Professional Documents
Culture Documents
approved by the board of director. It may also include stock dividend or other forms of
stockholders. Dividends are only cash payments regularly made by corporations to their
stockholders.
The dividend policy such as the payment of dividend affects the market price of share. If
there is a debate in this issue, this theory is commonly accepted. In this report the
relationship between dividend and the market price of share is proved in the banking
sector of Bangladesh. But it is also revealed that dividend is not the only variable to affect
share price.
The result shows a significant relationship between dividend and share price. Some other
factors such as profit, EPS, growth rate, retained earnings, money supply etc.
CONTENTS
Introduction
1
Objective
2
Methodology
2
Literature Review
3
Overview of the Companies
9
Related Financial Data Analysis
Limitations
25
our country. Dividend policy is a major financing decision that involves with the payment
follows some sort of dividend payment pattern or dividend policy and obviously it is a
financial indicator of the firm. Thus, demand of the firm’s share should to some extent,
Many investors like to watch the dividend yield, which is calculated as the annual
dividend income per share divided by the current share price. The dividend yield
measures the amount of income received in proportion to the share price. If a company
has a low dividend yield compared to other companies in its sector, it can mean two
things: (1) the share price is high because the market reckons the company has
impressive prospects and isn't overly worried about the company's dividend payments, or
(2) the company is in trouble and cannot afford to pay reasonable dividends. At the same
time, however, a high dividend yield can signal a sick company with a depressed share
price. Dividend yield is of little importance for growth companies because, retained
earnings will be reinvested in expansion opportunities, giving shareholders profits in the
So, the study will investigate the relationship between dividend and the market price of
share Bangladesh. In our detailed study, we will examine with some real life sample (five
banks) that whether the dividend policy has any effect on the firm’s share price
determinants are many in members other than the dividend payment pattern, we just
OBJECTIVE
Objective guides the thinking of any set of operation either directly or indirectly. It works
as a lamp-post in a dark night to find out the right way. Our objective in this study is to
find out whether the dividend policy has any impact on share price of that company. For
this purpose we have given a term paper named, “Impact of Dividend on Share Price”.
And that’s why though there are many variables creating impact on share price, our main
Besides, as students of MBA program, the objective of this study is to acquire knowledge
about share price, share price, share market, dividend, and policy of company on
METHODOLOGY
Primary Data: Primary data is collected by interviewing with some officials of these
banks. Md. Abu Tayeb (Senior Vice President), Mohammad Jashim Uddin (Senior Asst.
Vice President) and Md. Monowar Hossain (Senior Officer) all these persons are the
staffs of DBBL help us to provide different data on this related topic.
Secondary Data: The main source of data for this report is Annual Reports. We have also
collected data from the securities market, different websites, different books and different
journals.
LITERATURE REVIEW
Gittman (2004, pp. 312) divided stock into two types, such as common stock and
preferred stock. He also showed that dividends are the outcome of investment. So,
common stocks are an ownership claim against primarily real or productive asset
(Higgins, 1995), but he also said that if the company prospers, stockholders are the chief
beneficiaries, if it falters, they are the chief losers. Smith (1988) presented that stocks are
one of the most popular forms of investment. People buy stocks for various reasons:
some are interested in the long-term growth of their investment by buying low priced
stock of a new company in the hope of substantially growth of share price over the next
few years. Another reason he suggested that in a well established firm stockholders
expect the stock growth will be stable over the long run. (Smith,1988).
Stockholders expect dividend but it is not promised (Gittman, 2004). Common stocks are
hold by true owners of the business. Sometimes they are known as ‘residual owners’ as
they receive whatever left after winding up of the company (Gittman, 2004; Higgins
1995). Another type of stock is known as publicly owned stock. Common stock owned by
stock. However, all common stock of a firm owned by a small group of investors is
denoted as closely owned stock. When all the stock is owned by a single person is known
as privately owned stock. Due to the limit of number of share, stock can be classified in
to four types. Such as authorize share, outstanding share, treasury stock and issued stock
(Gittman, 2004). Authorized shares represent the maximum number of shares a firm
allows to issue. Outstanding shares are hold by public. Treasury stock is repurchased by
firm itself and it is no longer considered as outstanding share. Issued shared are the shares
that have been put into circulation. Recently stock repurchase option is very popular as it
is able to increase stock value by decreasing outstanding stock number (Port, 1976). Port
also suggested that firms should avoid issuing stock to pay dividend as they slow down
company growth.
According to Short and Welsch (1990), Johns (1998) and Port (1976), a dividend is a
usually distributed in cash form to stock holders of a corporation approved by the board
of director. It may also include stock dividend or other forms of payment. A stock
1995).On the other hand, Ross et al. (2005) divided earnings into two parts; either it is
retained or paid as dividend. Whereas Wild et al. (2001), Johns (1998) and Kieso et al.
(2004) argued that retained earnings are the primary source of dividend distribution to the
stockholder. Dividends are only cash payments regularly made by corporations to their
stockholders (Johns, 1998). He also specified that they are decided upon the declaration
by the board of the directors and can range from zero to virtually any amount the
Jones (2005) said that dividends are the only cash payment a stockholder receives
directly from firm and these are the foundation of valuation for common stocks. Stock
preferences of the marginal investor in that firm where other things remaining same
(Denis et al., 1994). In addition, a company, which changes dividend policy, is expected
initial public offering (IPOs). Higgins (1995) said that if the company will have less
money to invest, or it will have to raise more money from external sources to make the
same investments stockholders claim on future cash flow, which reduces share price
appreciation. Moreover, during dividend announcement period stock price also fluctuate
Standard and Poor’s ranking changes on stock prices. In addition, Affleck-Graves &
Mendenhall (1992) found that stock price reacts after 8 days on average up to 54 days of
With this believe, Hampton (1996) said that value of stock increase by more dividend and
share remain undervalued by lower dividend policy. In addition, he also showed that
there are two schools of thought regarding with the effect of dividend on stick price, one
is dividends do not affect market price and the another one is dividend policies have
profound effects on a firm’s position in the stock market. . Benartzi et al. (1997), Ofer
and Siegel’s (1987) and Bae (1996) found a positive correlation between share price and
dividend. Furthermore, Campbell and Shiller (1988) found a relationship between stock
prices, earnings and expected dividends and he drives a conclusion that earnings and
dividends is powerful in predicting stock returns over several years. Wilkie analyzed a 76
months share price index and dividend announced. He found a correlation coefficient,
which was under 0.7 for the period 76 months and he also get that the maximum value of
the regression coefficient being reached after 79 months. Moreover, Shiller (1984, 1989)
recommended investors in his study to buy the stocks when price is low relative to
dividends and to sell stocks when it is high payoffs. On the other hand to their opinion,
Jensen and Johnson (1995) suggested that, dividend cut results reduction in share price.
More interesting matter is that if capital markets are perfect, dividends have no influence
on the share price (Miller and Modgliani, 1961). Miller and Modgliani (1961) also states
Southeast Asia. It was incorporated on 13 March 1983 as a public limited company under
the COMPANIES ACT 1913. In December 2001, IBBL had 121 branches; its authorized capital
Share Sponsor/Director
Govt.0 Institute 0 Foreign 0 Public 60
Percentage: 40
Graph-1: The Market Price of Share of IBBL in 2006-2007
(Highest value: 6930 Lowest value: 3408.75)
Dutch-Bangla Bank Limited (the Bank) is a scheduled commercial bank. The Bank was
established under the Bank Companies Act 1991 and incorporated as a public limited
company under the Companies Act 1994 in Bangladesh with the primary objective to
carry on all kinds of banking business in Bangladesh. The Bank is listed with Dhaka
Stock Exchange Limited and Chittagong Stock Exchange Limited. DBBL- a Bangladesh
European private joint venture scheduled commercial bank commenced formal operation
Share Sponsor/Director
Govt.0 Institute 0 Foreign 26 Public 10
Percentage: 64
Graph-2: The Market Price of Share of DBBL in 2006-2007
Highest value: 6576.5, Lowest value: 1600
BANK ASIA
promoters. The authorised and paid up capital of the bank is Tk 800 million and Tk 218
million respectively. The paid up capital is divided into 2,180,000 ordinary shares of Tk
IFIC Bank (International Finance, Investment and Commerce Bank Limited) originally
named as International Finance and Investment Company, was formed in October 1976.
company. The company was established mainly to carry out banking and other financial
BANGLADESH BANK allowed IFIC to transform itself into a banking company and
accordingly, it was renamed and after completion of required legal formalities, it started
AL BARAKA BANK Ltd often called the second Islamic bank of Bangladesh, commenced
Bangladesh, and the government of Bangladesh. The authorized capital of the bank is Tk
600 million and its paid up capital is Tk 259.55 million. The bank has now 35 branches in
price of five different banks are given. We attempted to explore some conclusion on the
behavioral pattern of changing the share market price. The data are extracted from annual
reports of five selected banks that are Arab Bangladesh (AB) Bank, Bank Asia (BA),
Dutch Bangla Bank Ltd (DBBL), International Finance and Investment Corporation
(IFIC) and Islami Bank Bangladesh Ltd. (IBBL). The annual data of these banks has been
taken from the annual reports and other annual publications of Dhaka Stock Exchange.
DIVIDEND
P/E SHARE
YEAR EPS BONUS
RATIO PRICE (MKT) CASH TOTAL
SHARE
2002 931.92 2.78 2590.7376 232.98 0 232.98
2003 195.52 20.99 4103.9648 0 39.104 39.104
2004 518.59 9.86 5113.2974 0 103.718 103.718
121.892
2005 487.57 9.32 4544.1524 0 121.893
5
2006 485.94 7.59 3688.2846 72.891 48.594 121.485
2619.5 313.308
TOTAL 50.54 20040.4368 305.871 619.18
4 5
523.90
AVERAGE 10.108 4008.08736 61.1742 62.6617 123.836
8
232.98
2000 2590.7376
50
1000 39.104
0
2001 2002 2003 2004 2005 2006 2007
0
2001 2002 2003 2004 2005 2006 2007 Year
Year
Graph-6: Trend of Market Price of Share and payment of total Dividend from 2002-
2006
45
1840.1786
2000 40 45.4925
35
1850.6349
1500 30
25
26.30925
1000 20
945.0873 20.794
15 17.572
500 10
431.3926 5
0
0
2001 2002 2003 2004 2005 2006 2007
2001 2002 2003 2004 2005 2006 2007
Year Year
Graph-7: Trend of Market Price of Share and payment of total Dividend from 2002-
2006
BANK ASIA
DIVIDEND
P/E SHARE
YEAR EPS BONUS
RATIO PRICE (MKT)
CASH TOTAL
SHARE
2002 48.51 0 0 0 0 0
2003 35.98 11.56 415.9288 0 8.6352 8.6352
2004 39.48 12.35 487.578 0 9.87 9.87
2005 34.36 8.11 278.6596 3.436 6.872 10.308
2006 42.63 10.04 428.0052 0 10.6575 10.6575
TOTAL 200.96 42.06 1610.1716 3.436 36.0347 39.4707
AVERAGE 40.192 8.412 322.03432 0.6872 7.20694 7.89414
Table-3: Financial data of Bank Asia from 2002-2006
600 12
487.578 9.87
Total Dividend Paid
500 428.0052 10
Share Price (Mkt.)
10.308 10.6575
400 8
8.6352
415.9288
300 6
200 278.6596 4
100 2
0
0
0 0
2001 2002 2003 2004 2005 2006 2007 2001 2002 2003 2004 2005 2006 2007
Year Year
Graph-8: Trend of Market Price of Share and payment of total Dividend from 2002-
2006
(IFIC)
DIVIDEND
P/E SHARE
YEAR EPS BONUS
RATIO PRICE (MKT) CASH TOTAL
SHARE
2002 19.51 23.96 467.4596 1.46325 0 1.46325
2003 15.84 14.03 222.2352 0 1.584 1.584
2004 16.09 25.3 407.077 0 1.609 1.609
2005 20.24 28.3 572.792 0 2.024 2.024
2006 62.46 15.23 951.2658 0 14.9904 14.9904
TOTAL 134.14 106.82 2620.8296 1.46325 20.2074 21.67065
AVERAGE 26.828 21.364 524.16592 0.29265 4.04148 4.33413
Table-4: Financial data of IFIC from 2002-2006
1000 16
900 951.2658 14.9904
Total Dividend Paid
14
Share Price (Mkt.)
800
12
700
600 10
467.4596
500 572.792 8
400
407.077 6
300
200 4 1.584 1.609
1.46325
100 222.2352 2 2.024
0
0
2001 2002 2003 2004 2005 2006 2007
2001 2002 2003 2004 2005 2006 2007
Year Year
Graph-9: Trend of Market Price of Share and payment of total Dividend from 2002-
2006
3000 30
2842.6632 27.924
2500 25
2000 20
1500 15
1000 10
363.9819
500 223.3392 5 0.867 0.9095
500.3001 0.1815 2.841
385.1793
0 0
2001 2002 2003 2004 2005 2006 2007 2001 2002 2003 2004 2005 2006 2007
Year Year
Graph-10: Trend of Market Price of Share and payment of total Dividend from
2002-2006
SHARE DIVIDEND
P/E
YEAR EPS PRICE BONUS
RATIO CASH TOTAL
(MKT) SHARE
3074.70952 50.4030
2002 218.716 14.058 0.1734 50.57645
8 5
2296.88772
2003 70.988 32.356 4.1588 9.90094 14.05974
8
2446.44857
2004 141.856 17.246 5.26185 23.2213 28.48315
6
2005 150.51 14.702 2212.79802 9.7857 26.7259 36.5116
2543.94297
2006 172.658 14.734 23.5372 20.43318 43.97038
2
12574.7868
TOTAL 754.728 93.096 93.1466 80.45472 173.6013
2
150.945 2514.95736 18.6293
AVERAGE 18.6192 16.090944 34.72026
6 5 2
Table-6: Financial data of total 5 Banks from 2002-2006
LIMITATION
7. Companies on which the study is made do not disclose the market position of
their share.
8. Straight line equation is used but there are different variables which affect share
price.
10. Due to lack real life experience, the level best effort may not be presented
dynamically.
to the shareholders by way of dividends, and what proportion is ploughed back for
the market value of equity shares, one key area of study is the relationship between the
will increase when a company declares a dividend rather than when it does not.
According to James Walter, the dividend policy of a company has an impact on the share
valuation. On the other hand according Myron Gordon, the dividend policy of the
But according Miller and Modiliani, the market price of the share does not depend on the
dividend payout, i.e. the dividend policy is irrelevant. When profits are used to declare
dividends, the market price increases. But at the same time there is a fall in the reserves
for reinvestment. Hence for expansion, the company raises additional capital by issuing
new shares. Increase in the overall number of shares, will lead to a fall in the market price
per share. Hence the shareholders would be indifferent towards the dividend policy.
From the above models confuses as the impact of dividend on share price. In our study
we make the co relation of different variables and try to compare which variables has the
significant impact on share price. After the study we have revealed dividend has a
1. Most of the investors are irrational. SEC should take different initiative to make
them rational.
affect share price. SEC should take initiatives for this condition.
4. The company should disclose the overall market price of their share in the annual
report.
5. SEC should take initiative for the companies which are making significant losses.
6. Money supply has an effect on share price. SEC should take initiatives on this
issue.