The Impact of Dividend Policy on Firm Performance: A Case Study of Shell Plc

Running head: THE IMPACT OF DIVIDEND POLICY ON FIRM PERFORMANCE
The Impact of Dividend Policy on Firm Performance: A Case Study of Shell Plc
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THE IMPACT OF DIVIDEND POLICY ON FIRM PERFORMANCE 1
Abstract:
The study basically investigates the relationship between the impacts of Dividend Policy on firm
performance through evaluating the case of Shell Plc. From carrying out the research the
relationship between the selected variables such as EPS, P/E, DPOR, ROA and ROE has been
evaluated. The annual reports of Shell Limited have been used for gathering relevant data. In
addition regression analysis was carried out for analysis of the gathered data.
The international attention on the effect of dividend policy has increased and focusing on the
same the research is seeking to ascertain the existence of this impact. The findings of the
research indicate that the alternate hypotheses are rejected because of insignificant relationship
among the variables. The hypothesis is rejecting as it is observed that there is no relationship
between the dependent variable (ROA and ROE) and independent variable (EPS, P/E and
DPOR) and the coefficients table indicate negative values. Focused on such findings, the
company is recommended to develop a unique structure of dividend policy based on market
value along with analyzing the complexities within the existing market environment.

2THE IMPACT OF DIVIDEND POLICY ON FIRM PERFORMANCE
Acknowledgements:
I would like to thank Professor for his constructive comments and suggestions on previous drafts
of this dissertation. I want to thank for their invaluable help with recruiting the research
participants. I also would like to thank all the research participants for their willingness to take
part in the experimental study and their insightful comments.

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Table of Contents
Chapter 1: Introduction....................................................................................................................5
1.1. Background Information...................................................................................................5
1.2. Research Question.............................................................................................................7
1.3. Research Aim and Objectives...........................................................................................7
1.4. Research Hypotheses........................................................................................................7
1.5. Project Structure................................................................................................................8
Chapter 2: Literature Review...........................................................................................................9
2.1. Overview of the Company....................................................................................................9
2.2. Key Concepts........................................................................................................................9
2.3. Related Theories.................................................................................................................12
2.3.1. Agency Theory of Dividends.......................................................................................12
2.3.2. Residual Theory of Dividends.....................................................................................13
2.3.3. Bird in Hand Theory....................................................................................................14
2.4. Recent Research..................................................................................................................14
Chapter 3: Research Methodology................................................................................................16
3.1 Research Philosophy............................................................................................................16
3.2 Research Approach..............................................................................................................16
3.3 Research Strategy................................................................................................................17

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3.4 Research Instruments...........................................................................................................18
3.5 Sampling..............................................................................................................................18
3.6 Data Collection....................................................................................................................18
3.7 Research Ethics....................................................................................................................19
3.8 Data Analysis.......................................................................................................................19
3.9 Research Reliability and Validity........................................................................................20
3.10 Limitations.........................................................................................................................20
Chapter 4: Findings/ Results and Discussions...............................................................................21
4.1. Key Findings and Results...................................................................................................21
4.2. Discussions.........................................................................................................................24
4.3. Recommendations...............................................................................................................25
Chapter 5: Conclusion and Recommendations..............................................................................26
5.1. Summary of Findings and its Contribution........................................................................26
5.2. Recommendation................................................................................................................28
5.3. Limitations and Suggestions for Future Studies.................................................................28
References and Bibliography.........................................................................................................30

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Chapter 1: Introduction
1.1. Background Information
Companies are majorly focused on increasing their values along with shareholders wealth.
Generally, there are three major decision areas of the organizational management, which can
impact the performance. Such decisions are financial, dividend along with investment decisions
and such decisions are associated with one another. For instance, an investment decision
determines a company’s future gains along with the amount of the attained dividends (Vo and
Nguyen2014). There also exists a broad view globally that a company’s performance might be
impacted by the dividend policy. The international attention on the effect of dividend policy has
increased and focusing on the same the research is seeking to ascertain the existence of this
impact. Through attaining increasing interest on the research subject, the impact that the
dividend policy has on the performance of the companies remains unresolved. Researches
carried out in distinct nations have indicated different results. In addition, researchers have not
out increased attention on studies carried out in developing nations or within the less developed
industries. Potential investors pay an increased attention to the company’s value and the ways in
which the companies can maximize the shareholders wealth (Vo and Nguyen2014).
Different variables are employed by these companies in measuring the dividend policy
impact on the company’s performance. It has also been analyzed that the dividend policy might
have certain impact on the company’s performance. Based on same, it has been recognized that
ROA, dividend along with growth are negatively related with one another. Moreover, the
leverage and dividend payout ratio negatively impact the ROA along with the leverage. In
addition, it has also been analyzed that there is a significant relationship between dividend

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policy and corporate profitability in consideration to return on assets, equity and earnings per
share. Moreover, profitability is measured in terms of future earnings or abnormal earnings in
which the abnormal earnings can be defined as the difference between the overall earnings
normal earnings in which the return to owners is based on level along with cost of invested
equity capital (Vo and Nguyen2014).
Considering the same, the three kinds of company decisions are related and it is also vital to
explore the effect off dividend policy of the company’s performance. In addition, most of the
researches also focused on the general effect of the dividend policy without focusing on specific
industry or organization. Considering same, the current research will focus on carrying out
research for attaining strategies in resolving concerns related with the relationship among the
selected variables in the case study of Shell Limited. The scope of the research is also to
determine the effect of dividend policy on the company performance. The research has also
examined whether or not the dividend policy affects the company performance of Shell Ltd.
Data on the performance of this company over the current five years period was taken into
consideration for analysis in order to test the research hypotheses. The research has also taken
into account the profitability of the organization, earnings per share, dividends per share, stock
process within the market, return on equity along with the retention ratio over the selected time
span over 2012 to 2017. The significance of selecting the topic of dividend policy is considering
the fact that it is an important factor for shareholders to consider in the stock selection process
the dividends are vital part of major cash outflow for the organizations. Moreover, it is also
considered that the dividends are a form of cash flow for the investors which are a vital
reflection of an organization’s value. Considering same, it is considered important for the
companies to increase their dividend per share payout. An increase in the organization’s net

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profit needs to be ensuring in successfully paying out dividends to shareholders. The topic on
dividend policy has been selected as it can facilitate in analyzing company performance as the
firm value is observed to increase in a situation where the cash flow retained by companies are
higher than dividends paid (Yarram and Dollery 2015). For this reason analyzing the
effectiveness of the dividend policy is selected as a research topic in evaluating company
performance of Shell Plc.
1.2. Research Question
The research question that will be answered through completion of the study is indicated
below:
 Does the dividend policy impact the performance of Shell Plc?
1.3. Research Aim and Objectives
The aim of the research is to analyze Impact of Dividend Policy on Firm Performance
through evaluating the case of Shell Plc.
The research objectives those are set for the current research are explained below:
 To determine the dividend policy impact on the company’s performance
 To analyze the ways in which dividend policy impacts earnings per share and
profitability of Shell Plc
 To carry out the review of literature followed by critical valuation of debt along with
finally representing the findings of the evaluation.