Relationship Between Profit and Dividend: An Analysis of ASX Top 30

This paper investigates the relationship between profit and dividend payouts of the top 30 companies listed on the Australian Securities Exchange (ASX) from 2014 to 2017. It provides background information on the Australian stock market and the importance of profitability and dividend policies. The study reviews relevant literature, including dividend irrelevance theory and agency theory, and examines determinants of profit such as liquidity and leverage. A quantitative research methodology is employed, utilizing secondary data and regression analysis to determine the correlation between profit and dividend. The report concludes with findings, discussions, and recommendations regarding the observed relationships, offering insights into the financial dynamics of ASX-listed companies. Desklib provides access to this and other solved assignments for students.

Running head: RELATIONSHIP AMONG TOP 30 ASX LISTED COMPANIES
Relationship among top 30 ASX listed companies
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RELATIONSHIP AMONG TOP 30 ASX LISTED COMPANIES
Abstract
This paper focuses on creating an understanding between the relationship that is related to the
profit and the dividend of the top 30 ASX listed companies. In this way, the background of the
paper is prepared in order to provide a clear idea about the aspect of profitability and dividends
and economic scenario and the stock market scenario of Australia. The objectives have been set
in order to display the aspect with respect to which the paper undertakes the analysis process.
The theories and the determinants that are related to this topic has been underlined in the
literature review and secondary data based on the profit and the dividend value has been
considered with the help of which the regression analysis has taken place. The outcome of the
paper has addressed the aspects in accordance to which one can understand the degree of
relationship that is present between profit and dividends of the concerned companies.

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Table of Contents
Chapter 1: Introduction....................................................................................................................4
1.1 Background of the Study.......................................................................................................4
1.2 Justification of the paper........................................................................................................5
1.3 Research Aims and Objectives..............................................................................................5
1.4 Research Question.................................................................................................................6
Chapter 2: Literature Review...........................................................................................................7
2.1 Introduction............................................................................................................................7
2.2 Theories of Dividends............................................................................................................7
2.2.1 Dividend Irrelevance Theory..........................................................................................7
2.2.2 Agency Theory...............................................................................................................8
2.3 Determinants of Profit...........................................................................................................9
2.3.1 Liquidity.........................................................................................................................9
2.3.2 Leverage.........................................................................................................................9
2.4 Summary of the Literature...................................................................................................10
Chapter 3 Research Methodology.................................................................................................11
3.1 Introduction..........................................................................................................................11
3.2 Research Approach..............................................................................................................11
3.3 Research Design..................................................................................................................11
3.4 Kind of Data........................................................................................................................12

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3.5 Secondary Data....................................................................................................................12
3.6 Data Collection Process.......................................................................................................12
3.7 Data analysis plan................................................................................................................13
3.8 Ethical Consideration...........................................................................................................13
Chapter 4: Data Analysis and Discussion......................................................................................14
4.1 Introduction..........................................................................................................................14
4.2 Correlation Analysis............................................................................................................14
4.3 Regression Analysis.............................................................................................................15
4.4 Normality Plot.....................................................................................................................16
4.5 Discussion............................................................................................................................16
Chapter 5: Conclusion and Recommendation...............................................................................17
5.1 Conclusion...........................................................................................................................17
5.2 Recommendation.................................................................................................................17
Reference List................................................................................................................................18

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Chapter 1: Introduction
The companies that are operational in the economy from the time of the development of
the economies, each and every organization has the aim of attaining profit in order to stay alive
in the market and accordingly develop their business and maintain competitive edge. The
organizations in order to enhance their business look to gather external capital (Kajola et al.,
2015). The external capital is either taken in the aspect of loan or in the kind of selling equities in
the market and thereby receiving external finance from investors.
The stock market has a significant role to play in enhancing the quality and operations of
the financial model in the companies that have been accepted. The financial decisions of the
companies is related to the allocation of the earnings per share, which has a comprehensive role
to play with the help of which the companies are able to enhance the savings in the private sector
to the manufacturing and the capturing of the public contribution with the help of undertaking
investments in the organizations (Kajola et al., 2015). The dividend with the help of cash because
of the objectivity and the tangibility has extensive functions among the stakeholders of the
organization.
1.1 Background of the Study
There are several kinds of companies that are operational within the Australian economy
and each one of them belong from different industries and have their unique style of operating
their business. The companies need to be listed in any of the global securities exchange and
Australian Securities Exchange (ASX) is the exchange that operates from the Australia. There
are several companies that are listed in the ASX and therefore they have the potential and the
ability to interact in the stock exchange and sell or buy back their shares from the market

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(Manneh, & Naser 2015). The shares are priced according to the demand in the market, the profit
that is earned and accordingly the dividend that is paid out to their shareholders (Baños-
Caballero et al., 2014). It has become pertinent to understand the relationship among the profit
and the dividend that is attained by the companies and therefore an examination of the same is
being undertaken in this paper.
1.2 Justification of the paper
The companies functioning in the economy of Australia are all in the look out of making
profits and therefore it becomes essential for the companies to understand their operational
activities. In the same way, it becomes essential to assess the relationship among the profits
earned by the profit and the dividend that is paid out by them to their shareholders in order to
understand the percentage of the profit that is paid out to the shareholders (Firth et al., 2016).
The current paper is looking to assess the relationship among the profitability of the top 30
companies that are listed in ASX and this assessment of the relationship is done in order to have
an overall idea about the extent of relationship profit and dividend have on each other on the
ASX listed companies. The completion of the paper with the help of data analysis would be
helpful in determining the extent of relationship according to which the conclusion on this topic
can be constructed.
1.3 Research Aims and Objectives
The concerned paper can only move ahead once the aims and the objectives in
accordance to which the data would be gathered and the elements with respect to which analysis
would be completed is highlighted. Therefore, the aim of this paper is:

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 To assess and understand the relationship among profit earned and the dividend paid by
the top 30 ASX listed companies within the time period of 2014-2017.
1.4 Research Question
The “research question” is constructed in order to focus on answering the issue at the
completion of the paper. The research question is as follows:
Q1. What is the relationship between the profit and the dividend of the top 30 ASX listed
companies?

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Chapter 2: Literature Review
2.1 Introduction
The “literature review” would assess the elements and the theories that are associated
with the dividend and the profit aspects of the companies and would even focus on the elements
and the aspects on which explanations have been given out by the other researchers who have
done researches on similar kinds of topics in the past.
2.2 Theories of Dividends
2.2.1 Dividend Irrelevance Theory
This theory tries to explain that the dividend policies that are utilised by the companies
has no level of impact on the profit and the value of the companies. Hussain, & Ahmad (2015)
debated that the value of a company is reliant on the income of the company that takes place
from the policies related to investment. Therefore, the dividend paid to the shareholders has no
impact on it. Henry, & Koski (2017) explained that in a perfect market scenario, the dividend
policies have no significance with the profit and the value of an organization as the investments
in this scenario are constant.
This theory has looked to address the fact that dividend policies have an impact in the
level of external financing, which is essential in order to fund any future projects of the
company. This explains that the worth of money that is given out as dividends to the
shareholders is the money that is lost from the capital (Tahir et al., 2016). This theory even
explains the fact that the only limitation seen in the market value of a company has been their
investment policy and not the dividend policy as the investment policy is accountable for the

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future profits of the companies. Therefore, the theory has put forth the fact that the profit of the
companies is dependent in the current and future cash flows and dividend paid only reduces the
profit and the capital from the companies.
2.2.2 Agency Theory
The existence of agency theory takes place when the founder of the business is not able to
manage the business and therefore delegates the power to an agent. The issue related to agency
takes place right after the goal and the desires of the owner and the agent face certain conflicts. It
is very hard and expensive for the owner to observe and control the work that is done by the
agents in order to sure about the fact that the agents function for the benefit of the company as
well as for the owner (Przychodzen, & Przychodzen 2015). Therefore, this theory is helpful in
resolving the issues related to the agents and the owners with the outlook to ensure effective
relationship among them.
This theory is based on the aspect that the shareholder’s interest and the management are
not in line in an effective way in order to assist the company to function for a general goal, which
can be attaining the objectives that have been constructed by the companies (Muhammad et al.,
2015). The agency theory has a vital role to play in undertaking financial decisions due to the
issues that arises among the holders of the debts and the shareholders.
The agency theory explains the fact that the management of a firm is looking to increase
the extent of cash flow even in circumstances when there is a no opportunities of investment so
that the money can be utilised by the managers for their own advantage other than developing the
profit for the company (Kanwal, & Hameed 2017).

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2.3 Determinants of Profit
2.3.1 Liquidity
Michiels et al., (2015) explained that liquidity is one of the several aspects that is helpful
in determining the maintenance of profits. Liquidity scenario addresses the liquid cash that is
available for the company in order to pay for their short term liabilities and expenses and even
have certain amount of money with the help of which the companies would be able to make
investments as well. Liquidity is able to address the capability of a company in order to satisfy
the unexpected and the expected desires related to cash on a consistent manner (Yegon et al.,
2014). An organization has to remain liquid at all point of time in order to stay alive in the
market and the level liquid capital available to an organization determines the level of profit with
the assistance of which the firms are capable of paying off their obligations at any point of time
(Kaźmierska-Jóźwiak, 2015). The process of liquidity is assessed with the help of the cash and
items that are equivalent to cash, which is divided by the overall asset of the company (Di Giuli,
& Kostovetsky 2014). It is seen that liquidity of an organization is related positively with the
financial performance of a company.
2.3.2 Leverage
Debt is regarded to be a source of funding that is used for the purpose of strengthening
their capital in order to increase the level of profit. Leverage even has an effect on the financial
performance of the firms and it explains the level to which the companies are exploring the
money that has been taken as loan (Bartram et al., 2015). It addresses the positive impacts on the
capital as well as on the additional shortages in the fund because of the claims that have been

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done monetarily. Leverage has the capability to enhancing the profitability of the companies if
the gathered debt is utilised in an effective manner. A company that is profitable will look to pay
their dividends to the shareholders of the company.
2.4 Summary of the Literature
The literature that is constructed has looked to address the aspects of dividend and even
the aspects that are related to the profitability of the companies with the assistance of which the
firms are able to increase their potential and preserve profit and provide dividends with the help
of which the companies can maintain an effective operational structure within the economy.

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Chapter 3 Research Methodology
3.1 Introduction
The “research methodology” has the intention of explaining the techniques and the
processes that are used in order to have an idea about the data that is ideal for this research.
There are several kinds of data that are available to the researchers and it is seen that there is a
rise in the proficiency of the results if the effective data is utilised. The process of gathering the
data and the approach that is used is even explained with the assistance of which effectual results
can be attained.
3.2 Research Approach
The approach of the methodology has tried to explain the theories and the structures that
would be used with the assistance of which the gathered data would be placed within the
structure and better theories can be generated. There are two sorts of approaches that researchers
can make use of and they are deductive and inductive approach (Bradbury, 2015). It is known
widely that this paper will be making use of the secondary data and therefore would be making
use of the structures and the theories that were available in the economy as others have used it
and therefore deductive approach will be used in this paper.
3.3 Research Design
The research deign is associated with having a clear idea of the design and the model that
would be used by the researcher with the assistance of which the researcher is capable of
understanding the precise design with the assistance of which the data would be collected and
used with the help of which results related to this paper can be obtained (Akhtar, 2018). There
are several kinds of designs that can be used by the researcher however, in order to gather the