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Dividend Policy, Growth, and the Valuation Of Shares
Abstract
In the hope that it may help to overcome these obstacles to effective empirical testing, this paper will attempt to fill the existing gap in the theoretical literature on valuation. We shall begin, in Section I , by examining the effects the effects of differences in dividend policy on the current price of shares in an ideal economy characterized by perfect capital markets, rational behavior, and perfect certainty. Still within this convenient analytical framework we shall go on in Section II and III to consider certain closely related issues that appear to have been responsible for considerable misunderstanding of the role of dividend policy. In particular, Section II will focus on the longstanding debate about what investors "really" capitalize when they buy shares; and Section III on the much mooted relations between price, the rate of growth of profits, and the rate of dividends per share. Once these fundamentals have been established, we shall proceed in Section IV to drop the assumption of certainty and to see the extent to which the earlier conclusions about dividend policy must be modified. Finally, in Section V , we shall briefly examine the implications for the dividend policy problem of certain kinds of market imperfections.
... A theory propounded by Miller and Modigliani [33] which upholds that payment of dividend does not have an impact on stock's cost of capital or SP. The irrelevance hypothesis proposes that dividend payment does not increase the profitability or SP of the company. ...
This paper investigates the influence of the inflation rate (IFR) on the association between the earnings retention ratio (ERR) and share price (SP) of Deposit Money Banks (DMBs) in Nigeria from 2012 to 2021. IFR, ERR, and firm size (FSZ) are the explanatory variables and the dependent variable is SP. Data were obtained from the financial reports of the sampled banks. The census sampling was used, where the entire 14 listed DMBs were used as the population and the sample size at the same time. The results from the analysis showed a positive and substantial relationship between SP and ERR. The findings further revealed a positive but insignificant connection between SP and IFR. Moreover, the results established a negative and immaterial relationship between SP and moderated ERR with IFR and FSZ as a control variable. Therefore, it is assumed and recommended that DMBs can improve the value of SP through financial engineering on their dividend policies. Keywords: earnings retention ratio, firm size, inflation, share price
... This theory suggests that dividends are crucial as they provide direct and tangible returns to shareholders, thereby enhancing firm value. However, the Modigliani and Miller theorem [62] introduces a counterpoint to these perspectives by arguing that dividend policy is irrelevant to stock prices in perfect markets. According to MM theory, the intrinsic value of a firm is determined by its profitability and investment policies, not by how earnings are distributed between dividends and retained earnings. ...
This study investigates the impact of sustainable development on the relevance of accounting information and financial activities of companies listed on the Stock Exchange of Thailand (SET). The results reveal that earnings per share and book value per share have a positive effect on market value, implying that higher earnings signal strong financial performance, thereby attracting more investor interest. Short-term and long-term debt financing have a negative effect on market value, suggesting that debt financing leads to increased financial risk. Current asset and fixed asset investments have a positive effect on market value by signaling confidence in operational performance. Dividend payouts have a positive effect on market value, demonstrating a commitment to returning value to investors, resulting in a stronger firm reputation and investor perception. However, firms that adhere to sustainable development guidelines face more complex dynamics. The results show that both earnings per share and book value per share have a negative effect on market value, suggesting that while they report high earnings per share and book value per share, these financial metrics cannot alleviate investor skepticism regarding sustainability as a cost of the firm. Short-term debt financing has a positive effect on market value because it provides a flexible and efficient way to fund sustainable investments without diluting equity or incurring long-term debt obligations, while the implications of long-term debt financing and current asset investments are insignificant. Furthermore, the significant positive effect of fixed asset investment underscores the potential long-term benefits of sustainability, despite high initial costs. Lastly, the non-significant negative impact of dividend payouts on market value suggests that the overall effect may also depend on various factors. These results support the idea of efficient market theory, which posits that investors may have negative reactions to what they perceive as financial burdens, diminishing the importance of positive financial metrics and altering market value. This study recommends that policymakers should carefully design regulations and incentives to support sustainable investments. Such approaches may include establishing specific funds, tax incentives, subsidies, and soft loans. Additionally, policymakers need to promote transparency and consistent reporting on the long-term financial benefits of sustainability, which can help reduce investor skepticism and foster a more positive market response. Finally, firms should clearly communicate their long-term sustainability efforts and benefits to investors and various stakeholders, leading to a positive interpretation of the firm’s commitment to sustainable development.
... As a critical decision, it balances between distributing profits to shareholders and retaining earnings for reinvestment. While classical theories suggest that dividends are neutral to firm value (Modigliani and Miller, 1961), empirical studies indicate otherwise-demonstrating that dividend policies can signal firm health and stability, attract investors, and minimize agency costs. This SLR provides a comprehensive overview of the factors influencing dividend policies across multiple markets and how these policies impact firm performance and value. ...
This systematic literature review (SLR) aims to explore the determinants and impact of dividend policy across different markets and industries. By analyzing ten peer-reviewed articles, this study identifies key factors influencing dividend policy, such as profitability, ownership structure, managerial ability, and institutional context. It also examines the role of dividends in managing firm performance and value, mitigating earnings management, and maintaining investor confidence. The findings emphasize that dividend policy plays a pivotal role in shaping corporate strategies and governance.
Objectives: This study examines the validity of the Zero-Beta Capital Asset Pricing Model (CAPM) in the context of Vietnam's stock market, exploring its potential for sustainable, SDG-aligned investment without relying on a traditional risk-free interest rate. Theoretical Framework: The research builds on Black's (1972) Zero-Beta CAPM framework, addressing limitations of the riskless rate assumption in emerging markets where stable growth is essential. Method: Using a dataset of daily returns from 365 stocks listed on the Ho Chi Minh City Stock Exchange (2008-2024), the study applies Ordinary Least Squares (OLS) regression to calculate alpha and beta values, testing for a sensitive zero-beta return that correlates with sustainable investment goals. Results and Discussion: The analysis reveals a daily sensitive zero-beta return of 0.0149%, surpassing the Vietnamese 15-year government bond rate, thus supporting Zero-Beta CAPM's validity without a risk-free rate. This suggests that zero-beta CAPM can offer a viable approach for sustainable investment in Vietnam, enhancing returns through portfolio ownership. Research Implications: The study demonstrates the feasibility of applying CAPM to emerging markets with sustainability considerations, positioning the sensitive zero-beta return as a proxy for sustainable market portfolio ownership. Originality/Value: This research expands CAPM’s theoretical scope by adapting it to markets with unique sustainability demands, providing insights into leveraging market portfolio ownership for improved investment performance in Vietnam’s stock market.
Purpose: The purpose of this research is to identify drivers of dividend payouts in energy companies listed on the Warsaw Stock Exchange (WSE) in the pre-COVID-19 pandemic decade, taking into account potential determinants such as general economic situation, company’s financial efficiency, value of assets, lagged dividend payout, earnings, ownership of the company – main shareholders and structure of statutory bodies including women presence. Design/methodology/approach: Correlation analysis and pooled regression models to determine the potential determinants of payouts are used. Firms' financial performance is reflected by selected individual financial ratios and a specially constructed vector synthetic measure VSMD. Findings: Findings reveal that dividend payouts of energy companies in Poland are irregular. Dividend payments significantly depend on firms’ financial efficiency, the size of their assets, lagged dividend payouts and ownership model, while the gender structure of statutory bodies has no impact on dividend payouts. The dividend payment decisions are implied by the current economic situation. Research limitations/implications: Limitations arise from the longitudinal sample design and data selection. Only Poland is considering with rather small WSE market, and the study concerns 9 companies described by 14 financial ratios (already selected) and set of variables for each year in 10 years timespan. Our VSMD measure needs pattern and anti-pattern which requires data from the entire market to be determined. Thus, the list of diagnostic variables cannot be simply copied for different “national” markets. Originality/value: This study contributes to research on the determinants of dividend policy. It introduces to the investigation the author's synthetic measure of firm financial efficiency. Explains dividend payments in Polish energy companies in the period 2010-2019 proposes a consistent baseline for research after the pandemic and after the war in Ukraine.
This comprehensive review examines the relationship between dividend policy and the value of the firm, with a focus on the signalling theory, agency theory, and dividend irrelevance theory. We analyze the various factors that influence the optimal dividend policy, including growth opportunities, profitability, capital structure, and investor preferences. Our review of the empirical evidence reveals that dividend policy can have a significant impact on firm value, with dividend-paying firms tend to have higher market values and lower volatility. However, the relationship between dividend policy and firm value is complex and depends on various factors. We discuss the implications of our findings for investors, managers, and policymakers, highlighting the importance of considering the firm's specific characteristics and market conditions when making decisions related to dividend policy.
This study examines the effect of profitability and capital structure on stock prices with the dividend payout ratio as an intervening variable. The study was conducted for non-financial companies. The sampling method used purposive sampling. The research data year is 2018-1022. The test was performed using path analysis. The test results show that capital structure has a negative effect on the dividend payout ratio but does not affect stock prices. Profitability has a positive impact on the dividend payout ratio and stock prices. The dividend payout ratio has a positive effect on stock prices. The dividend payout ratio is proven to be intervening in profitability affecting stock prices, but not in capital structure affecting stock prices. It is concluded that investors need to pay attention to profitability information and dividend payout ratio information. Investors can rest assured that they can ignore capital structure because it does not affect stock prices.
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