Impact of dividend policy on firm value of select steel companies in India

Abstract

The dividend payout policy of a company depicts the efficiency and stability of its successful performance, to the stake holders. It enhances the company image and increases the firm value of a company subsequently. Any variation in the dividend payout has its impact on its firm value, which in turn would affects its share value too. Modigliani and Miller’s irrelevance theory states that the dividend policy of a firm has no impact on its firm value. Whereas, the relevant theories states that the increased payout ratio could increase the firm value or a low dividend could decrease the firm value. The dividend payments depends upon the availability of profits, investment opportunities, required rate of return and the payout policies of the firm. An analysis of the impact of dividend payout policy on the firm value of steel industry in India, would assist to design an appropriate approach for dividend payout. That will pave way for the increase of firm value, of the Indian steel companies. The present research study considers the companies of Indian steel industry, listed in Bombay stock exchange. The sample consists of the companies that has declared dividend for ten continuous years from FY 2004-05 to 2013-14. The necessary secondary data of the selected companies was collected from the Capitaline database. The objectives of the study are to identify the factors influencing the dividend policy of select companies and to examine the impact of dividend policy on the firm value of the select steel companies in India.