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DETERMINANTS OF DIVIDEND POLICY

INTRODUCTION

The previous Chapter has provided an overview of the relationship between the dividend decision of a firm and it total value. In the light of the conflicting and contradictory viewpoints as also the available empirical evidence, there appears to be a case for the proposition that dividend decisions are relevant in the sense that investors prefer them over retained earnings and they have a bearing on the firm’s objective of maximizing the shareholders wealth. Given the relevance proposition of the dividend decision of the firm, the present Chapter is devoted to a discussion of the determinants of the dividend policy of a firm. Unlike the theoretical nature of the discussion in the previous Chapter, this aspect of dividend policy is more practical. Section 1 of the Chapter discusses the factors which determine the dividend policy of a firm. The issues of bonus shares (Stock dividends), share split and related issues arc covered in the subsequent Section. Section 3 outlines the legal, procedural and tax aspects of dividend payment. The  last Section summaries the main points.

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