Role of Dividend Signalling in Corporate Finance - Dissertation Example

Download file to see previous pages Firms communicate value and financial well-being through the payment of dividends to their shareholders. Investors generally practice a common activity i.e. “dividend check in the mail” at each quarter when their invested firms declare their quarterly financial results. The dividend is a way of sharing or distributing companies’ earnings to the shareholders on a regular basis. Companies distribute dividend quarterly, half-yearly, or on yearly basis. Regular payment of dividends by a firm shows its sustainable financial growth and it also determines a firm’s future performance and prospects.

The dividend payment record of a firm is one of the most important factors for investment decision-making for the shareholders and shareholders always expect regular payment of dividends from the companies where they invest. So, a company’s ability and willingness to pay regular dividend payout determines the strong financial condition of the company.

The concept of dividend payment was not there in business practice before the Securities and Exchange Act was introduced in the year 1934. Companies required a law for mandatory disclosure of financial information. Since the initial time of dividend payment by limited companies, it has become one of the most important parameters of financial health and also remains one worthwhile yardstick to evaluate a company’s current and future prospects.

Mature profitable companies generally pay dividends to their shareholders. However, if a company does not pay a dividend that does not mean that the company is not able to generate substantial earnings. Growth companies generally pay dividends. If the management of a company thinks that the growth opportunity of the company is much better than its investment opportunity available to the new investors or the existing shareholders then the company pays dividends to enhance the investment opportunity of the company.

So, the dividend is one of the most important topics of corporate finance in theoretical overview and it is also an important indicator of the financial health of a company which is essential for investment decision-making.

Objective
This study represents academic research work on corporate accounts. The objective of the study is to assess the role of dividend signaling in corporate finance. Shareholders of a company always expect regular dividend payout from the companies in which they invest. So, the announcement of a dividend payout by a firm has a major impact on its shareholders. Therefore, another objective is to analyze the dividend policy and dividend payout of different types of companies and the impact of dividend announcements on the shareholders. ...Download file to see next pages Read More