IRCUWU2020_eposter_cash_dividend2.pdf (408.17 kB)

Is Cash Dividend an Everlasting Stimulus? Impact of Cash Dividend on Share Price of Manufacturing Companies in Sri Lanka [ePoster]

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posted on 2020-08-11, 07:28 authored by Krishnamoorthy Charith, Andrey DavydenkoAndrey Davydenko
The shareholder wealth consists of dividend and capital gain. The risk return trade-off in these two returns drives the investor preference. The former is considered to be risk averse whereas the latter is perceived to be risky. The distribution of profits can be done in the form of dividends or through repurchasing shares in issue. From one extreme dividend is a return for common stock to another a source of funding for Public Limited companies.
The objective of a for-profit organization is to maximize shareholder wealth but disbursing dividends may not always in the best interest of shareholders. Theoretically retaining dividends may also increase share prices. In keeping with Dividend irrelevance theory, retaining dividends help companies fund investment opportunities fast using internally generated funds. On the other hand dividends are believed to be of an informational value, in keeping with signalling theory, which symbolises the strength and future prospects of a company. Bird in hand theory further validates the disbursement of dividends.