Project report synopsis

Working title :

“An insight into dividend strategies and market valuation.”

Name :

Name of the programme : Post Graduate Diploma In Managemen

Purpose of the project

Dividend policy comprises one of the major decision areas of financial management. A

firm has to choose between distributing profits to the shareholders and ploughing them

back into the business. The ultimate choice would, however depend upon the effect of the

decision on the maximization of the value of the firm.

Corporate dividend policy has captured the interest of economists of this century and over

the last five decades has been the subject of intensive theoretical modelling and empirical

examination. A number of conflicting theoretical models (all lacking strong empirical

support) define current attempts to explain corporate dividend behaviour. Initial forays

into theorizing corporate dividend policy are divided as to their prediction of the dividend

payments effect on share price. Over the last century, three schools of thought have

emerged. One fraction sees dividends as attractive and as a positive influence on stock

price. A second block believes that stock prices are negatively correlated with dividend

payout levels. The third group of theories maintains that firm dividend policy is irrelevant

in stock price valuation.

This paper makes an attempt in looking at the implication of dividend movement and

announcement on the valuation of companies in a given sector expressed in terms of

Tobin’s Q, over a period of 16yrs (1997-2013). Also tests the validity of the model used in

explaining valuations in an industry.

Aim

The study undergone on DIVIDEND STRATEGIES is to study the implications of different

dividend strategies on different firms, how it affects the valuation of different firms.

OBJECTIVES OF THE STUDY:

Does a change in the firm’s dividend yield explain QA over and above the control

variables?

Is there any difference in th1111e relationship between a firm’s dividend strategy and

QA due to variations among the different industry sectors and across time ?

The goodness of fit of the model used in explaining the valuation across industries, is

it feasible?

SCOPE OF THE STUDY:

The common element among Modigliani & Miller, Linter, Fama & Babiak, Darling &

Turnovsky is that they all have tried at solving the mystery about dividend and this study

joins the band wagon. The data under study is categorized in two periods. Period 1 from

1997-2004 when our Indian Economy was changing after the slump faced by the

introduction of Liberalization in 1991. The second Period 2 is from 2005-2013* when GDP

rate was observed to show positive trend.

The data has been collected for 6 industries in INDIA which are very less regulated,

namely: Automobile (13), Information & Technology (19), Food Products (21), Drugs

&Pharmaceuticals (30), Machinery (66) and Industrial & Infrastructural constructions (5).

Companies which existed from 1997-2013 have been taken into consideration.

*Note- till 2013 December data has been taken, since 2014 figures were not available.

Research methodology

PRIMARY DATA

To investigate about the research objective the following two models have been used:

MODEL 1: Qt = b0 + b1 ROIt + b2 EXPRDt + b3 D1t + b4 D2t + et

MODEL 2: Qt = b0 + b1 ROIt + b2 EXPRDt + b3 DYCt + et

Where Q = Tobin’s Q

ROI = Return on investment

EXPRD = Standardised Exploration, research And Development Expenses.

DYC = Dividend Yield Change.

D1 & D2 = Movement in the Dividend Yield

Tools used

A. SPSS

B. MS EXCEL

STATISTICAL TOOLS USED :

A. CORRELATION

B. REGRESSION

SECONDARY DATA:

Referred to books and journals for research.

Other publications by the company like additions with daily news paper, articles in

papers etc.

Key questions1. Are dividends as attractive and as positive influence on stock prices?

2. Is stock price negatively correlated with dividend payout levels?

3. A firm’s dividend policy is irrelevant in stock price valuation?

4. Which dividend strategy suits a firm?

5. Are the industries which are less regulated in Indian Economy having a peculiar trend in

valuation & dividend distribution?

Proposed contents:

Abstract

Introduction about the study

Scope of the study

Objectives of the study

Literature Review

Research methodology

Variables details

Data

Findings

Conclusion

Recommendations and Limitations

Glossary

Bibliography

Proposed Work Plan:

Sl. no Period Particulars

1. One weekStudy the six sectors which are less regulated in the industry.

2. Two week Collection of Data

3. Two Week Calculation and Interpretation of data collected

4. Two Week Document / Report preparation