ESTIMATION OF DIVIDENT POLICY ON AGGREGATE AND FIRM'S LEVEL: ARE DIVIDENTS IMPORTANT FOR THE RESIDENCE SHAREHOLDER
Keywords: Dividends, Retained Earnings, Dividend Policy, Bird in the Hand Hypothesis, Share Price, Gordon's Model.
As part of the firm's general policy, dividend policy deals how the net-earnings after
tax are distributed among the shareholders. This article explores the impact of
dividend policy on the share price of the firm. Historically, two major academic
streams prevailed in finance concerning the dividend policy: the proponents who
advocated its importance; and the opponents who defied it. The basic methodological
frame used is consisted of the Gordon's model for evaluation of stock prices
elaborated in his work "Dividends, Earnings and Stock Prices". Two approaches were
followed during the course of our research: macro-analysis with aggregate data; and
micro-analysis with individual data. The application of the Gordon's model on
aggregate data didn't reveal the true relationship between the policy of distribution of
earnings and the movement of reference price index MBI-10. Further analysis of the
macro approach detected a handful of possible reasons that led to the inconsistent
outcome. Conversely, the regression with micro-data generated significant results
proving that Gordon's idea for the relevance of dividend policy is still "alive" at least
for the single resident company.
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