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4.1 Introduction
This chapter deals with analysis of impact of dividend policy on financial performance of
Land Rover. It is mentioned in the last chapter of this study that the data was collected through
secondary sources and then this data was analysed on SPSS software to come to a conclusion of
the study. Correlation analysis was performed on the data collected in order to find out whether
an association existed between dependent and independent variables or not. Moreover, regression
analysis was performed in order to find out the existence of relationship between independent
variable (dividend policy) and dependent variable (financial performance) of Land Rover. The
hypothesis developed in the first chapter for the purpose of this study will be analysed in this
chapter.
4.2 Correlations
which lie between -0 and -0.3 indicate that there is no association between variables or no
correlation. A value lying between -0.3 and -0.5 indicates a negative and weak association of
variables. Values that lie between the range of -0.5 and -0.7 shows that the association between
variables is moderately negative. Moreover, a strong negative association exists between
variables when the values of Pearson Correlation lie between the range of -0.7 and -1.0. The
level of significance of this association is measured the level of 95% with a two tailed test.
Correlations
Dividend Payout
Ratio
Net Profit Margin
Pearson Correlation
Dividend
Net Profit
Payout Ratio
Margin
Sig. (2-tailed)
.750
N
Pearson Correlation
6
.168
Sig. (2-tailed)
.750
.168
6
1
6
As shown in the table, the value of Pearson Correlation is 0.168. This is a value that lies
within the range of 0 and 0.3. The nearness of value to zero shows that the variables do not have
any correlation between them. Talking about the significance of association between variables at
the level of 5% with two tailed test, it has a significant value of 0.750. This value is greater than
5% or 0.05. Therefore it is confirmed that no association exists between variables. Hence the
result suggests that no correlation exists between dividend payout ratio and net profit margin of
Land Rover.
The table below provides the model summary for regression. It shows the value of R which
measures the association between the variables i.e. dependent and independent, the value of R
square which is also known as the coefficient of determination that measures the extent of
influence of independent variable on the dependent variable. Moreover, the table also presents
Model Summary
Model
1
R Square
.168
.028
Adjusted R
Std. Error of
Square
the Estimate
-.215
.043106
ANOVAb
Sum of
Model
1
Regression
Squares
.000
df
Mean Square
1
.000
.002
Residual
.007
Total
.008
Sig.
.117
.750a
Coefficientsa
Model
1
Unstandardized
Standardized
Coefficients
Coefficients
Std. Error
(Constant)
.075
.024
Dividend Payout
.123
.360
Ratio
Beta
t
.168
Sig.
3.094
.036
.341
.750
Y = 0 + X1 + e
Y = 0.075 + 0.123 X1
Hence, the model depicts that keeping the independent variable constant, net profit
percentage of Land Rover would be 0.075. This clarifies that without the impact of dividend
payout ratio, the value of net profit percentage of Land Rover would be 0.075. The model also
demonstrates that increase in one unit of dividend payout ratio would result in an increase in net
profit percentage equivalent to 0.123. Thus the independent and dependent variables are not very
much related to each other.
Moreover, the model shows that the value of coefficient of dividend payout ratio and net
profit percentage is 0.123. This clarifies that increase in one unit in the value of dividend payout
ratio; the financial performance of Land Rover would increase by 0.123 times. Thus the
relationship between two variables is statistically insignificant and an increase in one unit of
dividend payout ratio would lead to 0.123 times of variability in the same direction to net profit
percentage of Land Rover.
The study is inclined towards evaluating the relationship between dividend policy (independent
variable) and financial performance (dependent variable) of Land Rover. Such relationship or
association was tested using correlation analysis. The level of significance was tested at 95%.
The results of correlation analysis show that no association exists between dividend policy and
financial performance of Land Rover. Such conclusion is based on the value of Pearson
correlation coefficient which is 0.168. The test clarified that, with a Pearson correlation value of
0.168, no correlation exists between dividend policy and financial performance of Land Rover.
This result was also insignificant at the level of 5% which indicates that increase or decrease in
the value of dividend payout ratio would not result in increase or decrease of net profit
percentage of Land Rover.
Findings also showed that the financial performance of Land Rover and the value of coefficient
of correlation 0.168 which is a negligible coefficient of correlation. Therefore, it can safely be
said that the dependent and independent variables are not associated with each other i.e. dividend
policy has no association with financial performance of Land Rover.
From the analysis of regression results, the value of independent variable i.e. dividend payout
ratio, explains 2.8% of the changes in financial performance of Land Rover. This shows that the
factors that have not been selected for the study would account for 97.2% of changes in financial
performance of Land Rover. This clarifies that no relationship exists between dividend policy
and financial performance of Land Rover. The model of regression shows that increase in one
unit of dividend payout ratio of Land Rover would result in increase in 0.123 units of financial
performance of Land Rover which is highly insignificant or something that is negligible for the
purpose of coming to a conclusion.
4.5 Discussion
The research was conducted with the main objective of finding out the impact of dividend
policy of Land Rover on financial performance of Land Rover. The financial performance is
selected as the dependent variable and measured by net profit percentage while dividend policy
has been selected as the dependent variable or predictor which is measured by dividend payout
ratio of Land Rover during the period of 2010-2015.
Dividend policy is a very crucial financial policy; it remains one of the more intricate and
puzzling issue in the field of corporate finance (Baker et al. 2002). Shareholders use dividend as
a means to wrest financial resources from the control of management, on the other hand,
business managers use dividend in order to give credible signals of profitability to the capital
markets. Distributing profits in the favour of shareholders acts as a signal of treasury ease
because its interpretation can mean exposure of different hurdles that exist at the investment
horizon level. There are several dividend policies that a company can adopt like residual
dividend policy and constant growth policy. Dividends matter as the value of a companys share
price depends on the present value of future payments of dividends (Lally 2013). Dividend
policy is basically a choice to either pay dividends or retain funds within the company for the
purpose of reinvestment. If the worth of the company depends on its dividend payments, then a
companys dividend policy will have a direct effect on the companys cost of capital.
Theoretically speaking, if a company decides to reinvest capital now, the capital will grow by
reinvestment in more profitable avenues and the company will be able to pay a higher rate of
dividend in the future. On the other hand, retaining profits for the purpose of reinvestment is an
action that may not be well received by a companys shareholders. This is often interpreted
negatively by the financial markets, particularly in the cases of listed companies. Authors have
also made an examination with respect to the relationship between changes in dividends and
alternate metrics of future profitability, their examination has revealed that changes in dividend
have a positive relation to future earnings (Nissim and Ziv 2001). Despite these findings, there is
a lack of unanimity and consensus among empirical and theoretical researchers regarding the
relation between a companys dividend policy and its financial performance. Apple and Google
are among some of the most successful companies that choose not to pay dividends (Elgammal
2014). This is an indication that it is possible to be successful without the payment of dividends.
This is also against the view of other authors who claim that the dividend policy controversy is
among the major unsolved issues in the field of corporate finance (Bhattacharyya et al. 2008)
Talking about the significance of association between variables at the level of 5% with
two tailed test, it has a significant value of 0.750. This value is greater than 5% or 0.05.
Therefore it is confirmed that no association exists between variables. The value of R is 0.168
which is very small and revealing that there is no or negligible association between dependent
and independent variables. The value of R Square (coefficient of determination) in the table is
0.28. This explains that keeping some other factors constant that are not mentioned in this study,
the value of dividend payout ratio contributes to 28% of variance in net profit percentage of Land
Rover. The value of F statistic in the table is 0.117 and the significant value is 0.750 which is
greater than the critical value at the level of 5%. These values reveal that the model of regression
that is developed is statistically insignificant. The regression model developed above depicts that
keeping the independent variable constant, net profit percentage of Land Rover would be 0.075.
This clarifies that without the impact of dividend payout ratio, the value of net profit percentage
of Land Rover would be 0.075. The model also demonstrates that increase in one unit of
dividend payout ratio would result in an increase in net profit percentage equivalent to 0.123.
Thus the relationship between two variables is statistically insignificant and an increase in one
unit of dividend payout ratio would lead to 0.123 times of variability in the same direction to net
profit percentage of Land Rover which is very small and therefore considered negligible.
The chapter suggests that the selected variables proved to be helpful in achieving the
results for the study. The data collected through secondary sources was authentic and was
derived from reliable sources. The first part of the chapter showed the correlation analysis which
depicts the magnitude and strength of association between variables. Moreover, in order to find
out the existence of any relationship between dependent and independent variables, regression
analysis was performed. The significant values derived from regression analysis showed that the
predictor (independent variable) has no significant impact on the dependent variable. So we can
say that we accept our null hypothesis i.e. dividend policy of Land Rover has no significant
impact on financial performance of Land Rover. The dividend policy is measured by calculating
the dividend payout ratio while financial performance is measured by calculating net profit
percentage from annual reports of Land Rover.