Impact of Dividend Policy on Share Prices of Listed Companies in Sri Lanka: Evidance from Bank Finance and Insurance Sector in Colombo Stock Exchange (CSE)

Show simple item record Wimalaratna, W.K.P.S. Gunaratne, Y.M.C. 2021-10-18T07:46:54Z 2021-10-18T07:46:54Z 2011
dc.identifier.issn 22359877
dc.description.abstract Note: See the PDF Version Share market is a vital part in any economy as it helps investors to sell their securities in a secondary market at an efficient price. Further, it helps favorably to the initial public offering since most of the people invest in shares with the intention of selling those at a higher price in the future. Stock market gives a great opportunity to investors to buy and sell their shares at a satisfactory price in a well-functioning secondary market. Recently, there is a significant development in Colombo Stock Exchange (CSE). At present, 241 companies have been listed in CSE representing 20 business sectors. Investor seeks to earn the maximum return from their investment. As far as the return of the share market is concerned, total expected return includes two components namely, capital gains and dividends. Shareholders make investment in equity capital with the expectation of earning dividends or capital gains. Thus, shareholders can increase their wealth either from dividends or capital gains. Once the company earns a profit, Board of directors need to decide to retain the profit within the company or to pay it out as dividends to the owners of the company. Dividend policy determines the amount of earnings to be distributed to shareholders and the amount to be retained or reinvest in the firm. The objective of a dividend policy should be to maximize shareholder's wealth. Retained earnings are used to contribute investment opportunities which lead to increase the growth rate of the firm in the long run and the shareholders can obtain benefits of the retain earning in the long run. How much is needed to pay as a dividend is always a controversial topic for the business. Therefore management has to carefully design the dividend policy of the company in order to satisfy all the shareholders while achieving the company's objectivities satisfactorily. Company's profit after tax can either be divided among shareholders as dividend or can retain in the company or combination of these two. However, this may determine after comparing the costs of paying dividends with the cost of retain earnings. None of the companies has an obligation to declare dividends on common stock. However, director board can decide whether to pay or not dividend in the year. By maintaining a proper dividend policy a company can build a good image among the investors. Many theoretical models describe the factors that managers should consider when making dividend policy decisions. Miller and Modigliani (1961) states that in a given perfect capital market, the dividend decision does not affect firm's value and is, therefore, irrelevant. They offered many theories about how dividends affect value of a share and how managers should design their dividend policy. Stock Prices are changing according to the behavior of various factors. Some information regarding the stock prices such as earning per share, net assets per share highly affected the changes of stock prices because they reflect the strength of the company. Basically, investors consider companies' profitability, liquidity, leverage, asset utilization and future strategies when making the investment decisions. Accordingly, earning per share and net assets per share are the major information to the investors in their investment decision making. Thus, the second objective is how do earning per share and net assets per share impact on the market prices and how important those factors in investment decisions. en_US
dc.language.iso en en_US
dc.publisher Uva Wellassa University of Srilanka en_US
dc.subject Economics en_US
dc.subject Business Management en_US
dc.title Impact of Dividend Policy on Share Prices of Listed Companies in Sri Lanka: Evidance from Bank Finance and Insurance Sector in Colombo Stock Exchange (CSE) en_US
dc.type Other en_US

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