Impact of Financial Meltdown on the Relationship Between Dividend Policy and Shareholders’ Wealth

Sandanam Gejalakshmi and Ramachandran Azhagaiah
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Sandanam Gejalakshmi: Kanchi Mamunivar Centre for Postgraduate Studies, Pondicherry University, India
Ramachandran Azhagaiah: Kanchi Mamunivar Centre for Postgraduate Studies, Pondicherry University, India

Management, 2015, vol. 10, issue 4, 355-377

Abstract: Dividend policy (DP) is considered one of the major decisions of the corporate firms regarding how much earnings could be paid as dividend. Such a DP will greatly influence the shareholders’ wealth (SW). Hence, the objective of the paper is to analyze the impact of DP on SW of Basic Material Sector in India. Out of 29 firms listed on Bombay Stock Exchange (BSE), 13 firms that have been paying dividend consecutively for the past ten years are considered for analysis. Besides descriptive statistics, Augmented Dickey Fuller Test (ADF), Levin, Lin, and Chu (LLC) t-test, Philip Perron (PP) Fisher Chi-square test, Im-Pesaran-Shin W (IPS-W) and Breitung test are used to test whether the data are stationary and to satisfy one pre-condition for co-integration Johansen Co-integration test is used. Regression and Chow test are also applied. The results of the co-integration test proves that there exists a stationary, long-run relationship between dividend per share (DPS) as well as dividend yield (DY) with SW. Regression result proves that DP has significant impact on sw and the Chow test result proves that the impact of DP on SW of Basic Material sector has been significantly affected by the event, financial meltdown.

Keywords: dividend policy; firm’s performance; financial meltdown; shareholders’ wealth (search for similar items in EconPapers)
Date: 2015
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