highlighting the negative correlation between dividend policy and shareholder wealth in the Indian IT sector.

Running head: IMPACT OF DIVIDEND POLICY ON SHAREHOLDERS WEALTH IN
INDIAN IT SECTOR
IMPACT OF DIVIDEND POLICY ON SHAREHOLDERS WEALTH IN INDIAN IT
SECTOR
Name of the student
Name of the university
Author's note

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IMPACT OF DIVIDEND POLICY ON SHAREHOLDERS WEALTH IN INDIAN IT
SECTOR
Executive summary
The project aims at studying the impacts of the decision concerning the dividend distribution
policies of the form on its shareholder's wealth in the Indian IT sector. It attempts to study
different prominent researches which have provided a better understanding of the various aspects
of the dividend policies in the developing countries like India. The project concludes that there is
a negative correlation between the dividend policy and shareholder's wealth in the Indian IT
sector.

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IMPACT OF DIVIDEND POLICY ON SHAREHOLDERS WEALTH IN INDIAN IT
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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Relationship of dividend policy and shareholders wealth in Indian It sector..............................3
Impact of dividend policy on US technology sector...................................................................6
Decisions of dividend policy in India..........................................................................................8
Dividend behaviour in the indian manufacturing and service sector........................................11
Conclusion and Recommendation.................................................................................................13
References......................................................................................................................................14

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IMPACT OF DIVIDEND POLICY ON SHAREHOLDERS WEALTH IN INDIAN IT
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Introduction
The IT and industrial sector has played a significant role in developing the Indian
economy. The successful companies of India include maximum companies from the IT and
pharma sector. The investment interest has now shifted to these industries. The shareholders
have two major motive while investing their funds. In any company that they get a regular
interest or Dividend on their funds or if they are the common stock shareholders, they must get a
good amount of capital appreciation in their funds. Thus dividend policy plays a very significant
role in the investment decisions of the shareholders. The paper will analyze the significant
impacts of the dividend policy decisions on the shareholders' funds using different researches of
significant Authors. It will highlight the crucial points related to the topic.
Discussion
Relationship of dividend policy and shareholders wealth in Indian It sector
 Why is this article interesting/important?
The article is interesting as it highlights the information technology, which is important for the
Indian economy. The paper analyses the consequences and different impacts of the dividend
policy. There are very few studies which have focuses on the importance of dividend policy in
Indian IT sector (Anton 2016).

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SECTOR
The author takes the hypotheses to prove different points through the research. The first
hypotheses is that there is major difference between average market value and the book value of
common stock of dividend payers and non-dividend payers in the information technology sector.
The other hypotheses the author takes is there is a major influence of the dividend policy on the
shareholders' wealth in the information technology sector (Najjar and Kilincarslann 2016).
 What theory or theoretical framework underpins the research?
The framework of the study is that the dividend policy defines the percentage of profit
payable to the shareholders of the company periodically. The important factors which determine
the dividend policy are the profitability, liquidity, and size of the company. The study wants to
focus on why the manufacturing companies keep on changing the dividend policy, which
impacts the dividend trend of the industry (Dang 2019).
 What is the key motivating literature on which the study depends?
The important literature on which the paper depends is Arnold (2008), Sajid Gul,
Muhammad (Sajid et al. 2012), Mittal and Chopra (2006) and Olivares Pacheco (2008). These
works of literature focus on the importance of shareholders wealth and how dividend policy is
determined. Sajid studied that the price earning ratio do not have significant influence while the
market value of equity is important as it impacts the market price of shares. Mittal and Chopra
studied the relation of payers and non-payers firms with investment opportunities in the market.
Olivares Pacheco explained how profitability, size of the company and liquidity important for
taking cash dividend decisions (Sudiani and Wiksuana 2018).
The research methodology followed in this literature is taking two hypotheses and examining
both with the statistical and mathematical calculations. The statistical measures such as mean and

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standard deviation are being used. The different variables such as Dividend per share, the Market
price per share, retained earnings per share etc. are taken into consideration. Panel data is the
research methodology used by the author to know the effects of the dividend policy on
shareholder's wealth.
 How has the sample been selected?
The author's selected country is India because there are so many researches has been made in
developed countries like USA, UK etc. Therefore the author takes a sample of 308 companies
from the IT sector, which are listed in Bombay stock exchange and National Stock Exchange.
Since India is a developing economy, any decision concerning dividend policy or the factors like
dividend payout ratio affects the shareholder's wealth.
 What are the findings?
The different hypothesis is studied by taking different dependent variables and non-
dependent variables. The dependent variables taken for the study is shareholders wealth
calculated by the market price per share. The independent variables taken for the study are DPS,
MPS PE ratio and retained earnings. The comparison of the data calculated is made on a yearly
basis for the market value to the book value of equity. The study concluded that the market value
is above the book value in the companies which are not giving Dividend on a periodical basis.
When the calculated data of mean values of the payer and non-payer companies are compared
then it is found out by the author that the shareholder's wealth is increasing each year, but it has
not any major effect, but the shareholder's wealth shows a significant difference in the long run
(Hamza and Hassan 2017).
 What are the conclusions and recommendations; are they consistent with the findings?

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The author concludes that there is a major difference found between the companies who are
paying Dividend and the companies which are not paying Dividend by comparing the average
market value with the book value of the common stock. The author studies that the market value
of shares increases by paying higher Dividend. Therefore Dividend becomes a major factor
which can decide the proportion of shareholder's wealth. The impact of dividend policy on
shareholders wealth is more in case of dividend payers than the dividend non-payers.
Impact of dividend policy on US technology sector
 Why is this article interesting/important?
The paper is interesting because the research of the paper includes the different financial
ratios as its research variables such as lagged price ratio, capital yield ratio, return on equity and
dividend payout ratio. The study is important as it shows that when a company do not pay any
dividend, it can significantly increase the wealth of its shareholders. The study is a detailed
analysis of the US technology sector and can be used for further academic research projects. The
research is also helpful for the industry as it highlights on the new dimensions concerning the
topic (Davies 2018).
 What is/are the research problem(s)/question(s) and the corresponding hypothesis(es)?
The problem taken for research is the impact of dividend payout ratio and lagged price ratio.
The objective of the paper is to analyze the effects of the capital gain yield and dividend payout
ratio. It also scrutinizes the influence of the dividend policy on the return on equity. There are
three hypotheses taken for conducting the research. The hypothesis 1 is dividend payout ratio has
a significant impact on the lagged price ratio; the hypothesis 2 is dividend payout ratio has a

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SECTOR
major impact on the capital gain yield ratio, the hypothesis 3 is dividend payout ratio has a
significant impact on the return on equity of the company.
 What theory or theoretical framework underpins the research?
The theoretical framework of the paper includes the research to study the impacts of dividend
end policy by studying different factors like dividend price volatility, dividend payout, size of the
company, dividend yield, earnings volatility etc. the study takes the help of previous researches
made which shows there is a significant contribution of rising Dividend increasing the share
prices.
 What is the key motivating literature on which the study depends?
The key motivating pieces of literature used for making the study are the research paper of
Modigliani and Miller in the year 1961, which shows that the dividend policy does not have any
impact on the shareholder's wealth. The other research paper used for the study written by Priya
and Azhagaiah in the year 2008, which researches on the impact of dividend policy on
shareholders wealth of organic and inorganic chemical concerning companies in India. The
author also studies the Bird-In-Hand Theory, which states that the outside shareholders demand
more Dividend at present rather than focusing on the future capital gain from the uncertain future
market investments (Murniati 2019).
 Which research method(s) has been chosen that is how the results have been analyzed?
The analysis of the study is supported by the adoption of research methods which includes
statistical measures. The statistical methods such as regression analysis, correlation analysis and
descriptive statistics have been used. The correlation analysis has been used to interpret the

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relations existing between different variables. The three regression models are used by the author
for determining the impact of an independent variable on the dependent variable.
 How has the sample been selected?
There are around 208 companies in the technology sector, including both NYSE and AMEX
registered companies. The sample taken for the study is 60 companies belonging to the
technology sector which are registered under the recognized stock exchanges, which are NYSE
and AMEX. The percentage of the sample size of companies taken from NYSE is 54.23%, and
the percentage of companies taken from AMEX is 5.76%. The stratified proportional random
probability is used for selecting the sample size of the research paper. It is an effective way to
show a high level of presentation which involves using large population.
 How have the questions of validity been addressed?
The validity of this quantitative research paper is established by the use of proper correlation
and regression analysis approach. The formulated table has been used for showing data, and the
different financial ratio has been used for maintaining the accuracy of the result and supporting
the study.
 What are the findings?
The findings of the study show that current dividend payout ratio and the firm size including
the investment of the firm belonging to the current period gives an idea that the dividend policy
of the firm has a positive effect on the wealth of the shareholder of the firm.
 What are the conclusions and recommendations; are they consistent with the findings?

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The author concludes that the dividend payout ratio does not impact the price significantly
earning of the equity shareholder. The investment style and behaviour of equity shareholder
remains unaffected by the dividend payout ratio. In fact whenever there is increase in dividend
payout, companies sees it as there will be gain in stocks and therefore they will be benefitted by
the increase in their wealth. The author recommends using other ratios like holding period and
yield ratio for further study (Zainudin and Mahdzan 2018).
Decisions of dividend policy in India
 Why is this article interesting/important?
The paper helps in examining the different determinants of dividend policy. The two
important aspects of the dividend decisions are the payment of Dividend and the dividend payout
ratio. The sample taken by the study takes a wide range of data and the period taken it is the
period of 1995-2015. It makes an effort to study the business group affiliated firm and the
individual businesses (Nadeem, Bashir and Usman 2018).
 What theory or theoretical framework underpins the research?
Researches have done many types of research taking examples of developed nations, but the
introduction of the liberalisation and privatization helped the developing nation a lot for running
in the race of increasing wealth of the shareholder. The paper takes examples of many
developing nations to study the impact of volatility of market on the dividend decision making of
the companies whether the company is a business affiliated group or an individual firm (Sanjeev
and Ranjani 2019).
 What are the key motivating literatures on which the study depends?

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The study uses different research papers for analyzing the two determinants of the dividend
policy. Ferris, Sen, and Yui (2006) explained in his study that the independent firms which can be
considered as the non-business group affiliated firms in the country Japan is significantly influenced by
market forces. The grouping of the industry helps the firms to insulate themselves from the effects of
these market forces (Dragota, Pele and Yaseen 2019).
Manos, Murinde and Green (2012) explained that the dividend payout ratio of the business
grouping firms is greater than the independent firms existing in the market. They explained that
the dividend payment decision is not dependent on external finance. The organization is running
in the capital market can be effected by the dividend policy of the business group affiliated
firms. Gopalan, Nanda, and Seru (2014) explained that the internal ownership of the firms
increases when a firm pays less Dividend. It indicated that in india, the insiders of a firm are very
opportunistic and they want to retain a good amout of capital irrespective of thinking about the
future performance of the firms by taking firms of india as sample firms. Labhane and Mahakud
(2018) explain behaviour which can smoothens the dividend payment decisions of the individual
firms (Gejalaksmi and Azhagaiah 2017).
 Which research method(s) has been chosen that is how have the results been analyzed?
The determinants of dividend policy are examined by taking 288 individual firms and 493
firms which are enlisted in the indian stock exchange that is NSE. The study is for the period
1994-1995 to 2014-2015.
 What are the findings?
The paper studies the contribution of the developing nations other than developed countries
in the global financial market. The period of 1981 shows that the Emerging Financial Market

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faced several problems and challenges as the EFM firms got affected by the determinants of the
dividend policies. It was understood that the firm's dividend distribution policies affects the
firm's performance such as market returns and profitability.
The EFM model differ from the DFM model. There are legal constraints included in the
dividend distributions policies. The effect of liberalization and privatization was also high and it
effected the firms in the emerging financial market. these firms are given challenges by the
macroeconomic factors and which increases the volatility of the market. Since the developed
financial market were liberalized a long back, the paper researched on the structure of the
dividend policy of the developing nations and also the companies different ways of taking
decisions of dividend policy.
 What are the conclusions and recommendations; are they consistent with the findings?
Research shows that the investment opportunities, financial leverage and risk factors like
business risk affect the dividend policies of the business. There are several reasons like the
business group-affiliated firm do not depend on external finance and try to depend on the internal capital
creation. They use dividend distribution as a way to show their profitability. This is a way to protect the
members from market imperfections.
Dividend behaviour in the Indian manufacturing and service sector
 Why is this article interesting/important?
The article is interesting because it tries to highlights the behaviour of dividend policy on the
Indian industry, basically the manufacturing and the service sector companies. The
manufacturing industry contribution to the development of the Indian industry is studied in
comaprision of the servise sector companies of the country.