Abstract
This study was conducted to examine the effects of dividends on share prices. It also looks at the relevance and irrelevance theories of dividends. The relevance theories include Walter’s model and Gordon’s growth model and the irrelevance theory is the Modigliani and Miller’s hypothesis. For this study, the National Stock Exchange of India was taken as the population, from which five industries were selected. From each industry, three companies were selected as samples and analysed for the years 2013-14, 2014-15, 2015-16. Secondary data was used for the study. It is usually believed that when growth firms pay dividend, the share prices tend to fall and when declining firms pay dividend, their share prices tend to rise. In contrast to this ideology, this study found that there is usually no correlation between the dividends a company pays out and its share prices. But there may be cases where the investors may not fully behave rationally, or the tastes and preferences of the investors change, the existing competition, new entrants etc. Thus, certain determinants of dividends may create a slight indirect effect on dividends and hence the share prices.
Key Words: National Stock Exchange, Dividend Policy, Equity Share, Walter model, Gordon Model.
References
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