Introduction 1.1 Background of the Study Corporation’s most

Introduction

1.1   Background
of the Study

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Corporation’s
most important objective is mainly aimed to earn the profit. The profit which
is being  earned by companies could be
used to make further investments or to repay debt or profit could be
distributes among shareholders. Profit which is distributed among shareholder
is known as dividend. But there are other certain issues with the distribution
of profit among shareholder. Those are, what should be the percentage of
dividend distributed among shareholder out of total profit, what should be the
method of distribution of dividend whether cash dividend, bonus shares, or any
other. Many issues are there with dividend policy. Observation of black (1976)
“the policy of dividend depends upon our observation that how we look at the
picture of dividend”. After this theory, number of other theories of dividend
policy have been elevated (Baker, 1999)   

There
are number of reasons for firm whether it should pay a dividend or not to pay. With respect to the financial theory, the first aim of
a business is to optimize owners earning (Jensen, 2001).it has been always a
debatable issue either policy of dividend helps in obtaining  this particular aim or not.

As dividend policy attribute to the way how company pay dividend
relying on pattern and size of an organization. It is an Organization`s
practices for paying profit to its shareholder. Paying of dividend or
reinvestment of profit is completely on the willingness of management of that
organization.     

 

 

 

 Miller and Modigliani
accomplished that in perfect capital market dividend is travelling out of the
record. There are many theories that have explained the dividend payment
changes in payment policy of dividend by concentrating on imperfectness of
market 

Many US
firms have progressively utilized repurchase of share to divide profit to
owners

Since the
mid-1980s, US firms have increasingly used share repurchases to distribute cash
to shareholders. It is necessary to be conscious of management`s perspective
bout circumstances that influences repurchase of share and cash dividend is significant
to undertake dividend policy

Many disputes
have been made on function of dividend while determining the price of shares. Many
firm managers deny the statement that firm`s value is independent of dividend policy.
In spite of many debates on this issue have been made but it remained eristic
matter

Firstly the
dispute on the significance of dividend policy seems in miller and Modigliani (1961),
who said that in perfect capital market`s world, value of firm is independent of
payment of dividend. In perfect capital market, the value of firm rely on
future cash flow

 

 

1.2   Gap
Analysis

Many past researches have been done on dividend policy but
no study has analyzed the impact of profitability, liquidity & debt on
dividend policy. Previous researches done on dividend policy are very few on
cement sector

1.3   Research
Questions

How companies Profitability, Debt & Liquidity affect the
company’s dividend policy

1.4   Scope
of the study

1.5   Rational
of the study (importance)

The significance of the study is to observe the effect of
profitability, debt and liquidity (independent variable) on dividend policy
(dependent variable). As these independent variables have a major impact on
dividend policy and these variable’s affect have not been observe collectively
in any single research before. This study would help the investors as well as
decision makers to have an advantageous and beneficial decision making.  

1.6   Study
Objectives

1.            To study
the impact of profitability on dividend policy of a firm

2.            To study
the impact of debt on dividend policy of the firm

3.            To study
the impact of liquidity on dividend policy of the firm

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