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Article Review

Article 1

Ansar, I., Butt, A.A., & Shah, S.B.H (2015). The impact of dividend policy on shareholders

wealth. International Review of Management and Business Research, 4(1), 89-94.

This paper is examining the relationship between shareholders wealth and the dividend policy the company has chosen. The paper sampled 30 companies spanning different industries, and it measured the shareholder’s wealth using the market price of the issued and paid up shares. The independent variables in the study were the dividend per share; the company’s retained earnings, lagged price of shares, and the return on equity. The term dividend policy in this paper refers to the amount of earnings the company distributes to its shareholders and also the amount of retained earnings.

Research Questions

This paper is answering five research questions. The paper is determining the relationship existing between the shareholder’s wealth and dividend policy. The study points out that dividend payment has a positive impact on the shareholders because dividend announcements lead to up-normal returns for investors. However, the gains are eroded within the first 30 days after the dividend payout. The study also seeks to find the impact of retained earnings on shareholder wealth. The study found out that retained earnings add more risk because they increase the amounts of debts. Therefore, it will take long for the owners to recoup their investments from the company. The paper sought to find out the impact of dividend per share on the company’s market price per share. The study pointed out that there is a negative relationship between stock prices volatility and the actual dividend yield and also the actual dividend paid. The paper also sought to explain the impact of the return on equity on the wealth of the shareholders. The study found out that the dividend yield will mostly have a negative relationship with corresponding share prices.

How it answers the questions

The study sampled 30 companies listed on the Karachi stock exchange chosen on the basis of publicly available data collected from annual reports from 2007 to 2011. The study used market price per share as the dependent variable while the independent variables are the dividend per share, the retained earnings per share, the return on equity and also the lagged market price. The researchers collected the data from the financial reports of the companies, employed different statistical tools to analyse the data and presented it in using tables, in different categories.


The results of this study suggest that the dividend policy has a positive impact on the shareholder’s wealth. In addition, the dividend paid per share, the amount of retained earnings per share, the lagged price and return on equity all have a positive relationship with the current market share that is used as the proxy to measure the shareholder’s wealth. The results point out that the dividend payout signals better performance in future and companies paying dividends consistently will be valued higher compared to those not paying dividends. Therefore, the dividend policy will play a role in increasing the shareholder wealth and some of the theories like the irrelevance theory of dividends will not hold in some markets, Pakistan being one of them. The study has pointed out that the management should adopt a dividend policy that is easy to maintain from one period to another. This is necessary to retain the market value of the shares at a desirable level given that paying dividends in some years and skipping others may impact the stock value especially when the company misses out on payments.


Article 2

Tahir, A., & Raja, N. (2014). Impact of dividend policy on shareholder wealth. IOSR Journal

of Business and Management, 16(1), 24-33.

This paper is analysing the impact a company’s dividend policy will have on shareholder wealth of oil and gas exploration companies during 1999 to 2006. The paper has used the dividend payout ratio as the independent variable and the chosen holding period yield as the dependent variable. The assumption in this paper is that the shareholder value shall be created when the company’s financial benefits from its operating activities are more than the costs incurred in the daily operations.

Research questions

The paper seeks to find out the impact of the dividend policy on the shareholder wealth in oil and gas industries in Pakistan. The study found out that paying dividends plays a significant role in increasing the market value of shares and this, in turn, shall positively impact the shareholder wealth. The market value will increase because of the confidence investors have in the future of the company, and this shall prove to be a good return on investment. The findings show that there are two ways of maximising shareholder wealth and those are paying cash dividends or retaining the dividends to re-invest in wealth growth projects. From the study, it turned out that most shareholders will prefer cash payouts and so a company paying dividends in cash will tend to have a higher market value than one that retains its dividends for expansion. Therefore, the finance manager has the responsibility of choosing the optimal dividend policy that shall grow shareholder wealth. The study proposes paying cash dividends for a few periods and then retaining then reducing the amount of money spent and reinvesting the extra retained earnings in some years.

This paper proposes an enabling environment that is self-sustaining and in which firms will operate in an environment without external factors having an impact on operations and financial performance. This move will play a role in sustaining the profit level, and so the firms will manage to pay dividends from one period to the other. However, the organisation should find ways of addressing variations by choosing the lowest possible level of dividends that it can sustain for an extended period of time such that it can increase the payout during times of good performance.

How it answers the questions

            This study employed secondary data from two oil and gas exploration, refining and also marketing and distribution companies. The study employed sampling to choose the companies from the industry. The study used various statistical tools including regression and correlation methods to find out ideal models that predict the dividend policy and its impact on the shareholder wealth.


This study found out that subsequent increments in the dividend payments to the company’s shareholders will have a positive effect on the wealth of the owners. However, the findings point out to the fact that there is a negative relationship between the initial dividend and the subsequent dividends and a consistent dividend payout will have a unique and sustained impact on the wealth of the shareholders. The study results show a strong relevance to the dividend policy adopted on the value of the company. In addition, both dividend announcements and stock dividends all end up eliciting an interest in the company stock, and this translates to abnormal returns to the investors. These results are consistent with theories showing that dividend payout is relevant in determining the value of the firm.


Contribution to Knowledge

Paper 1

The money a company pays as dividends will positively impact on the share performance of that company because it signals the present performance in comparison with the anticipated financial results.

The findings show that not all dividend policies have a positive contribution to the performance of the company. Therefore, the finance manager has the responsibility to identify that ideal combination of dividend policies that shall increase the market value of the shares while helping the company to grow.

There is a dependence relationship between the company’s dividend policy and the shareholder’s wealth. From the study, the dividend policy will positively impact the value of the firm, and this will translate to the growth of the shareholder’s wealth.

The dividend policy chosen by the organisation will depend on the industry where it is operating and the kind of competition anticipated now and in the long run. Also, the policy to be effected will depend on the earning capacity of the firm. Therefore, companies having a huge profit margin will pay a higher dividend and manage to retain some money for other activities. This may not be the case with companies having fewer margins that may be forced to pay cash dividends, and they will skip the dividends when intending to re-invest the dividends

Paper 2

This paper demonstrates that investors will be more willing to invest in a company that has a high dividend. The reason is that the investors are rational and they will always expect maximum returns for their money.

The study points out that paying dividends increases the finance costs for the company and a continuous payment will negatively affect performance in the long run. Therefore, the management should always look for an ideal ratio of dividends to pay and a portion to retain for the long term. This way, it shall help to contain the finance costs at a lower level.

Management should put in place policies that shall guarantee consistent performance into the long term future. This process is critical for investors who want a return for a long-term compared to speculators who will want the company to perform well for a short period.

The amount of dividend paid will in some way affect the capital structure of the company. Therefore, investors will mostly analyse opportunities depending on the amount the company is paying as dividends. Consequently, the higher the amount paid as dividends, the higher the market value of the shares.

Comparison between the two papers

Both papers show that the amount and regularity of dividend payments has an impact on the shareholder wealth and the value of the firm. In the case where the dividend paid is not regular, investors may not be attracted to that stock, and this will reduce its value and consequently a drop is the shareholder wealth. However, consistent payments will result in a surge in the share price as investors will demand more of this stock.

Both papers argue that the finance manager has the responsibility to define the ideal dividend policy that shall increase shareholder wealth. Therefore, this executive will consider whether to pay all amounts in cash, pay a portion in cash and re-invest some of the dividends, or pay dividends in some years and skip others for re-invent and find out which option is less disruptive to the company and has the highest growth in market value.

There are some other variables like payout ratio, the current book value to the company’s market value, and also the price-earnings ratio to find out how they impact the shareholder wealth. The management will consider how each of these variables affects the value of the firm and adopt ideal measures that shall help shareholder wealth to grow. This process is critical because the managers will decide the perfect payment of dividends to win the trust of shareholders and encourage more people to invest in the company in the case of issuing additional stock.

Tahir and Raja (2014) argues that businesses in less developed countries like Pakistan have challenges in raising capital because people hesitate to invest in their stocks. The reasons identified include inconsistent financial performance that enables companies to pay dividends but experience challenges to maintain the dividends paid. Therefore, when many external factors are influencing the performance of the companies, the dividend policy may not be regular. Ansar et al. (2015) uphold the same argument by indicating that dividend payment and dividend yield will have a negative relationship with share prices in the case of inconsistent financial performance.  However, unlike Tahir and Raja (2014), Ansar et al. (2015) argue that there is a high likelihood on diminishing shareholder wealth a few days after the release of the financial results and announcement of the amount to be paid as dividends. Therefore, they say that investors are better off holding their stocks for a longer period if they anticipate better returns from the company’s stocks.

Both papers refute the dividend irrelevancy theories and demonstrate that the amount paid as dividends will ultimately impact the value of the shares. It is possible that the stock price may reduce immediately after dividend payout, but it will increase and surpass the earlier level if investors anticipate better results in future.



Ansar, I., Butt, A.A., & Shah, S.B.H (2015). Impact of dividend policy on shareholders

wealth. International Review of Management and Business Research, 4(1), 89-94.


Tahir, A., & Raja, N. (2014). Impact of dividend policy on shareholder wealth. IOSR Journal

of Business and Management, 16(1), 24-33.




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