DIVIDEND POLICY, SHAREHOLDERS' WEALTH AND FIRM PERFORMANCE : A STUDY OF SELECT INDIAN BANKS

Abstract

Dividend policy is an crucial topic in corporate finance as it impact how much money shareholders earn and how companies can be performed. This study focuses on the connection between dividend policy as per the market price per share (MPS) and return on equities (ROE) in the Indian banks. Financial data from the top ten Indian banks over a span of ten years (2015–2024) were analyzed to understand what affects dividend policy and how dividend per shares (DPS) and dividend payout ratio (DPR) influence MPS and ROE. Data was gathered from sources such as annual reports, company websites, and the Process database. Panel data regression was used in the analysis with Fixed Effects (FE) and Random Effects (RE) models in Stata software. The Hausman test showed that the Random Effects model worked best. Result reveals that DPS has a positive impacts on MPS, meaning higher dividends suggest stability and can boost confidence among investors. However, a high DPR negatively impact both MPS and ROE, as it might minimum funds available for the company's growth, thus affecting profitability and market value. To verify the exact situation, several tests were performed. Multicollinearity was checked with the Variance Inflation Factor (VIF), heteroskedasticity was tested using the Breusch-Pagan test, and normality was calculated with the Shapiro-Wilk test. Minor normality issues were found, but using robust standard errors ensured that the findings were reliable. This study offers valuable insights for investors, policymakers, and corporate managers. It stresses the importance of having a balanced approach to dividends that maximizes shareholder profits while ensuring long-term financial stability. While the research noted that dividend policies has a specific effect on shareholder wealth, its impact on entire company performance depend on many financial and operational factor. Additionally, the study acknowledge some limitations, such as not including broader economic factors. Future research could explore these aspects further using various methods like quantile regression or dynamic panel data models.