Dividend Policy and Its Impact on Performance of Indian Information Technology Companies

Author:Mohd Taqia, Mohd Shamim Ansarib*, Jahangir Chauhanc, Mohd Ajmald

Abstract:
Purpose: This study is an attempt to evaluate the impact of dividend policy on profitability of Indian Information Technology companies which are listed on Bombay Stock Exchange. This paper is also an attempt to assess nature of association between Dividend Policy and Profitability of IT stock. An attempt has also been made to evaluate appropriate Regression Model. Design: In order to accomplish the study top ten companies belonging to IT sector were considered based on market capitalization. The study has been done in two parts; in the first part, trend analysis of company’s profitability ratios was carried out. The second part of the study comprises of testing of hypotheses using correlation matrix and panel regression model. Findings: The selected companies do not follow consistent pattern of dividend payments. The study also reveals association between Price Earning Ratio (PER) and Dividend Payout Ratio (DPR) is low but positive at 95 % level of confidence. Similarly, at 95 % confidence level, association between Return on Asset (ROA)–Earnings per Share (EPS) and Return on Equity (ROE) – EPS is low but positive. However, there is a strong relation between ROE-ROA at 99 % level of confidence. Hausman Test reveals that random affect model is appropriate thereby indicating that performance of selected companies have significant impact on dividend policy of selected companies. Value: Dividend policy and pattern of its distribution has been an important issue of discussion in finance. The study would be helpful for users like managers who are interested in profit planning and investors. The paper will help the reader to develop further understanding on dividend policy which is still on the most complicated subject in corporate finance. This study is also significant because an attempt has been made to develop appropriate dividend policy models.

Keywords:Keywords: Dividend, Firm Performance, Earnings per Share, Price Earnings Ratio, Return on Assets, Return on Equity.

DOI:

International Journal of Trade & Commerce (Vol: 7 Issue:2)