THESIS REPORT ON FACTORS AFFECTING DIVIDEND POLICY OF COMPANIES

Abstract

The focus of this thesis paper is to find out factors that affect the dividend policy of companies. A firm considers various factors when approaching a dividend policy decision. My analysis topic is factors affecting dividend policy of companies. The study is solely based on secondary data. Total nine articles have reviewed to find out the factors that affect dividend decisions. The study shows that profitability, firm size, cash flows, interest coverage ratios, debt, changes in dividend/ volatility of dividend payment and collateral capacity and liquidity are positively associated with dividend policy. Cash, growth opportunity, age, Business risk, P/E, beta rate, financial leverage are negatively related to dividend policy. No meaningful relationship between the dividend policy and liquidity, asset tangibility, company’s size and rate of retained earnings. Managers may not cut dividends so as not to create panic among investors and subsequently lead to fall in share prices. Investors should consider that young firms have more growth opportunities and may retain funds for financing this growth instead of paying dividends. Investing in profitable projects, profits of companies can be increased which lead to rise in dividend payments. The firms should consider profitability, size, leverage and liquidity when designing their dividend payout policy.