A COMPREHENSIVE STUDY ON RELATIONSHIP BETWEEN DIVIDEND POLICY AND FIRM'S PERFORMANCE AND IMPACT ON STOCK PRICES

Abstract

The objective of the research project is to find out the relationship (if there is any) between dividend policy and firm’s performance. Secondary data is used for the preparation of this project. The key objectives were to: a) Analyze and investigate those factors which affect firm’s performance such as dividend policy, firm size and market share price and growth of the firm. b) To provide the knowledge about firm performance, dividend policy, firm size, firm growth. c) To understand the extent of the relationship between dividend payout and firm performance. The project has been divided into six parts, the first chapter deals with introduction of dividend policy and its impact, the second chapter is about review of literature, while the third chapter notifies about research methodology being used i.e., descriptive research design. The fourth chapter cites with the various sources which were used for finding data for this research as well as the analysis techniques i.e., correlation and regression analysis used on the collective data and other findings through descriptive research. The fifth chapter states conclusion which can be drawn after conducting this extensive research. Several theories have been documented on the relevance and irrelevance of dividend policy such as clientele theory which advocates that different investor types have different preferences for dividend or capital gains and signalling theory, which suggests that high dividend payouts signal a company’s confidence in its future prospects. We have also discussed about various types of dividend policy that a firm can follow given its level of earnings and commitment towards shareholders. So, we can say that we have made an attempt to delve into the intricate relationship between a firm’s dividend policy and its overall performance. v A critical factor behind any company’s dividend policy is to optimize the company’s financial gains from its earnings by striking a balance between retained earnings, which are essential for a company's expansion, and dividend payments to shareholders. Only Indian firms have been picked to gather data regarding dividend policy. Various researchers have claimed that dividend policy can be one of the decisive factors of a company’s success if used in a correct manner that aligns well with the objective of firm, level of earnings, future prospects and goals. Thus, we have also tried to analyze how dividend payouts influence a firm’s stock price, access to capital, and investment opportunities. Some real world examples and academic research have been used to draw valuable insights for financial managers seeking to navigate this complex relationship.