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Project report synopsis

Working title :
An

insight

into

dividend

strategies

and

market

valuation.

Name
Name of the programme

:
:

Post Graduate

Diploma In Managemen

Purpose of the project


Dividend policy comprises one of the major decision areas of financial
management. A firm has to choose between distributing profits to the
shareholders and ploughing them back into the business. The ultimate
choice would, however depend upon the effect of the decision on the
maximization of the value of the firm.
Corporate dividend policy has captured the interest of economists of this
century and over the last five decades has been the subject of intensive
theoretical modelling and empirical examination. A number of conflicting
theoretical models (all lacking strong empirical support) define current
attempts to explain corporate dividend behaviour. Initial forays into

theorizing corporate dividend policy are divided as to their prediction of


the dividend payments effect on share price. Over the last century, three
schools of thought have emerged. One fraction sees dividends as
attractive and as a positive influence on stock price. A second block
believes that stock prices are negatively correlated with dividend payout
levels. The third group of theories maintains that firm dividend policy is
irrelevant in stock price valuation.
This paper makes an attempt in looking at the implication of dividend
movement and announcement on the valuation of companies in a given
sector expressed in terms of Tobins Q, over a period of 16yrs (19972013). Also tests the validity of the model used in explaining valuations
in an industry.

Aim
The study undergone on DIVIDEND STRATEGIES is to study the
implications of different dividend strategies on different firms, how it
affects the valuation of different firms.

OBJECTIVES OF THE STUDY:


Does a change in the firms dividend yield explain Q A over and above
the control variables?
Is there any difference in th1111e relationship between a firms
dividend strategy and QA

due to variations among the different

industry sectors and across time ?

The goodness of fit of the model used in explaining the valuation


across industries, is it feasible?

SCOPE OF THE STUDY:


The common element among Modigliani & Miller, Linter, Fama &
Babiak, Darling & Turnovsky is that they all have tried at solving the
mystery about dividend and this study joins the band wagon. The data
under study is categorized in two periods. Period 1 from 1997-2004
when our Indian Economy was changing after the slump faced by the
introduction of Liberalization in 1991. The second Period 2 is from 20052013* when GDP rate was observed to show positive trend.
The data has been collected for 6 industries in INDIA which are
very less regulated, namely: Automobile (13), Information & Technology
(19), Food Products (21), Drugs &Pharmaceuticals (30), Machinery (66)
and Industrial & Infrastructural constructions (5). Companies which
existed from 1997-2013 have been taken into consideration.
*Note- till 2013 December data has been taken, since 2014 figures
were not available.

Research methodology
PRIMARY DATA
To investigate about the research objective the following two models
have been used:
MODEL 1: Qt = b0 + b1 ROIt + b2 EXPRDt + b3 D1t + b4 D2t + et
MODEL 2: Qt = b0 + b1 ROIt + b2 EXPRDt + b3 DYCt + et
Where Q = Tobins Q
ROI = Return on investment
EXPRD = Standardised Exploration, research And Development
Expenses.
DYC = Dividend Yield Change.

D1 & D2 = Movement in the Dividend Yield


Tools used
A. SPSS
B. MS EXCEL
STATISTICAL TOOLS USED :
A. CORRELATION
B. REGRESSION

SECONDARY DATA:
Referred to books and journals for research.
Other publications by the company like additions with daily news
paper, articles in papers etc.

Key questions
1.
2.
3.
4.
5.

Are dividends as attractive and as positive influence on stock prices?


Is stock price negatively correlated with dividend payout levels?
A firms dividend policy is irrelevant in stock price valuation?
Which dividend strategy suits a firm?
Are the industries which are less regulated in Indian Economy having a peculiar trend in
valuation & dividend distribution?

Proposed contents:
Abstract
Introduction about the study
Scope of the study
Objectives of the study
Literature Review
Research methodology

Variables details
Data
Findings
Conclusion
Recommendations and Limitations
Glossary
Bibliography

Proposed Work Plan:


Sl.
no

Period

1.

One
week

Particulars
Study the six sectors which are less
regulated in the industry.

2.

Two week Collection of Data

3.

Two Week

4.

Two Week Document / Report preparation

Calculation and Interpretation of data


collected