Title - Dividend Policies and Practices - A Case Study of Selected Companies in Textile Industry

Title - Dividend Policies and Practices - A Case Study of Selected Companies in Textile Industry

Chapter 01

1.1 Introduction

Dividend policy has been an issue of interest in financial literature since Joint Stock Companies came into existence. Dividends are commonly defined as the distribution of earnings (past or present) in real assets among the shareholders of the firm in proportion to their ownership. Dividend policy connotes to the payout policy, which managers pursue in deciding the size and pattern of cash distribution to shareholders over time.

Managements’ primary goal is shareholders’ wealth maximization, which translates into maximizing the value of the company as measured by the price of the company’s common stock. This goal can be achieved by giving the shareholders a “fair” payment on their investments. However, the impact of firm’s dividend policy on shareholders wealth is still unresolved.

 The area of corporate dividend policy has attracted attention of management scholars and economists culminating into theoretical modelling and empirical examination. Thus, dividend policy is one of the most complex aspects in finance. Three decades ago, Black(1976) in his study on dividend wrote, “The harder we look at the dividend picture the more it seems like a puzzle, with pieces that just don’t fit together”. Why shareholders like dividends and why they reward managers who pay regular increasing dividends is still unanswered.

Shareholders wealth is represented in the market price of the company’s common stock, which, in turn, is the function of the company’s investment, financing and dividend decisions. Among the most crucial decisions to be taken for efficient performance and attainment of objectives in any organization are the decisions relating to dividend.

Dividend decisions are recognized as centrally important because of increasingly significant role of the finances in the firm’s overall growth strategy. The objective of the finance manager should be to find out an optimal dividend policy that will enhance value of the firm. It is often argued that the share prices of a firm tend to be reduced whenever there is a reduction in the dividend payments. Many companies are conducting a SWOT analysis as part of the strategic planning process to identify strengths, weaknesses, opportunities and threats before proceeding to the formulation of a strategy (Houben et al., 1999; Roth and Washburn, 1999). SWOT analysis, meaning the analysis of „key‟ or „critical‟ success factors, belongs to the highest ranked set of techniques of strategic analysis used by firms in empirical surveys (Glaister and Falshaw, 1999). Most of literatures are covering the strategic planning process; most approaches include a cyclic iteration of the following five elements. (i) Strategic planning process begins with a statement of the corporate mission and goals. (ii) Analysis of the organization’s external competitive environment. (iii) Analysis of the organization’s internal operating environment. (iv) Selection of focused organization strategies. (v) Implementation of the selected strategies. The last step also involves the design of the organizational structure and control systems necessary to implement the chosen strategy (Hax and Majluf, 1991). The focus of this article lies upon step 2 (external analysis) and step 3 (internal analysis). The main purpose of the external analysis is to identify opportunities and threats in the organization’s operating environment, while the internal analysis seeks to count the organization’s strengths and weaknesses.

To read more…….

Contact us -

Writekraft Research & Publications LLP

www.writekraft.com        

OR Call us @ +91- 7753818181, 9838033084

Or email us: writekraftuk@gmail.com