PROJECT REPORT ON

“CORPORATE DIVIDEND POLICY” BY

Session: 2014-16

Project Report submitted in partial fulfillment for the degree ofMaster of Business Administration

Chapter -I

Introduction

1.1 INTRODUCTION:Dividends are payments made by a corporation to its shareholder members. It is the

portion of corporate profits paid out to stockholders. When a corporation earns a profit or

surplus, that money can be put to two uses: it can either be re-invested in the business, or it can

be paid to the shareholders as a dividend. Many corporations retain a portion of their earnings

and pay the remainder as a dividend.

For a joint stock company, a dividend is allocated as a fixed amount per share. Therefore,

a shareholder receives a dividend in proportion to their shareholding. For the joint stock

company, paying dividends is not an expense; rather, it is the division of an asset among

shareholders. Public companies usually pay dividends on a fixed schedule, but may declare a

dividend at any time, sometimes called a special dividend to distinguish it from a regular one.

Cooperatives, on the other hand, allocate dividends according to members' activity, so their

dividends are often considered to be a pre-tax expense.

Several factors must be considered when establishing a firm’s dividend policy. These include

The liquidity position of the firm – just because a firm has income doesn’t mean that it

has any cash to pay dividends.

Need to repay debt – oftentimes there are negative covenants that restrict the dividends

that can be paid as long as the debt is outstanding.

The rate of asset expansion – the greater the rate of expansion of the firm, the greater the

need to retain earnings to finance the expansion.

Control of the firm – if dividends are paid out today, equity may have to be sold in the

future causing a dilution of ownership.

Legal Considerations:

Technically, it is illegal to pay a dividend except out of retained earnings. This is to

prevent firms from liquidating themselves out from underneath the creditors.

Internal Revenue Service Section 531 – Improper Accumulation of funds. This is to

prevent individuals from not paying dividends in order to avoid the personal income

taxes on the dividend payments.

Is it in the best interests of shareholders to pay out earnings as dividends or to reinvest

them in the company? The answer to this depends upon the investment opportunities that the

firm has.

There are three fundamental policies to paying cash dividends that firms employ:

1. Pay a constant dollar amount each year regardless of earnings per share. This is what

most firms do.

2. Use a constant payout ratio (for example, 50% of EPS)

3. Pay a low, fixed dividend amount plus “dividend extras” or “special dividends”. This

allows the company to avoid having to cut dividends since the basic dividend is low, but

also avoids the improper accumulation of funds during good years.

A cut in dividends generally hurts a stock’s price because it sends a signal to stockholders

that management’s outlook for the future is that the company cannot continue to pay the

dividend. Most companies therefore start off with a low dividend and only increase it when they

feel that the earnings prospects have improved sufficiently to allow for maintaining a higher

dividend. Many companies will even borrow money in a bad year in order to avoid cutting the

dividends.

The market price is influenced by dividends through what is called the “clientele” effect.

That is, some investors want dividends (such as retirees and pension funds) while others do not

want dividends (wealthy individuals) but would prefer capital gains (which are taxed at a lower

rate and deferred).

Flotation costs encourage a company to retain earnings in order to minimize having to sell

additional stock in the future. As we saw in the cost of capital calculations, the flotation costs

make new equity more expensive than retained earnings.

Some companies pay no dividends. Why? Because they have good investment opportunities

and reinvest the earnings.

1.2 FORMS OF PAYMENT:Cash dividends are those paid out in the form of a cheque. Such dividends are a form of

investment income and are usually taxable to the recipient in the year they are paid. This is the

most common method of sharing corporate profits with the shareholders of the company. For

each share owned, a declared amount of money is distributed. Thus, if a person owns 100 shares

and the cash dividend is Rs. 0.50 paisa per share, the person will be issued a cheque for Rs. 50.

Stock or scrip dividends are those paid out in form of additional stock shares of the

issuing corporation, or other corporation (such as its subsidiary corporation). They are usually

issued in proportion to shares owned (for example, for every 100 shares of stock owned, 5%

stock dividend will yield 5 extra shares). If this payment involves the issue of new shares, this is

very similar to a stock split in that it increases the total number of shares while lowering the price

of each share and does not change the market capitalization or the total value of the shares held.

Property dividends are those paid out in the form of assets from the issuing corporation

or another corporation, such as a subsidiary corporation. They are relatively rare and most

frequently are securities of other companies owned by the issuer, however they can take other

forms, such as products and services.

1.3 DATES:Dividends must be "declared" by a company’s Board of Directors each time they are

paid. For public companies, there are four important dates to remember regarding dividends.

These are discussed in detail with examples at the Securities and Exchange Commission site

The declaration date is the day the Board of Directors announces its intention to pay a dividend.

On this day, a liability is created and the company records that liability on its books; it now owes

the money to the stockholders. On the declaration date, the Board will also announce a date of

record and a payment date.

The in-dividend date is the last day, which is one trading day before the ex-dividend date,

where the stock is said to be cum dividend ('with [including] dividend'). In other words, existing

holders of the stock and anyone who buys it on this day will receive the dividend, whereas any

holders selling the stock lose their right to the dividend. After this date the stock becomes ex

dividend.

The ex-dividend date is the day on which all shares bought and sold no longer come

attached with the right to be paid the most recently declared dividend. This is an important date

for any company that has many stockholders, including those that trade on exchanges, as it

makes reconciliation of who is to be paid the dividend easier. Existing holders of the stock will

receive the dividend even if they now sell the stock, whereas anyone who now buys the stock

will not receive the dividend. It is relatively common for a stock's price to decrease on the ex-

dividend date by an amount roughly equal to the dividend paid. This reflects the decrease in the

company's assets resulting from the declaration of the dividend. The company does not take any

explicit action to adjust its stock price; in an efficient market, buyers and sellers will

automatically price this in.

Whenever a company announces a dividend pay-out, it also announces a "Book closure

Date" which is a date on which the company will ideally temporarily close its books for fresh

transfers of stock. Read "Book Closure" for a better understanding.

Shareholders who properly registered their ownership on or before the date of record,

known as stockholders of record, will receive the dividend. Shareholders who are not registered

as of this date will not receive the dividend. Registration in most countries is essentially

automatic for shares purchased before the ex-dividend date.

The payment date is the day when the dividend checks will actually be mailed to the

shareholders of a company or credited to brokerage accounts.

1.4 TYPES OF DIVIDEND POLICIES:

There are many distinct dividend policies, but most policies fall into one of three

categories.

(A) A stable dividend policy is characterized by the tendency to keep a stable dollar amount

of dividends per share from period to period.

Corporations tend to establish a predetermined target dividend payout ratio in which

dividends are increased only after management is convinced that future earnings can support the

higher dividend payment. Under this policy, dividend changes will normally lag behind earnings

changes. Firms are reluctant to lower their dividend payments, even in times of financial distress.

Most firms follow a relatively stable dividend policy for four reasons:

1. Many business executives believe that stable dividend policies lead to higher stock

prices. The empirical evidence on the relationship between dividend policy and stock

prices is inconclusive.

2. Investors may view constant or steadily increasing dividends as more certain than a

fluctuating cash dividend payment.

3. There is less chance to signal erroneous informational content with a stable dividend

policy. Thus, firms tend to avoid reducing the annual dividend because of the

information content that a dividend cut may convey.

(B) A constant dividend payout ratio policy is one in which a firm pays out a constant

percentage of earnings as dividends.

This policy is easy to administer once the firm selects the initial payout ratio. A constant

dividend payout policy will cause dividends to be unstable and unpredictable, if earnings

fluctuate. Few firms follow a constant dividend payout policy because stock prices may be

adversely affected by highly volatile dividends.

1.5 FACTORS AFFECTING DIVIDEND POLICY:

1. Stability of Earnings. The nature of business has an important bearing on the dividend

policy. Industrial units having stability of earnings may formulate a more consistent dividend

policy than those having an uneven flow of incomes because they can predict easily their savings

and earnings. Usually, enterprises dealing in necessities suffer less from oscillating earnings than

those dealing in luxuries or fancy goods.

2. Age of corporation. Age of the corporation counts much in deciding the dividend

policy. A newly established company may require much of its earnings for expansion and plant

improvement and may adopt a rigid dividend policy while, on the other hand, an older company

can formulate a clear cut and more consistent policy regarding dividend.

3. Liquidity of Funds. Availability of cash and sound financial position is also an

important factor in dividend decisions. A dividend represents a cash outflow, the greater the

funds and the liquidity of the firm the better the ability to pay dividend. The liquidity of a firm

depends very much on the investment and financial decisions of the firm which in turn

determines the rate of expansion and the manner of financing. If cash position is weak, stock

dividend will be distributed and if cash position is good, company can distribute the cash

dividend.

4. Extent of share Distribution. Nature of ownership also affects the dividend decisions.

A closely held company is likely to get the assent of the shareholders for the suspension of

dividend or for following a conservative dividend policy. On the other hand, a company having a

good number of shareholders widely distributed and forming low or medium income group

would face a great difficulty in securing such assent because they will emphasize to distribute

higher dividend.

5. Needs for Additional Capital. Companies retain a part of their profits for

strengthening their financial position. The income may be conserved for meeting the increased

requirements of working capital or of future expansion. Small companies usually find difficulties

in raising finance for their needs of increased working capital for expansion programmes. They

having no other alternative, use their ploughed back profits. Thus, such Companies distribute

dividend at low rates and retain a big part of profits.

6. Trade Cycles. Business cycles also exercise influence upon dividend Policy. Dividend

policy is adjusted according to the business oscillations. During the boom, prudent management

creates food reserves for contingencies which follow the inflationary period. Higher rates of

dividend can be used as a tool for marketing the securities in an otherwise depressed market. The

financial solvency can be proved and maintained by the companies in dull years if the adequate

reserves have been built up.

7. Government Policies. The earnings capacity of the enterprise is widely affected by the

change in fiscal, industrial, labour, control and other government policies. Sometimes

government restricts the distribution of dividend beyond a certain percentage in a particular

industry or in all spheres of business activity as was done in emergency. The dividend policy has

to be modified or formulated accordingly in those enterprises.

8. Taxation Policy. High taxation reduces the earnings of the companies and

consequently the rate of dividend is lowered down. Sometimes government levies dividend-tax

of distribution of dividend beyond a certain limit. It also affects the capital formation. In India,

dividends beyond 10 % of paid-up capital are subject to dividend tax at 7.5 %.

9. Legal Requirements. In deciding on the dividend, the directors take the legal

requirements too into consideration. In order to protect the interests of creditors and outsiders,

the companies Act 1956 prescribes certain guidelines in respect of the distribution and payment

of dividend. Moreover, a company is required to provide for depreciation on its fixed and

tangible assets before declaring dividend on shares. It proposes that Dividend should not be

distributed out of capita, in any case. Likewise, contractual obligation should also be fulfilled, for

example, payment of dividend on preference shares in priority over ordinary dividend.

10. Past dividend Rates. While formulating the Dividend Policy, the directors must keep

in mind the dividend paid in past years. The current rate should be around the average past rat. If

it has been abnormally increased the shares will be subjected to speculation. In a new concern,

the company should consider the dividend policy of the rival organization.

11. Ability to Borrow. Well established and large firms have better access to the capital

market than the new Companies and may borrow funds from the external sources if there arises

any need. Such Companies may have a better dividend pay-out ratio. Whereas smaller firms have

to depend on their internal sources and therefore they will have to build up good reserves by

reducing the dividend payout ratio for meeting any obligation requiring heavy funds.

12. Repayments of Loan. A company having loan indebtedness are vowed to a high rate

of retention earnings, unless one other arrangements are made for the redemption of debt on

maturity. It will naturally lower down the rate of dividend. Sometimes, the lenders (mostly

institutional lenders) put restrictions on the dividend distribution still such time their loan is

outstanding. Formal loan contracts generally provide a certain standard of liquidity and solvency

to be maintained. Management is bound to hour such restrictions and to limit the rate of dividend

payout.

13. Time for Payment of Dividend. When should the dividend be paid is another

consideration. Payment of dividend means outflow of cash. It is, therefore, desirable to distribute

dividend at a time when is least needed by the company because there are peak times as well as

lean periods of expenditure. Wise management should plan the payment of dividend in such a

manner that there is no cash outflow at a time when the undertaking is already in need of urgent

finances.

14. Regularity and stability in Dividend Payment. Dividends should be paid regularly

because each investor is interested in the regular payment of dividend. The management should,

in spite of regular payment of dividend, consider that the rate of dividend should be all the most

constant. For this purpose sometimes companies maintain dividend equalization Fund.

1.6 MOST COMMON TYPE OF DIVIDEND MEASURE :

Level of dividends often measured by dividend yield:

Dividend yield = PD

pricestockdividendannual

Measures % return earned by investor from dividends alone

Firm’s dividend policy can also be measured by payout ratio:

Payout ratio = EPSD

shareperearningsdividendannual

1.7 CORRELATION WITH MARKET PRICE:

Two important models supporting dividend Correlation are given by Walter and Gordon.

1. Walter Model Walter's model: Dividends paid to the shareholders are reinvested by the shareholder further, to get higher returns Mathematically it’s given by

Where, P = Market price of the share D = Dividend per share r = Rate of return on the firm's investmentske = Cost of equity E = Earnings per share‘Therefore, from above the market value of a share is the result of expected dividends and capital gains according to Walter

2. Gordon Model Investors are risk averse and believe that incomes from dividends are certain rather than incomes from future capital gainsAccording to which the market prices of the share is calculated as follows

Where,P = Market price of the shareE = Earnings per shareb = Retention ratio (1 - payout ratio)r = Rate of return on the firm's investmentske = Cost of equitybr = Growth rate of the firm (g)Therefore, the model shows a relationship between the payout ratio, rate of return, cost of capital and the market price of the share.

Normally, the amount of dividend is highly variable. If the manager believes dividend policy is

important to their investors and it positively influences share price valuation, they will adopt

managed dividend policy. Firms generally adopt dividend policies that suit the stage of life cycle

they are in. For instance, high- growth firms with larger cash flows and fewer projects tend to

pay more of their earnings out as dividends. The dividend policies of firms may follow several

interesting patterns adding further to the complexity of such decisions. Also, there are distinct

differences in dividend policy over the life cycle of a firm, resulting from changes in growth

rates, cash flows, and project investments in hand. Shareholders wealth is represented in the

market price of the company’s common stock, which, in turn, is the function of the company’s

investment, financing and dividend decisions. Among the most crucial decisions to be taken for

efficient performance and attainment of objectives in any organization are the decisions relating

to dividend. Dividend decisions are recognized as centrally important because of increasingly

significant role of the finances in the firm’s overall growth strategy. The objective of the finance

manager should be to find out an optimal dividend policy that will enhance value of the firm.

Like other important policy decisions dividend policy too has a signaling effect on the firms

share prices. Generally, announcements of dividend increases generate abnormal positive

security returns, and announcements of dividend decreases generate abnormal negative security

returns. This is due to the fact that the company’s management has access to private and superior

information about future prospects and choose a dividend level to signal that private information.

Such a calculation, on the part of the management of the firm may lead to a stable dividend

payout ratio.

Dividend policy of a firm has implications for investors, managers and lenders and other

stakeholders, specifically the claimholders. For investors, dividends – whether declared today or

accumulated and provided at a later date are not only a means of regular income, but also an

important input in valuation of a firm. Similarly, managers’ flexibility to invest in projects is also

dependent on the amount of dividend that they can offer to shareholders as more dividends may

mean fewer funds available for future investments. Lenders may also have interest in the amount

of dividends a firm declares, as more the dividend paid less would be the amount available for

servicing and redemption of their claims. The dividend payments present an example of the

classic agency situation as its impact is borne by various claimholders. Accordingly dividend

policy can be used as a mechanism to reduce agency costs. The payment of dividends reduces

the discretionary funds available with the management for perquisite consumption and

investment opportunities and requires them to seek financing in capital markets. This monitoring

by the external capital markets compels the managers to be more disciplined and act in owners’

best interest.

Companies generally prefer a stable dividend payout ratio because the shareholders expect it and

reveal a preference for it. Shareholders may want a stable rate of dividend payment for a variety

of reasons. Risk-averse shareholders would be willing to invest only in those companies which

pay high current returns on shares. Similarly, educational institutions and charity firms prefer

stable dividends, because they will not be able to carry on their current operations otherwise.

Such investors would therefore, prefer companies, which pay a regular dividend every year. This

clustering of stockholders in companies with dividend policies that match their preference is

called clientele effect.

1.8 OBJECTIVES OF THE STUDY:

To explore the insight of a corporate event named “Dividend Policy” which drags lot of

attention and results into many drastic changes in the market valuation of the firm.

To study the impact of ‘dividend’ on the price and volume of business in the stock

exchange in respect of particular stock before and after such dividend is announced.

To check whether abnormality exists in the price and volume of the share as the

‘dividend’ is announced.

To find out the room for leakage of any insider information about ‘dividend policy’ of a

company

To check whether any insider information plays any part in abnormal trading effect and

abnormal price effect in a script.

To analyze the bearing of such abnormality (if it does exist) on the market capitalization

and volumes traded on the stock market a month before the Announcement Date and a

month after the ex-dividend date for all the scripts under the study.

To measure the cumulative impact of ‘corporate dividend policy’ and try to conceive a

general trend based on it.

1.9 DATA SOURCE AND METHODOLOGY:

Research Design:

Exploratory Research

Sampling:

Sampling Technique : Judgmental sampling

Sampling Unit : One company of NSE-50

Sampling Size : 5 companies from NSE-50 index

Data Sources:

Secondary Data

Internet Sources

Business Journals

Research papers

Method of Analysis:

CAPM (Regression Model)

1.10 SCOPE OF THE STUDY:

To do a relative analysis between NSE-50 index and share prices of selected

companies.

Limited to NSE-50 companies only.

1. Study of the annual reports of different sector companies:

2. For each company, annual reports are taken from the year 2012 to 2015 (2012-15).

3. The scope of the study of report is limited to the establishment of Dividend Payout Pattern and the factors necessary for such establishment

4. Following ratios have been worked out:I. Scale of firm's operation by taking Natural Log of Net Sales

II. Dividend YieldIII. Dividend Payout Ratio

1.11 LIMITATIONS OF THE STUDY:

The results of the analysis might differ if any model other than CAPM (Regression

Model) is used.

The study is limited to the 5 companies from NSE-50 index, which have declared

dividend in the year 2015.

While studying the effect of corporate dividend policy on the market price of the script, it

is assumed that all the other factors affecting the market price are constant.

Chapter – II

Review of literature

2.1 INTRODUCTION:

Efficient Market Hypothesis states that it is impossible to ‘beat the market’ because the

stock market efficiency causes the stock prices to incorporate and reflect all the new information

in the stock prices. We want to study whether the markets are efficient when the dividend policy

is announced by the corporate. There are certain issues which are to be focused upon. They are:

To find out any relation between corporate dividend policy and market value of a

company.

To analyze the effect of corporate dividend decisions in terms of creating abnormality in

the price and volume of the company.

To check whether the markets are efficient when any news about dividend decisions of a

company is received.

2.2 LITERATURE REVIEW:

Modigliani and Miller (1961) have shown, investors may be indifferent about the

amount of dividend as it has no influence on the value of a firm. Any investor can create a ‘home

made dividend’ if required, or can invest the proceeds of a dividend payment in additional shares

as and when a company makes dividend payment. Similarly, managers may be indifferent as

funds would be available or could be raised without any floatation costs for all positive net

present value projects.

Lintner (1956) analyzes as to how firms set dividends and concluded that firms have

four important concerns. Firstly, firms have long-run target dividend payout ratios. The payout

ratio is high in case of mature companies with stable earnings and low in case of growth

companies. Secondly, the dividends change follows shift in long-term sustainable earnings. The

managers are more concerned with dividend changes than on absolute level. Finally, managers

do not intend to reverse the change in dividends. He finds that firms pay predictable and regular

dividends to investors; whereas the earnings of corporate firms could be erratic. This implies that

shareholders prefer smoothened dividend income.

Brealey (1992) poses the dividend policy decision as “What is the effect of change in

cash dividends, given the firm’s capital-budgeting and borrowing decisions?” In other words, he

looks at dividend policy in isolation and not as a by-product of other corporate financial

decisions.

Baker, Veit and Powell (2001) study the factors that have a bearing on dividend policy

of corporate firms traded on the NASDAQ. The study, based on a sample survey (1999) response

of 188 firms out of a total of 630 firms that paid dividends in each quarter of calendar years 1996

and 1997, finds that the following four factors have a significant impact on the dividend

decision: pattern of past dividends, stability of earnings, and the level of current and future

expected earnings. The study also finds statistically significant differences in the importance that

managers attach to dividend policy in different industries such as financial versus non-financial

firms.

Fama and French (2001) analyzed the issue of lower dividends paid by corporate firms

over the period 1973-1999 and the factors responsible for the decline. In particular, they

analyzed whether the lower dividends were the effect of changing firm characteristics or lower

propensity to pay on the part of the firms. They observed that proportion of companies paying

dividend has dropped from a peak of 66.5% in 1978 to 20.8% in 1999. They attributed this

decline to the changing characteristics of firms: “The decline in the incidence of dividend payers

is in part due to an increasing tilt of publicly traded firms toward the characteristics- small size,

low earnings, and high growth- of firms that typically have never paid dividends.”

Chapter -III

Dividend Decisions: Practical Facts

3.1 INTRODUCTION:Dividends decisions are an important aspect of corporate financial policy since they can

have an effect on the availability as well as the cost of capital. The Lintner proposition which

asserts that the corporate management maintains a constant target payout ratio has been the most

influential.

However, the concepts of primary of dividend decisions as well as the reasons for it are

not unambiguously defined. There is a variety of theories which attempt to rationalize the

observed secular constancy of the dividend payout ratio. These studies examine the factors

underlying the secular constancy of the dividend payout ratio. These studies examine the factors

underlying the structure of the management, the nature of the product and financial markets, as

well as the influence of the shareholders in their attempt to explain the Lintner proposition.

However, in the case of any one firm, the following two pertinent questions need to be examined

on an empirical basis to provide substance to the notion of primary of dividend decisions. (a)

What are dividend decisions primary for? And (b) for whom are they primary? An attempt has

been made to develop a theoretical framework to approach these questions and identify the

appropriate concept of primary and determine empirically the relationship of the primary notion

with the objectives of the share holders and the management.

The modeling framework postulates that (a) the dividend decisions may be primary to

management of the firm and/or the shareholder, and (b) each of the decision makers can have a

short run and/or long run objective when they evaluate dividend decisions. Share price increases

have been postulated as the basic short run objective of both the groups of decisions. Share price

increases have been postulated as the basic short run objective of both the groups of decision

makers. Similarly, both the share holders and the management are viewed as net worth

maximizes over long run.

The fundamental hypothesis for the short run models is that the management increases

the dividend per share whenever the share price, and that the share holder responds, to these in

such a way as to increase the share price. This result is expected if dividend decisions are

primary for both the groups.

In the long run context, it was felt that a progressive management would increase the net

worth the firm by investments in fixed assets of through building the reserve base. Dividends

would be primary decision if the internal financing of investment is constrained by the necessity

to pay dividends at a constant rate.

These are two extreme forms on which dividend decisions can be considered to be

primary. A variety of intermediate positions are possible in any specific case of a firm. The

models were designed to accommodate a rich variety of such behavioural patterns. The

theoretical structure was empirically tested for 71 firms of the corporate sector in 6 industries

using the data of the Bombay Stock Exchange Directory for the period 1967-68 to 1980-1. The

results generally indicate that the methodology of the present study would be helpful in examine

the notion of the primary of corporate dividend policy.

The following are the salient features of the empirical results.

(a) In the case of 17 firms dividend decisions were found to be primary. The factors which

accounted for primary were the following:

(1) Need to build the desired internal reserve base in the long run, and

(2) Inadequacy of funds to finance available investment opportunities while maintaining a

desired payout ratio.

(b) The Lintner hypothesis was validated under the following circumstance:

(1) The managers are oriented towards building up reserves to minimize dependence on

external funds,

(2) There is a lack of motivation or market opportunity for growth of the firm and

(3) There is no shortage of funds to pursue the desired objectives.

(c) Primary of dividends in the long run was observed in the case of 27 firms. The significant

reasons were

(1) Shortage of funds to take care of growth opportunities as well as requisite dividends, and

(2) Inadequacy of funds the desired reserve base.

Throughout this analysis dividend decisions were considered to be primary, if and only if, both

the groups of decision makers agree to the same objective and respond to each other’s perception

of goal satisfaction. Viewed from this vantage point dividend decision were primary only in a

few cases. The Lintner hypothesis of a constant dividend payout ratio appears to hold only

because of managerial motivations and not as a response to share holders’ desire. To that extent

attributing primary to dividend decisions in such content appears to be misplaced. Most of the

management in the corporate sector appears to desire the security of internal financing and build

reserves s a priority after paying certain minimum dividend per share. Despite these conclusions

from the models of the present study two inadequacies became apparent during the course of

work: (a) the goals pursued by the management and the share holders can be at variance. The

conflict resolution mechanism has not been explicitly modeled. (b) The interrelationships

between the short run and long run models are as yet tenuous. Further progress along these lines

is possible. But it will be an agenda for the future.

3.2 ROLE OF INSIDER TRADING

The existence and implications of asymmetric information in financial markets has been the

subject of extensive research in the finance literature. Two of the major propositions in this

literature are that (1) corporate insiders take advantage of asymmetric information by trading on

their informational advantage and (2) dividend policy is related to asymmetric information.

Taken together, these propositions imply that the dividend policy of a firm and the trading gain

realized by its insiders may be related because both are related to the level of information

asymmetry between the firms inside and outside investors.

The first proposition arises from the widely accepted notion that corporate insiders often

possess and trade on information about the value of their firms shares (relative to the current

stock price) that outside investors do not possess. This information asymmetry gives insiders the

ability to identify and take advantage of mispricing in the shares of their own firms. Jaffe(1974),

Finnerty (1976), Seyhun (1986), Jeng, Metrick, and Zeckhauser (1999), and Lakonishok and Lee

(2001) provide evidence that insiders earn significant abnormal profits from trading in their own

firms shares, though estimates of the sizes of the size of these profits vary widely. It should be

noted that this trading is within the legal boundaries set by the Securities and Exchange

Commission (SEC) and is therefore not illegal insider trading.

The second proposition is consistent with three different theories about the role of dividend

policy in financial markets. The first theory is what we shall refer to as the “free cash flow

theory” of dividends. This theory focuses on the divergence of interest between managers and

shareholders and on dividends as a disciplining mechanism that reduces the agency cost

associated with such a divergence. The payment of dividend reduces free cash flow, forcing

firms to enter the capital market more frequently and divulge information as they attempt to get

financing for their operations and investments. These subject them to the scrutiny of investment

bankers, analysts, and potential new investors more often and serve to reduce the investors. Thus,

higher dividend should be associated with reduced information asymmetry, all else being equal.

The second theory is what we shall call the “institutional monitoring theory” which is based on

Allen Bernardo and Welch (2000). This theory rests on two assumptions. The first is that

institutional investors are more effective at monitoring management than retail investors. Due to

the size of their investments and the resources at their disposal, institutional investors have

greater incentive and ability to gather and analyze information pertaining to their investments, as

well as a greater ability to discipline management and push for changes when management

performs poorly. The second assumption is that institutional investors prefer high dividends

relative to individual investors due to mainly the tax effects.

Chapter – IV

The Study

4.1 COMPANY – 1

Name: Tata Consultancy Services Limited (TCS Limited)

Type Public company

Traded as BSE: 532540

NSE: TCS,BSE SENSEX Constituent, CNX Nifty Constituent

Industry IT services, IT consulting

Founded 1968

Headquarters Mumbai, Maharashtra, India

Key people N. Chandrasekaran (CEO & MD)

Services IT, business consulting and outsourcing services

Net Profit Increase 19,256.96 cr.(2014-2015)

Employees 319,000+ (April 2015)

Website www.tcs.com

TCS

Year ended as at 31st March

Total Paid up Capital

(In Cr)

Net Profit after Depreciation

and Tax(In Cr)

Dividend Paid/

Proposed(In Cr)

Retain earning carried forward

to Balance Sheet

(In Cr)

Total Reserves & Surplus

(In Cr)

2015 195.87 19,256.96 15,473.87 3,783.09 45,220.572014 195.87 18,474.92 6,267.33 12,178.83 43,856.012013 295.72 12,786.34 4,305.88 8,461.46 32,266.532012 295.72 10,975.98 4,893.04 6060.94 24,560.91

Graphical Analysis:

2015 2014 2013 20120.00

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

30,000.00

35,000.00

40,000.00

45,000.00

50,000.00

Net Profit Dividend PaidReserves & Surplus

Years

in c

rore

Year ended as at 31st March

DPS(D/N) EPS(In RS)

PAY OUT RATIO

2015 79 98.31 80.352014 32 94.17 33.982013 22 65.23 33.722012 25 55.97 44.66

EPS VS Pay out Ratio:

2015 2014 2013 20120

10

20

30

40

50

60

70

80

90

100

EPSPAY OUT RATIO

Years

2015 2014 2013 20120

10

20

30

40

50

60

70

80

90

PAY OUT RATIO

PAY OUT RATIO

Interpretation

Total paid up capital remains same from FY-2012 .but in FY- 2014 it decreases it shows it is

depend upon equity finance. Because it decreases the issue of share. Net profit increases from

FY-2012-2015 continuously. It shows the company’s business expand in each year. but in FY-

2014-2015 Net Profit is not increases as much more Than FY-2013-2014.But it is a good sign for

company. In 2015 Retain earning decreases from last years because net profit is not much more

increases from FY 2013-2014.it shows the sales are decreases but reserve surplus of company

increases from last financial year it is good sign for company to current operation for future

growth. A company paying dividends is generally a good sign. Well established companies offer

dividends back to its shareholders. If a dividend paying company stops paying dividends then

that is a big red flag. In FY-2015 Dividend paid is increases from last FY. To increase in DPS

means that the company is showing their shareholders by giving more dividend to them in the

year 2015. Next comes the PAYOUT Ratio i.e. an indication that what the company is doing

with their earnings. It implies that how much share of PAT the company is giving as a Dividend

and how much of it the company is reserved as its surplus i.e. for its expansion mode. From the

graph it is evident that the Payout ratio decrease in FY 2013 from FY 2012 after that it is

increasing 2015 it shows to the investor to invest in this stock. The earning per share of

company is increases from last year it is a good symbol. overall it shows the it is a good stock.

Abnormal Return (Volume):

No AD-30 TO AD-

1

AD-10 TO

AD-1

AD AD+1 TO ED-1

ED ED+1 TO

ED+10

ED+1 TO

ED+301 CUM. AB 896657 684470 1,608,700 1,405,734 1,126,300 1,063,160 10078272 DAYS 30.00 10.00 1.00 35.00 1.00 10.00 30.003 AVE.DAILY

AB (1/2)29888.56 68447 1,608,700 40163.85 1,126,300 106316 33594.23

4 AVE.VOL. 430487.15 AB/AVE

(3/4)0.07 0.15 3.73 0.09 2.61 0.24 0.08

AD-30 TO AD-1

AD-10 TO AD-1

AD AD+1 TO ED-1

ED ED+1 TO ED+10

ED+1 TO ED+30

0

0.5

1

1.5

2

2.5

3

3.5

4

TCS Volume Effect

Ratio

of A

B vo

l to

AV v

olum

e

Interpretation

The above chart and table represents that there is abnormality in the volume to

considerable extent. Till announcement date there was no huge volume of trade taking place. But

after announcement date the volume trading goes on decreasing. On announcement date there

was increase in price of the script but after AD price went on decreasing and also the volume was

decreasing. On ED maximum volume of trading took place and sharp rise in price was also seen

on that date. This indicates the impact of distribution of dividend news on stock market.

However after that the volume trading went on decreasing as well price after ED+10 and ED+30.

4.2 -COMPANY – 2

Name: Bajaj Auto Limited

Type Public company

Traded as BSE: 532977

NSE: BAJAJ-AUTO BSE SENSEX Constituent CNX Nifty Constituent

Industry Automobile

Founded 1930

Headquarters Pune, India

Key people Rahul Bajaj (Chairman), Rajiv Bajaj (MD)

Products Motorcycles, three-wheeler vehicles and cars

Net Profit Decrease 2,813.74 cr.(2014-2015)

Employees 9,119 + (April 2015)

Website www.bajajauto.com

Bajaj Auto

Year ended as

at 31st

March

Total Paid up Capital

(In Cr)

Net Profit after Depreciation

and Tax(In Cr)

Dividend Paid/

Proposed(In Cr)

Retain earning carried forward

to Balance Sheet

(In Cr)

Total Reserves & Surplus

(In Cr)

2015 289.37 2,813.74 1,446.84 1,366.9 10,402.782014 289.37 3,243.32 1,446.84 1,796.84 9,318.652013 289.37 3,043.57 1,302.15 1,741.42 7,612.582012 289.37 3,004.05 1,302.15 1,701.9 5,751.70

Graphical Analysis:

2015 2014 2013 20120.00

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

Net Profit Dividend PaidReserves & Surplus

Year

in cr

ore

EPS VS Pay out Ratio

Year ended as

at 31st

March

DPS(D/N)

EPS(In RS)

PAY OUT

RATIO

2015 50 97.24 51.412014 50 112.08 44.612013 45 105.18 42.782012 45 103.81 43.35

2015 2014 2013 20120

20

40

60

80

100

120

EPSPAY OUT RATIO

Years

2015 2014 2013 20120

10

20

30

40

50

60

PAY OUT RATIO

PAY OUT RATIO

Interpretation:

Total paid up capital remains same from FY-2012 . Net profit decreases from FY2014 . It shows

the company’s business is not expand and goods are not sold in well on FY-2014-2015 .also

Retain earning decreases from last Financial year. because net profit has decreased. it shows the

sales are decreases but reserve surplus of company increases from last financial year it is not

good sign for company because net profit and retain earning are decreases from last year it

means company has not invest in current operation and in new ventures . A company paying

dividends is generally a good sign. Well established companies offer dividends back to its

shareholders. If a dividend paying company stops paying dividends then that is a big red flag. In

FY-2015 Dividend paid is remain same from last Financial year. it shows red sign to the investor

to invest in this stock. The earning per share of company is decrease from last year it is not

good symbol. From the graph it is evident that the Payout ratio is increasing from FY year 2014

to 2015 but it is increasing from year 2013 to 2015considerably overall it shows the it is not a

good stock. because company not investment as much require.so Reserve surplus is only

increasing.

Abnormal Return (Volume):

No

AD-30 TO AD-

1

AD-10 TO AD-

1 ADAD+1

TO ED-1 ED

ED+1 TO

ED+10ED+1 TO4-8-2015

1 CUM. AB396700.

4312746 261099

0 400616.9 239855430688.

8 373880.7

2 DAYS 30.00 10.00 1.00 34.00 1.00 10.00 18.00

3AVE.DAILY

AB (1/2)13223.3

4 31274.6261099

0 11782.85 23985543068.8

8 20771.15

4 AVE.VOL. 424423.7

5 AB/AVE (3/4) 0.03 0.07 6.15 0.03 0.56 0.1 0.04

AD-30 TO AD-1

AD-10 TO AD-1

AD AD+1 TO ED-1

ED ED+1 TO ED+10

ED+1 TO 4-8-2015

0

1

2

3

4

5

6

7

Bajaj Auto Volume Effect

Rati

o of

AB

Vol

. to

Avg

Vol

.

Interpretation:

As we see that there is a big amount of positive abnormality in volume on announcement

date. This could be due to great amount of liquidity in script and price could be such that small

investors tempted to invest in it. But there is fall in AB volume after announcement date. After

announcement date the volume has decreased. Moreover the price chart also indicates the

positive return . But in ED volume is increases. This shows that the decrease in volume is due to

the few buyers who are ready to buy this share at higher price

4.3 COMPANY – 3

Name: Zee Entertainment Enterprises Ltd.

Type Public company

Industry Mass media

Founded October 1992

Headquarters Mumbai, Maharashtra, India

Key people Subhash Chandra (Chairman), Punit Goenka (MD & CEO)

Products Broadcasting, publishing, cable, movie production

Net Profit Increase 831.80 cr.(2014-15)

Employees 1,826+ (April 2015)

Website www.zeetelevision.com

Zee Entertainment

Year ended as

at31st

March

Total Paid up Capital

(In Cr)

Net Profit after Depreciation

and Tax(In Cr)

Dividend Paid/

Proposed(In Cr)

Retain earning carried forward to

Balance Sheet(In Cr)

Total Reserves &

Surplus(In Cr)

2015 2,115.20 831.80 216.10 494.6 2,472.302014 2,113.00 772.30 192.10 571.6 1,855.102013 95.40 640.70 191.90 448.8 3,257.402012 95.90 489.70 143.80 345.9 2,899.20

Graphical Analysis:

2015 2014 2013 20120

500

1000

1500

2000

2500

3000

3500

Net ProfitDividend PaidReserves & Surplus

Year

In C

rore

EPS VS Pay out Ratio

Year ended as at 31st March

DPS(D/N) EPS(In RS)

PAY OUT RATIO

2015 2.25 7.40 30.42014 2.0 7.95 25.152013 2.0 6.72 29.762012 1.5 5.11 29.35

2015 2014 2013 20120

5

10

15

20

25

30

35

EPSPAY OUT RATIO

Years

2015 2014 2013 20120

5

10

15

20

25

30

35

PAY OUT RATIO

PAY OUT RATIO

Interpretation:

Total paid up capital increase from last years . it shows it is not depend upon equity finance.

Because it increases the issue of share. Net profit increases from FY-2012 to FY-2015

continuously. It shows the company’s business expand in each year. it is a good sign for

company. In 2015 Retain earning decreases from last Financial year because company give

more dividend than last Financial year 2014. Reserve surplus of company increases from last

year it is good sign for company to current operation for future growth. A company paying

dividends is generally a good sign. Well established companies offer dividends back to its

shareholders. In FY-2015 Dividend paid is increases from last year. it shows to the investor to

invest in this stock. The earning per share of company is little decreases from last year it is not a

good symbol. overall it shows the it is a good stock. From the graph it is evident that the Payout

ratio is increasing from FY- 2014 to FY-2015 which means that the dividend paying security is

increasing. In 2014 the Payout ratio was decreasing. overall it shows that it is a good stock.

Abnormal Return (Volume):

NoAD-30

TO AD-1

AD-10 TO AD-

1 ADAD+1

TO ED-1 ED

ED+1 TO

ED+10ED+1 TO 4-8-2015

1 CUM. AB 3065420 530022011,374,30

0 23084971,249,00

0258569

0 2310339

2 DAYS 30.00 10.00 1.00 53.00 1.00 10.00 18.00

3AVE.DAILY

AB (1/2)102180.6

6 5,300,2211,374,30

0 678971,249,00

0258569

0128352.1

6

4 AVE.VOL. 2584570

5 AB/AVE (3/4) 0.04 0.20 4.4 0.03 0.5 1 0.05

AD-30 TO AD-1

AD-10 TO AD-1

AD AD+1 TO ED-1

ED ED+1 TO ED+10

ED+1 TO 4-8-2015

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Zee EntertainmentVolume Effect

Ratio

of A

B Vo

l. to

Avg

Vol

.

Interpretation

We can see that there is a big amount of abnormality in the volume on the Announcement

Date. This could be due to huge selling pressure on the Announcement Date. The Absolute

volume rises gradually before the Announcement Date and reaches on a high peak on the

Announcement Date. After the Announcement of Dividend, the Absolute volume falls down

slowly. This indicates that on the Announcement Date, there must have been some adverse

impact on the investors so that the volume had been shot up. But in ED it increased also it

increased continuously but after some day the volume is fall down. In all, we can see that there

exists abnormality in the volume due to high return generated by the script.

4.4 COMPANY – 4

Name: Sesa Sterlite a Vedanta company

Type Public company

Traded as BSE: 500295NSE: SESAGOA ,NYSE: SSLTs

Industry Mining

Founded 1954

Headquarters Goa, Karnataka, Odisha - India

Key people Anil Agarwal (Chairman Emiritus) Navin Agarwal(Chairman)Tom Albanese (Chief Executive Officer) D.D. Jalan(CFO)

Products Zinc Lead Oil and Gas Iron ore Aluminum Copper Gold and Silver

Net Profit Increase 1,927.20 cr. (2014-15)

Employees Approx. 5,100 (April 2015)

Website www.sesasterlite.com

Sesa Sterilite

Year ended as at 31st

March

Total Paid up Capital

(In Cr)

Net Profit after Depreciation

and Tax(In Cr)

Dividend Paid/

Proposed

(In Cr)

Retain earning carried forward

to Balance Sheet(In Cr)

Total Reserves & Surplus

(In Cr)

2015 296.50 1,927.20 1,215.60 711.6 33,761.372014 296.50 1,076.09 963.58 112.51 33,382.322013 86.91 120.77 8.69 112.08 12,936.882012 86.91 1,679.94 347.64 1332.3 12,826.28

Graphical Analysis:

2015 2014 2013 20120.00

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

30,000.00

35,000.00

40,000.00

Net ProfitDividend PaidReserves & Surplus

Year

In c

rore

EPS VS Pay out Ratio

Year ended as

at 31st

March

DPS(D/N)

EPS(In RS)

PAY OUT

RATIO

2015 4.1 6.50 63.072014 3.25 3.63 89.532013 0.10 1.39 7.192012 4 19.33 20.69

2015 2014 2013 20120

10

20

30

40

50

60

70

80

90

EPSPAY OUT RATIO

Years

2015 2014 2013 20120

10

20

30

40

50

60

70

80

90

100

PAY OUT RATIO

PAY OUT RATIO

Interpretation:

Total paid up capital remains same from last Financial year .but in 2014 it has increased from

previous Financial year so it shows it doesn’t depend upon equity finance. Because it increases

the issue of share. Net profit increases from last year . It shows the company’s business expand

in this year. it is a good sign for company. In 2015 Retain earning increases from last year

because net profit is increases from FY 2013-2014.it shows the sales are increase also reserve

surplus of company is increases from last Financial year it is good sign for company to current

operation for future growth. A company is paying dividends is generally a good sign. Well

established companies offer dividends back to its shareholders. In FY-2015 Dividend paid is

increase from last year. it shows good sign for investor to invest in this stock. The earning per

share of company is decreases from last year it is a bad symbol. PAYOUT Ratio i.e. an

indication that what the company is doing with their earnings. From the graph it is evident that

the Payout ratio has decreased from financial year 2014 to 2015 but it is increasing from year

2013 to 2014 considerably. overall it shows that it is not a good stock.

Abnormal Return (Volume):

No

AD-30 TO AD-

1

AD-10 TO AD-

1 ADAD+1

TO ED-1 ED

ED+1 TO

ED+10

ED+1 TO 4-8-

2015

1 CUM. AB 451177 4691064681071

6 4960929585893

2 7937071 6567488

2 DAYS 30.00 10.00 1.00 46.00 1.00 10.00 21.00

3AVE.DAILY

AB (1/2)15039.2

3469106.

4681071

6107846.2

8585893

2793707.

1312737.5

2

4 AVE.VOL. 2052584

5 AB/AVE (3/4) 0.007 0.22 3.32 0.053 2.35 0.4 0.15

AD-30 TO AD-1

AD-10 TO AD-1

AD AD+1 TO ED-1

ED ED+1 TO ED+10

ED+1 TO 4-8-2015

0

0.5

1

1.5

2

2.5

3

3.5

Sesa Sterlite volume effect

Rati

o of

AB

Vol

. to

Avg

Vol

Interpretation

We can see from the above chart that on announcement date and effective date there

was a positive cumulative abnormal volume generated. on the effective date price had rise to

maximum level. At that time even the maximum abnormal volume was also generated. From this

we can interpret that investors were waiting for the effective distribution date. After the

distribution of dividend investors started selling of their shares and the abnormality began to

reduce gradually after the effective dividend distribution date.

4.5 COMPANY – 5

Name: State Bank of India

Type Public company

Traded as BSE: 500112NSE: SBIN, LSE: SBID,BSE SENSEX Constituent, CNX Nifty Constituent

Industry Banking, Financial Services

Founded 27 January 1921, Imperial Bank of India 1 July 1955, State Bank of India 2 June 1956, nationalization

Headquarters Mumbai, Maharashtra, India

Key people Arundhati Bhattacharya (Chairperson)

Products consumer banking, corporate banking, finance and insurance, investment banking, mortgage loans, private banking, private equity, savings, Securities, asset management, wealth management, Credit cards,

Net Profit Increase 13,101.57 cr (2014-15)

Employees 222,033 + (April 2015)

Website www.sbi.co.in

State Bank of India

Year ended as at 31st

March

Total Paid up Capital

(In Cr)

Net Profit after

Depreciation and Tax(In Cr)

Dividend Paid/

Proposed(In Cr)

Retain earning carried forward

to Balance Sheet

(In Cr)

Total Reserves &

Surplus(In Cr)

2015 746.57 13,101.57 2,557.28 10544.29 127,691.652014 746.57 10,891.17 2,239.71 8651.46 117,535.682013 684.03 14,104.98 2,838.74 11266.24 98,199.652012 671.04 11,707.29 2,348.66 9358.63 83,280.16

Graphical Analysis:

2015 2014 2013 20120.00

20,000.00

40,000.00

60,000.00

80,000.00

100,000.00

120,000.00

140,000.00

Net ProfitDividend PaidReserves & Surplus

Years

In C

rore

EPS VS Pay out Ratio

Year ended as

at 31st

March

DPS(D/N)

EPS(In RS)

PAY OUT

RATIO

2015 3.5 17.55 19.942014 30 145.88 20.562013 41.5 206.20 20.122012 35 174.46 20.06

2015 2014 2013 20120

50

100

150

200

250

EPSPAY OUT RATIO

Years

2015 2014 2013 201219.6

19.8

20

20.2

20.4

20.6

20.8

PAY OUT RATIO

PAY OUT RATIO

Interpretation:

Total paid up capital remains same from last financial year .but in FY2014 it increases from

previous financial year it shows it doesn’t depend upon equity finance. Because it increases the

issue of share. Net profit increases from last year continuously. It shows the company’s business

expand in each year. it is a good sign for company. In 2015 Retain earning increases from last

year because net profit is increases from FY 2013-2014.it shows the sales are increased and

reserve surplus of company also increases from last year it is good sign for company to current

operation for future growth. A company paying dividends is generally a good sign. Well

established companies offer dividends back to its shareholders. In FY-2015 Dividend paid is

increases from last year. it shows to the investor to invest in this stock. The earning per share of

company has decreases from last year it is not a good symbol. . From the graph it is evident that

the Payout ratio has decreased from year 2014 to 2015 but it had increased from year 2013 to

2014 considerably. Lower is the Payout Ratio of a company higher securing the payment of the

dividend. Overall it shows that it is a good stock. but near future it will give more benefit to

investors.

Abnormal Return (Volume):

No

AD-30 TO AD-

1

AD-10 TO AD-

1 ADAD+1

TO ED-1 ED

ED+1 TO

ED+10

ED+1 TO

ED+30

1 CUM. AB 1384220184927

09,541,20

0 18899001,601,90

0182195

0 13573173

2 DAYS 30.00 10.00 1.00 3.00 1.00 10.00 30.00

3AVE.DAILY

AB (1/2)46140.6

6 1849279,541,20

0629966.6

61,601,90

0182195

0 452439.1

4 AVE.VOL. 2039789

5 AB/AVE (3/4) 0.02 0.1 4.7 0.31 0.8 0.9 0.22

AD-30 TO AD-1

AD-10 TO AD-1

AD AD+1 TO ED-1

ED ED+1 TO ED+10

ED+1 TO ED+30

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

State Bank of india volume effect

Ratio

of A

B Vo

l. to

Avg

Vol

.

Interpretation

As we see that from chart that on announcement date and effective date there was a

positive cumulative abnormal volume generated. Before AD volume was low. But on AD

volume level suddenly increased after AD it was decreasing down .and on ED it was increased

also in stable state after ED. Then it falls down. It means that investors started selling their shares

after earning dividend income. This increased the volume of transactions and thereby generated

positive cumulative abnormal return which is in the interest of shareholders.

Chapter – V

Finding

There is no fixed pattern in the distribution of Dividend of the Industries. But pattern could be worked out for different Companies.

For Shareholders: From the Shareholders’ point of view the company which is giving more Dividend is good for the shareholders’. So companies should try to increase their DPS (dividend per share) to woo the shareholders’ to invest more and more in them.

For Organizations: The companies which have higher EPS (earning per share) is good because higher the EPS higher is the PAT. So companies should try to increase their PAT so that their EPS will increase.

Regarding Payout Ratio: From the analysis of all the five companies we found that their Payout Ratios are in the range of 25 -35 which is considered a very good ratio. The companies are distributed their almost 1/3rd as their Dividend and rest are retained as surplus.

Chapter – VI

Conclusions

CONCLUSIONS:

This project examines the relation between dividend decision and its impact on the

market price of the stock.

The information about the corporate dividend policies brings abnormality in the market

and market does perform efficiently.

The movements in stock prices and trading volume are influenced by the flow of new

information into the market.

The dividend effect are reflected into the market price of the company within the time

period of few days before the announce date to few days after the ex-dividend date.

Insider information plays vital role in the fluctuations of stock price and trading volume

of and company which has declared dividend.

We can conclude from this project that there is linear relationship between dividend

decision and market price of the company for a limited duration. Thereafter the markets

start behaving efficiently and absorb all the available information in the market.

Chapter – VII

Future Projection

Tata Consultancy Services Limited (TCS Limited):

In India, the IT Software segment has seen significant growth and has put India on the global

map.  It contributes for almost 75% of the total revenues of the IT sector. Though Hardware

enjoys second place in terms of market share in India, it is quite low as compared to global

benchmark. The BPO segment has grown well and is expected to make a footprint in the IT

Sector. It is the good news for the IT sector.

Tata Consultancy Services is an IT services, consulting and business solutions organization that

delivers real results to global business, ensuring a level of certainty no other firm can match.

TCS offers a consulting-led, integrated portfolio of IT,  infrastructure, engineering and assurance

services. This is delivered through its unique Global Network Delivery Model, recognized as the

benchmark of excellence in software development.

Years Total Paid up Capital(In Cr)

% change of Paid up Capital

TotalIncome(In Cr)

% change ofincome

TotalExpenditure(In Cr)

% changeOf expenditure

2011 295.72 29,769.27 20,511.012012 295.72 0 41,543.46 39.55 27,472.56 33.94

2013 295.72 0 50,656.53 21.93 34,119.87 24.19

2014 195.87 -33.76 67,787.71 33.81 43,139.28 26.43

2015 195.87 0 78,573.02 15.91 52,549.71 21.81

Tabular Form:

Before 4 year at the time of Global crises TCS had good market value because it could have

made good opportunity for job seekers in world wide. At that it had taken the more contracts

from European country so its revenue price had increased. In 2013, TCS is ranked 57th overall in

the Forbes World's Most Innovative Companies ranking, making it both the highest-ranked IT

services company and the first Indian company also TCS recognized as “Big Four” IT Services

brand . TCS became No. 2 IT services company in the world by M-cap in 2013. In 2014 TCS

joined top 10 global IT services companies club and it recognized as world’s fastest growing

global IT Services brand ,became the first Indian company to cross the Rs 5 lakh crore mark in

market capitalization also paid Rs 12,750 crore in dividends to its shareholders -- one of the

highest-ever dividend payout by an Indian company.  .But For the year ended March 31, 2015,

TCS lost 14.9% of its total workforce of over 3 lakh employees because of suffering in high

attrition.

In Last 12 months Infosys give the more return than TCS. So in near future TCS will try to more

return. Now its market price is better than other software company. In FY-2015 Reduced the

corporate tax so it is easy for it company to growth in the market and extended business. Now

BSE try to cross over 30,000 all of the company support to cross this point TCS is the one of

them. Now TCS market Price is 2505 it will increase in future because It is not going to go down

as much but at the same time upside is limited. Now TCS wanted to extend their business all

over the world so Announces Global Strategic Partnership with FICO a leading analytics

software company, to enable clients to purchase and implement FICO solutions through TCS.

Also Bank of Bhutan selects TCS for Core Banking to power next generation banking services

this two are good opportunity for TCS to increase their business.

Year Net profit( In Cr)

%change of net profit

Reserve surplus( In Cr)

% change of Reserve surplus

2011 7,569.99 19,283.77

2012 10,975.98 44.99 24,560.91 27.36

2013 12,786.34 16.49 32,266.53 31.37

2014 18,474.92 44.48 43,856.01 35.91

2015 19,256.96 4.23 45,220.57 3.11

In 2015 TCS Won Business Transformation Award from Pegasystems , TCS China Awarded at

Global CEO Innovation in china and Won Gold, Silver and Bronze Stevieat 2015 American

Business Awards .Definitely it will increases the brand value of TCS and other countries also

give chance to increase its business. so company's net profit will grow, aided by other income.

In near future TCS market will grow up.

Expected TCS Growth:

2012 2013 2014 2015 2016 20170

5

10

15

20

25

30

35

40

45

50

TCS Future Expection

Chan

ge in

%

Bajaj Auto Limited:

India, no doubt is a big market for two-wheelers with numerous manufacturers present in the

country and the production figures reveal that too. Close to 18,499,970 two-wheelers were

produced in India in FY15, which meant that a two-wheeler came out of an assembly line every

two seconds. Eight out of ten bikes sold is either from Hero, Honda or Bajaj. One out of

every 2 three-wheeler passenger carrier is a Bajaj. Bajaj is for the three-wheeler passenger

carrier segment. Out of 432,234 three-wheeler passenger carrier, 234,345 units sold are from

BajajAuto.

Years Total Paid up Capital

(In Cr)

% change of Paid up

Capital

Income(In Cr)

% change of

income

Expenditure(In Cr)

% changeOf

expenditure

2011 289.37 17,782.08 13,309.802012 289.37 0 20,097.17 0.13 15,903.14 19.482013 289.37 0 20,768.74 0.03 16,338.00 2.732014 289.37 0 20,874.82 0.005 16,062.67 -1.662015 289.37 0 21,911.70 0.05 17,553.02 9.27

Tabular form:

Years Net profit(In Cr)

%change of net profit

Reserve surplus(In Cr)

% change of Reserve surplus

2011 3,339.73 4,620.852012 3,004.05 -10.05 5,751.70 24.472013 3,043.57 1.31 7,612.58 32.352014 3,243.32 6.5 9,318.65 22.412015 2,813.74 -13.24 10,402.78 11.63

Bajaj Auto’s market share in the two-wheeler segment is down in FY12, due to volume decline

for the Discover and market share loss in the premium segment to players such as Royal Enfield.

Launches in the economy segment and upcoming launches in the sports premium segment

including a new Pulsar, will help fortify its position in these segments. so the company large

investment to the project.

In2 012-13(FY2013) also continued to be poor. In the backdrop of GDP growth of country. so

the company face more problem.Net Profit was increased but in not expected. Tax also increased

.it is totally effect to this company.

In 2013-2014(FY-2014) saw Bajaj Auto Ltd. achieve its highest ever operating earnings before

interest, tax, depreciation and amortization (EBITDA), profit before tax(PBT) and profit after

tax (PAT).also in 2013 Bajaj Auto was displaced from the second spot by the rapidly growing

Japan's Honda Motorcycle & Scooter India . because introduce new motor cycle and develop the

R&D company.In 2013 Bajaj Auto plans to export Discover 100T motorcycle to outside of

INDIA. and in 2014on 1st month company bags order in Sri Lanka this gave the more benefit to

company.

In 2014-2015 (FY2015) company sales performance impacted by slowdown in Egypt and

Nigeria, it is key export markets. So motorcycle sales, including exports, dropped. also face the

challenges on the international front where volumes have come down due to political and

economic uncertainty. also company not introduce the new bike.Also company invest large

money to expand their business.

Now the Bajaj company market is decline. So company has decided to introduce new bike like

Bajaj Platina 100 ES, Bajaj CT 100 (Re introduced), Pulsar RS 200, Pulsar AS200 & AS150,

Pulsar NS150 to expand their business. Bajaj CT 100 has own reputation is a economic bike.

Rural people will Interest to purchase these Bike this will help to company increase in Revenue.

‘Make in India’ programmed, aimed at attracting foreign investments and turning the country

into a manufacturing hub. Auto industry will be the main driver for manufacturing growth in the

India. Therefore, the automotive sector has been chosen as a top priority area under the “ Make

in India” programme. It targets to make India the world’s third largest market for automobiles by

2016 .so this effect will definitely affect to the Company to expand the business in domestic .

Recent Central Bank of India signed Memorandum of Understanding (MOU) with Bajaj Auto

Limited to provide finance in less interest for customers who intend to buy the Bajaj's Auto

Rickshaws .Easily one poor people purchase the auto by take loan from this bank. Andhra Bank

and Bajaj Auto have signed a memorandum of understanding (MoU) for a strategic tie-up for

financing of Bajaj 2-wheelers being purchased by rural farmers under a scheme called `Bajaj

Kisan Chakra'. Maharashtra Govt. several announcements by auto majors, all aimed at expanding

their existing plants in the state., Bajaj Auto also invest a Rs 4,000 crore to expand their

business.it will definitely grow in near future.

Expected Bajaj Auto.Growth:

2012 2013 2014 2015 2016 2017

-20

-10

0

10

20

30

40

Bajaj Auto Future Expection

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State Bank of India(SBI)

The banking sector, being the barometer of the economy, is reflective of the macro-economic

variables. While the Indian economy is yet to catch strength, the Indian banking system

continues to deal with improvement in asset quality, execution of prudent risk management

practices and capital adequacy. With the potential to become the fifth largest banking industry in

the world by 2020 and third largest by 2025 according to KPMG-CII report, India’s banking and

financial sector is expanding rapidly. The Indian Banking industry is currently worth Rs. 81

trillion (US $ 1.31 trillion) and banks are now utilizing the latest technologies like internet and

mobile devices to carry out transactions and communicate with the masses.

State Bank of India (SBI) is an India-based commercial bank. The Company’s banking activities

include Personal Banking, Agricultural/Rural, NRI Services, International Banking, Corporate

Banking and Services. The Personal Banking offers deposit schemes, personal finance, gold

banking and services. SBI was ranked 73rd largest bank in the world, according to 2014 SNL

financial data. SBI had 190 overseas offices spread over 36 countries.

Year Total Paid up Capital

(In Cr)

% change of Paid up

Capital

Total Income(In Cr)

% change of

incomeTotal

Expenditure(In Cr)

% changeOf

expenditure

2011 635.00 96,324.7 88,954.452012 671.04 5.67 120,872.90 25.48 109,165.61 22.72

2013 684.03 1.93 135,691.94 12.26 121,586.96 11.37

2014 746.57 9.14 154,903.72 14.15 144,012.55 18.44

2015 746.57 0 174,972.96 12.95 161,871.39 12.4

Tabular Form:

In

year 2012 Bank its revenue was increased out of which domestic operations contributed to

95.35% of revenue. Similarly, domestic operations contributed to 88.37% of total profits for the

same financial year. The company profit was increased to 58.84%. In 2012-2013its net profit

increase but its decrease from last year because in 2013 company expand their business in

foreign country. as of 28 March 2013, the bank had 190 overseas offices spread over 36

countries. So company expenditure more money on it. In 2013-2014 company net profit

decreases 23 % from previous year. because India's economic slowdown in this fiscal years has

dragged banks' loan growth levels to multi-year lows, while bad debts surged as companies

struggled to repay. In 2014-15 (FY-2015) company income increases but company not

expenditure as not as previous year because company already spread their business in country

and on foreign country.

The SBI index has been developed on the basis of the bank’s internal loan portfolio, which

mirrors the credit demand in the country, and other data sets available in public domain.This

brand value will help to increases the no of the customer on this company.The customer are

increases continuously . Under the Pradhan Mantri Jan Dhan Yojana of financial inclusion

launched by Government, SBI held 11,300 camps and opened over 30 lakhs accounts by

September, which included 21.16 lakh accounts in rural areas and 8.8 lakh accounts in urban

areas. Now SBI agreed with 26 countries in worldwide to provide finance for development of

IT. On the MAKE IN INDIA purpose the GOVT. call the large foreign company to INDIA. This

the best opportunity for SBI to the grow up . SBI has signed a deal with Amazon, according to

which, they are going to develop high end payment and commerce solutions for their common

customers and small scale businesses. It seems that both Amazon and SBI have several small

scale business ventures as common customer . SBI is all set to sign such MoUs with leading B2B

Year Net profit(In Cr)

%change of net profit

Reserve surplus(In Cr)

% change of Reserve surplus

2011 7,370.35 64,351.042012 11,707.29 58.84 83,280.16 29.412013 14,104.98 20.48 98,199.65 17.912014 10,891.17 -22.78 117,535.68 19.692015 13,101.57 20.29 127,691.65 8.64

ecommerce platform Snapdeal. from this ecommerce company will get more profit from it

because Ecommerce has grown up day to day. SBI has also confirmed their partnership with

Paypal. PayPal is the world’s leading open digital payments company. The partnership will

enable SBI Debit cardholders to use PayPal when buying products from overseas websites and

allow SBI’s Micro Small and Medium Enterprise customers to gain access to PayPal’s secure

payment solutions. Indian Army has signed a Memorandum of Understanding (MoU) with the

State Bank of India on the Defence Salary Package it is the another opportunity for

company to grow up. So In the near future SBI will grow up.

Expected SBI Growth:

2012 2013 2014 2015 2016 2017

-30

-20

-10

0

10

20

30

40

50

60

70

SBI Future Expection

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Chapter –VIII

Suggestions and Recommendations

The dividend news in the market creates abnormality in the return and volume of the

script, so that investor should not treat that markets are always efficient.

Investors should behave rationally while taking their decision regarding investment in

any script. They should wait for the abnormality in the script to be removed before

investing in it.

For long term investor, dividend decision of a company should not be a major influencing

factor in their investment decision.

Investors should consider the fundamentals of the company before investing in it and

should consider the actual performance of the company over the period of time.

Dividend as a corporate event affects the share prices of the firm for a specific time

period only. As dividend event gets over the abnormality in the script is removed and the

stock prices start reflecting its actual value. So investors should not get lured by the

dividends.

Directors should adopt a dividend policy which gives consideration to the interests of

each of the group comprising a substantial proportion of shareholders.

A definite dividend policy, followed for a long period in the past trends to create

clientele effect. That is it attracts those investors that consider the dividend policy in

accord with their investment requirements. If the company suddenly changes its dividend

policy, it may work to the detriment to those shareholders as they may have to switch to

other companies to fulfill their needs. Thus an established dividend policy should be

changed only after having an analyzed its probable effect on existing shareholders. It

should be changed slowly and not abruptly.

A huge positive abnormal return before the announce date of dividend indicates the sins

of leakage of any insider information. So the investor must check room for such insider

information before investing in that company. This will help them to protect themselves

from future losses.

BIBLIOGRAPHY

REFERENCES:

Anand, M. (2004). “Factors influencing dividend policy decisions of corporate India”. ICFAI Journal of Applied Finance, 10(2), 5 -16

Dr. Y.S.R (2003). “Dividend Policy of Indian corporate firm: An analysis of trends and determinants”.

Farouqui, S.U., & Saiyed, A.A. (2008). “Dividend – A lure for investors”. Banking Finance, pp-5.

Black, F. (1976), “Dividend Puzzle” Journal for portfolio Management, Vol. 2, No 2, winter, pp. 5-8

Mahahjan, S & Singh, B, (2008). “Trading Volume and Return Volatility Dynamics in Indian Stock Market.” The ICFAI journal of Applied Finance., 14(2), pp-20.

Rijwani, P. (2007) “Stock split – The mystery Unleashed”, Research Development Association Journal, December 2007.

Singla, H.K. (2007). “An Empirical Test – Stock Split Announcement in Indian Market.” Portfolio Organizer, pp-9

Miller, M and K. Rock (1985), “Dividend Policy under Asymmetric Information”, Journal of Finance, Vol. 40, No.4, pp. 1031-1051.

Data Collected from

www.bseindia.com

www.moneycontrol.com

https://en.wikipedia.org/wiki/TCS_Limited

http://en.wikipedia.org/wiki/ Bajaj Auto Limited

http://en.wikipedia.org/wiki/SBI Limited_

https://en.wikipedia.org/wiki/ Zee Entertainment Enterprises Ltd

http://en.wikipedia.org/wiki/ Sesa Sterlite Limited.