Impact of Dividend Policy on Value of the Final)

Adil Zahoor; MBA llnd semester; Roll No. 420

IMPACT OF DIVIDEND POLICY ON VALUE OF THE FIRM… ...AS REFLECTED IN TERMS OF THE MARKET PRICE OF THE EQUITY SHARES.

PROJECT INCHARGE: Dr. Bashir

MEMBERS:

Adil Zahoor Shams-ul-IrfanAbass AliMudassir Hamid Hadi Hussain

ABSTRACTIn the present contemporary business scenario, the impact of every decision taken within the jurisdiction of the management of a company has its bearing on the value of the firm. Taking the efficient market hypothesis into account, the market associates premium or discount to each and every bit of information that gets

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passed into the market. The information may be regarding the financial decisions, investment decisions, ethical and environmental considerations, operational procedures, dividend decisions and on. The paper attempts to analyze the effect of the dividend decisions on the value of a firm as reflected in terms of the market price of its shares. The analysis has been carried out on various public and private sector banks for the period of last five to six years and the revealed results are reflected accordingly.

History:The word dividend comes from a Latin word “dividendum” meaning “the thing which is to be divided among all.” Source: www.wikipedia.com

Concept:The term dividend refers to that part of profits of a company which is distributed by the company among its shareholders. It is the reward of the shareholders for investments made by them in the shares of the company. The investors are interested in earning the maximum return on their investments and to maximize their wealth (which normally should be the objective of the operations of a company). A company, on the other hand, needs to provide funds to finance its long-term growth. Dividend policy of a firm, thus affects both the long-term financing and the wealth of the shareholders. As a result, the firm’s decision to pay dividends must be reached in such a manner so as to equitably apportion the distributed profits and retained earnings.

Dividend is allocated as a fixed amount per share or a fixed percentage of the face value of a share. Thus shareholders receive dividend in proportion to their shareholding.

(For a joint stock company), payment of dividends is not an expense, rather, it is the division of after tax profits among shareholders. This is the reason that dividend is not a chargeable expense (i.e. it cannot be debited to P&L a/c); instead it is an appropriation of profits and is thus reflected in the “P&L appropriation a/c”.Source: www.wikipedia.com and Management Accounting by SHARMA and GUPTADates associated with dividend:There are four important dates associated with dividend. These are:

1. Declaration date: it is the day on which the Board of Directors of a company declare their intention to pay dividend. On this day, a liability

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http://www.wikipedia.com/


is created and the company records that liability in its books; it now owes the money to the stockholders. On the declaration date, the board will also announce the date of record and the payment date.

2. In-dividend date and ex-dividend date: it is the last day, which is one day before the ex-dividend date, where the stock is said to be cum dividend (i.e. including dividend). In other words, existing shareholders, and anyone who buys stock on this day will receive dividend. The ex-dividend date, normally 2 to 4 days before the record date is the day on which all shares bought or sold no longer come attached with the right to be paid the most recently declared dividend. This implies that existing stockholders will receive the dividend even if they now sell the stock on this date, whereas anyone who now buys the stock on this date will not receive the dividend.

3. Record date: it is the date when the company sets forth the list of shareholders that will be paid the dividend. Shareholders who are not registered on this date will not receive dividend.

4. Payment date: it is the date when the payment cheques will actually be mailed to the stockholders of the company or credited the brokerage accounts.

www.wikipedia.comTypes of dividends:Dividends may be classified in various forms. Dividends paid in the ordinary course of business are known as profit dividends, while dividends paid out of the capital are known as liquidation dividends. Dividends may also be classified on the basis of the medium in which they are paid.

Cash dividend: it is the most common form of payment of dividends and the amounts are paid out through cheque. Such dividends are a form of investment income and are usually taxable to the recipient in the year they are paid.Scrip dividend: a scrip dividend promises to pay the shareholders at a future specific date. It is used at the time of lack of funds in the company. The objective of scrip dividend is to postpone the immediate payment of cash. A scrip dividend bears interest and is accepted as a collateral security.Property dividend: property dividends are paid in the form of some assets other than cash. These are distributed under exceptional circumstances and are not popular in India.

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http://www.wikipedia.com/


Stock dividend: stock dividend means the issue of bonus shares to the existing shareholders. Stock dividend amounts to capitalization of earnings and distribution of profits among the existing shareholders without affecting the cash position of the firm.

Source: Management Accounting by SHARMA and GUPTADividend policy:Dividend policies are the regulations and guidelines that a company develops and implements as the means of arranging and making dividend payments to the shareholders. It determines the proportions of the profit that are to be distributed among the shareholders as dividend and the portions that are to be retained for future applications (investments) in the business operations. Establishing a specific dividend policy is to the advantage of both the company and the shareholders. In order to make sure that the policy is workable, a company should develop a viable policy and then run this policy through a number of test scenarios in order to determine what impact the dividend policy would have on the operations and the share prices of the company. In many cases, companies choose to explicitly state the provisions within the dividend policy. This is clearly to the advantage of the shareholders, as a well defined policy makes it much easier to project the amount of payout profits generated for the period under consideration and thus be able to determine the size of the dividends that will be issued.However, there are cases where the dividend policy is not so well documented. When this is the case, investors sometimes base their assumptions on upcoming dividend payments on what has occurred in the past.

Types of dividend policy: The various types of dividend policies are discussed below:Regular dividend policy: payment of dividend at the usual rate is termed as regular dividend. The investors such as retired persons, widows and other economically weaker persons prefer to get regular dividends.However, regular dividends can be maintained only by companies of long standing and stable earnings.Stable dividend policy: the term “stability of dividends” means consistency or lack of variability in the stream of dividend payments i.e. payment of certain minimum amount of dividend regularly. A stable dividend policy may be established in any of the following three forms:Constant dividend per share: it means paying fixed dividend per share irrespective of the level of earnings year after year. Such firms, usually, create a “reserve for

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dividend equalization” to enable them pay the fixed dividend even in the year when the earnings are not sufficient or when there are losses.Constant payout ratio: it means payment of a fixed percentage of net earnings as dividend every year. The amount of dividend in such a policy fluctuates in direct proportion to the earnings of the company.Stable rupee dividend plus extra dividend: it refers to the payment of constant low dividend per share plus an extra dividend in the years of high profits. Such a policy is most suitable to the firm having fluctuating earnings from year to year.

Irregular dividend policy: this is followed on account of the following;Uncertainty of earnings.Unsuccessful business operations.Lack of liquid resources.Fear of adverse effects of regular dividends on the financial standing of the company.

No dividend policy: a company may follow a policy paying no dividends presently because of its unfavorable working capital position or on account of requirements of funds for future expansion and growth. Determinants of dividend policy:The following are the important factors that determine the dividend policy of a firm.

Legal restrictions.Magnitude and trend of earnings.Desire and type of shareholders.Nature of industry.Age of the company.Future financial requirements.Government’s economic policy.Taxation policy.Inflation.Control objectives.Requirements of institutional investors.Stability of dividends.Liquid resources.

REVIEW OF LITERATURE:

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DIVIDEND DECISION AND VALUATION OF FIRMS

The value of the firm can be maximized if the shareholders’ wealth is maximized. There are conflicting views regarding the impact of dividend decision on the valuation of the firm. According to one school of thought, dividend decision does not affect the shareholders’ wealth and hence the valuation of the firm. On the other hand, according to the other school of thought, dividend decision materially affects the shareholders’ wealth and also the value of the firm. The former approach is known as the irrelevance concept of dividend or the theory of irrelevance and the later is known as the relevance concept of dividend or the theory of relevance.

Theory of irrelevance:It includes the following two approaches:

1. Residual approach: according to this theory, dividend has no effect on the wealth of the shareholders or the prices of the shares, and hence it is irrelevant so far as the valuation of the firm is concerned. This theory regards dividend decision merely as a part of financing decision because the earnings available may be retained in the business for re-investment. But, if the funds are not required in the business they may be distributed as dividends. Thus, the decision to pay dividends or retain the earnings may be taken as a residual decision. This theory assumes that investors do not differentiate between dividends and retentions by the firm. Their basic desire is to earn higher return on their investment. In case the business has profitable investment opportunities giving a higher rate of return than the cost of retained earnings, the investors would be content with the firm retaining the earnings to finance the same. However, if the firm is not in a position to find profitable investment opportunities, the investors would prefer to receive the earnings in the form of dividends.

2. Modigliani and Miller approach (MM model): Modigliani and Miller suggest that the dividend policy has no effect on the market price of the shares, and hence the value of the firm is determined by the earning capacity of the firm or its investment policy. The MM model operates under the following assumptions:

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There are perfect capital markets.Investors behave rationally.Information about the company is available to all without any cost.There are no floatation and transaction costs.No investor is large enough to affect the market price of shares.There are either no taxes or there are no differences in the tax rates applicable to dividends and capital gains.The firm has a rigid investment policy.There is no risk or uncertainty in regard to the future of the firm (this assumption was later dropped).

The theory of relevance:The advocates of this school of thought include Myron Gordon, Jone Linter, James Walter and Richardson. According to them dividends communicate information to the investors about the firms’ profitability and hence dividend decision becomes relevant. The following are the two theories representing this notion.

Walter’s approach:Prof. Walter suggests that the relationship between the internal rate of return earned by the firm and its cost of capital is very significant in determining the dividend policy to sub serve the ultimate goal of maximizing the wealth of shareholders. Prof. Walter’s model is based on the relationship between the firm’s

Return on investment i.e. “r”.The cost of capital or the required rate of return i.e. “k”.

Prof. Walter suggests that;If r>k, firm should retain the earnings.If r<k, firm should pay higher dividends.If r=k, firm is indifferent.Walter’s model is based on the following assumptions:

The investments of the firm are financed through retained earnings only and the firm does not use external sources of funds.The internal rate of return (r) and the cost of capital (k) of the firm are constant.Earnings and dividends do not change while determining the value of the firm.The firm has a very long life.

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Walter’s formula for determining the value of the share; P= [D+r {(E-D)/Ke}] Ke

Or P= (D/Ke) +{r (E-D)/Ke} KeWhere;P= market price per shareD= dividend per sharer= internal rate of returnE= earnings per shareKe= cost of equity capital

Gordon’s approach:The basic valuation model of Myron Gordon is based on the following

The firm is an all equity firm.No external financing is available or used.The rate of return on the firm’s investments (r) is constant.The retention ratio (b), once decided upon is constant. Thus the growth rate of the firm {g=br}, is also constant.The cost of capital for the firm remains constant and it is greater than the growth rate i.e. k>br.The firm has perpetual life.Corporate taxes don not exist.

Gordon’s basic valuation formula is as follows;

P= {E (1-b)}/ (Ke-br)

Or P0 = D1/ (Ke-g) = {D0 (1+g)}/ (Ke-g)

Where:P= price of sharesE= earnings per shareb= retention ratio

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ke= cost of equity capitalbr= g= growth rate in ‘r’ i.e. rate of return on investment of an all-equity firmD0= dividend per shareD1= expected dividend at the end of year 1.

The implications of the Gordon’s valuation model can be summarized as:When r>k, the price per share increases as the dividend payout ratio decreases.When r=k, the price per share remains unchanged and is not affected by dividend policy.When r<k, the price per share increases as the dividend payout ratio increases.

GRAHAM AND DODD MODEL:This model assigns more weight on dividends than on retained earnings. Investors discount distant dividends at a higher rate than they discount nearby dividends. This is because nearby dividends are more certain than distant dividends.

Formula: P=m x (D + E/3)Where, P = market price per sharem = multiplierD = dividend per shareE = earnings per share

Assumptions:Investors are rational.Under conditions of uncertainty they turn risk averse.

LINTERS MODEL:If a firm sticks to its target payout it will have to change its dividend with every change in earnings. Since shareholders do not like a drop or a wild fluctuation in dividends, the company increases the dividend only to the extent it believes is maintainable in the future. A conservative company would have a lower adjustment factor.

Formula:

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D1 = D0 + {(EPS x target payout) – D0 } x AF

Where: D1 = dividend I year 1EPS = earnings per shareD0 = dividend in current yearAF = adjustment factor

Findings: Firms have a long-term target dividend payout ratio.Managers are concerned with changes in dividends rather than in dividends per share.Dividends do increase with earnings but not in perfect tandem.Managers are reluctant to effect dividend changes that may have to be reversed.

Radical approach:If tax on dividend is higher than tax on capital gains, a company offering capital gains rather than dividends will be priced better. If tax on dividend is less than tax on capital gains, a company offering dividends rather than capital gains will be priced better.

Assumptions:It considers both corporate tax and personal tax.It also considers the fact that dividends and capital gains are not taxed at the same rate.

Source: article-dividend policy by CA. Kunal Aggarwal

IMPACT OF DIVIDEND POLICY ON THE VALUE OF FIRM… …An analysis of the private and public sector banks

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Banks analyzed:

Public sector:Bank of BarodaCanara Bank

Private sector:HDFC Bank Karnataka Bank

BANK OF BARODABank of Baroda is one of the most prominent banks in India, having its total assets as Rs. 143146 Crores as on 31st of March 2007. The bank was founded by Maharaja Sayajirao Gaekwad III (also known as Shrimant Gopalrao Gaekwad), the then Maharaja of Baroda on 20th of July 1908 with a paid capital of Rs. 10 Lacs. On 19th of July 1969, Bank of Baroda was nationalized by the Government of India.

Financial DetailsAs of March 2007, the bank had total deposits worth Rs. 1,24,915 Crores while it had a total number of 2956 branches located worldwide as on April 2009, out of which 626 were located in Metro cities, 524 in Urban areas, 642 in Semi-Urban locations, 1092 in Rural areas and 72 were located outside India. The bank has 10 Zonal Offices and 43 Regional Offices which help it control its operations nationally.

Other Details

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Bank of Baroda had a total workforce of 38063 employees offering their services to the institution as of September 2006. Out of these, 13525 were Officers, 16497 were Clerks while 8041 were Sub-Staff members.

Head Office Bank of BarodaSuraj Plaza-1, Sayaji Ganj,Baroda-390005

Bank Of BarodaBaroda Corporate Centre,Plot No - C-26, G - Block, Bandra - Kurla Complex, Bandra (East), Mumbai-400051Website: www.bankofbaroda.com.

Source: www.iloveindia.comBANK PERFORMANCE

EXIBIT NO. 1

We can see from the annual results that the bank has increased its sales, operating profits and gross profits over the last 5 years. This performance can also be revealed through the profitability ratios of the company.

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EXIBIT NO. 2

Source: www.rediffmoney.com

EXIBIT NO. 3

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Source: www.rediffmoney.comWith the declaration and payment of these dividends the stock prices of the company varied in the following manner EXIBIT NO. 4 Stock prices between feb 05 and aug 05

MonthOpen Price

High Price

Low Price

Close Price

Average price

No. of Shares

No. of Trades

Total Turnover(Rs.)

* Spread(Rs.)

H-L C-O

Feb 05 204.90 221.00 191.00 218.05 206.00 56,55,644 68,094 1,18,43,11,764 30.00 13.15

Mar 05 220.00 256.25 200.00 218.05 228.13 1,02,24,393 98,347 2,33,98,22,753 56.25 -1.95

Apr 05 219.05 226.65 171.10 172.25 198.88 35,71,579 41,517 71,88,33,078 55.55 -46.80

May 05 175.00 204.80 170.50 195.65 187.65 71,83,085 65,259 1,35,29,80,866 34.30 20.65

Jun 05 197.30 212.45 188.00 196.30 200.23 35,79,511 36,918 72,54,80,807 24.45 -1.00

Jul 05 198.00 263.70 196.00 257.05 229.85 53,65,145 45,332 1,25,80,77,251 67.70 59.05

Aug 05 257.70 274.00 240.00 245.05 257.00 52,33,073 45,739 1,35,00,03,348 34.00 -12.65

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Dividend declared in May 2005 @ 32%. source: www.bseindia.com

Exibit no. 5Stock prices between jan 06 and july 06

MonthOpen Price

High Price

Low Price

Close Price

Average price

No. of Shares

No. of Trades

Total Turnover(Rs.)

* Spread(Rs.)

H-L C-O

Jan 06 242.80 265.90 233.15 249.75 249.52 67,48,307 61,250 1,68,14,12,672 32.75 6.95

Feb 06 251.00 252.75 216.70 223.20 234.72 94,17,326 81,462 2,20,04,00,653 36.05 -27.80

Mar 06 224.90 234.00 218.10 230.30 226.05 73,35,379 69,843 1,66,65,16,337 15.90 5.40

Apr 06 232.00 243.60 212.10 231.50 227.85 62,61,456 66,367 1,45,76,78,443 31.50 -0.50

May 06 233.00 277.00 201.00 227.05 239.00 1,25,48,807 1,19,012 3,15,96,45,581 76.00 -5.95

Jun 06 226.50 233.90 181.10 198.80 207.50 42,68,025 60,387 88,38,05,286 52.80 -27.70

Jul 06 200.00 229.00 175.75 222.00 202.37 47,49,396 74,153 97,32,44,586 53.25 22.00

Dividend declared in april 06 @ 50% source: www.bseindia.com

Exibit no. 6Stock prices between dec 06 and july 07

MonthOpen Price

High Price

Low Price

Close Price

Average price

No. of Shares

No. of Trades

Total Turnover(Rs.)

* Spread(Rs.)

H-L C-O

Dec 06 263.80 275.40 213.10 239.90 244.25 39,93,615 56,349 96,83,14,786 62.30 -23.90

Jan 07 243.70 259.75 223.00 249.85 241.37 42,76,910 46,982 1,02,73,80,870 36.75 6.15

Feb 07 251.30 260.50 210.00 219.75 235.25 29,04,027 46,780 67,08,91,683 50.50 -31.55

Mar 07 213.20 229.00 188.50 215.40 208.75 45,32,738 79,397 94,61,71,439 40.50 2.20

Apr 07 209.40 251.00 193.00 235.95 222.00 40,76,650 76,784 92,42,91,011 58.00 26.55

May 07 234.40 292.50 234.40 275.20 263.45 38,26,058 71,455 1,02,12,09,451 58.10 40.80

Jun 07 278.00 284.10 247.10 270.25 265.60 23,46,649 50,703 62,45,51,622 37.00 -7.75

Jul 07 273.50 319.40 265.10 299.95 292.25 65,90,076 93,231 1,94,90,86,134 54.30 26.45

Dividend declared in mar 07 @ 30% and april 07 @ 30% source: www.bseindia.com

EXIBIT NO. 7Stock prices between Feb 08 and Aug 08

Month Open High Low Close Average No. of No. of Total Turnover * Spread

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Price Price Price Price price Shares Trades (Rs.)(Rs.)

H-L C-O

Feb 08 392.00 434.80 341.25 365.75 388.03 51,40,646 89,371 1,96,43,03,764 93.55 -26.25

Mar 08 360.00 360.00 255.55 283.90 307.78 48,70,448 94,668 1,44,69,59,315 104.45 -76.10

Apr 08 282.00 320.90 267.00 315.15 293.95 39,30,984 78,896 1,16,55,02,049 53.90 33.15

May 08 320.00 329.90 254.20 270.05 292.05 39,24,989 80,326 1,15,87,55,972 75.70 -49.95

Jun 08 271.00 273.80 199.30 203.25 236.55 37,83,980 81,018 86,92,09,752 74.50 -67.75

Jul 08 203.50 270.00 188.30 255.50 229.15 55,64,352 1,04,593 1,26,54,15,925 81.70 52.00

Aug 08 251.00 309.50 245.00 284.30 277.25 64,13,917 1,23,463 1,76,27,89,544 64.50 33.30

Dividend declared in may 2008 @ 80%. source: www.bseindia.com


MonthOpen Price

High Price

Low Price

Close Price

Average price

No. of Shares

No. of Trades

Total Turnover(Rs.)

* Spread(Rs.)

H-L C-O

Jan 09 283.10 297.30 225.35 252.55 261.32 57,80,079 1,09,323 1,46,19,37,988 71.95 -30.55

Feb 09 252.55 255.30 207.70 220.40 231.50 32,93,161 75,253 76,10,61,801 47.60 -32.15

Mar 09 216.00 249.85 180.50 234.55 215.17 65,94,241 1,14,137 1,41,41,34,404 69.35 18.55

Apr 09 236.00 334.80 227.10 327.00 280.95 61,94,430 1,08,786 1,80,49,30,655 107.70 91.00

May 09 333.00 464.30 314.00 438.30 389.15 70,81,233 1,01,807 2,68,96,29,576 150.30 105.30

Jun 09 445.00 463.00 400.00 445.30 431.50 42,52,091 61,816 1,83,75,24,148 63.00 0.30

Jul 09 449.00 454.00 371.10 436.00 412.55 31,16,114 59,627 1,30,33,69,887 82.90 -13.00


EXIBIT NO. 9Stock prices from Jan 10 to Jun 10

MonthOpen Price

High Price

Low Price

Close Price

Average price

No. of Shares

No. of Trades

Total Turnover(Rs.)

* Spread(Rs.)

H-L C-O

Jan 10 512.00 589.00 508.00 575.90 548.50 17,63,342 43,025 96,39,81,099 81.00 63.90

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Feb 10 577.00 605.00 546.40 583.90 575.70 23,26,137 44,510 1,33,94,61,639 58.60 6.90

Mar 10 586.00 653.00 585.00 639.25 619.00 22,25,977 48,528 1,37,14,19,778 68.00 53.25

Apr 10 643.15 701.95 616.00 691.55 658.98 26,03,626 55,900 1,71,91,92,749 85.95 48.40

May 10 690.50 722.70 655.20 710.40 688.95 21,46,775 52,519 1,49,25,76,349 67.50 19.90

Jun 10 710.00 753.35 678.50 695.65 715.93 14,60,105 39,384 1,05,49,37,224 74.85 -14.35

Dividend decalred in April 2010 @ 150% source: www.bseindia.com

EXIBIT NO. 10Particulars (In Percentage)

31.03.2006 31.03.2007 31.03.2008 31.03.2009 31.03.2010

Dividend payout Ratio (including Corporate 25.11% 24.59%Dividend Tax)

23.75% 17.22% 20.90%

Source: www.bankofbaroda.com

CANARA BANKCanara Bank is one of the most prominent commercial banks of India. The bank was established in the year 1906 at Mangalore, Karnataka by a well known personality Mr. Ammembal Subba Rao Pai. Initially, it was founded with the name Canara Bank Hindu Permanent Fund, but later on the name was changed to Canara Bank Limited.

Key AttributesApart from setting other benchmarks in the field of providing comprehensive banking services to the consumers, Canara Bank has a number of achievements to its credit, which include being the first bank in India to have launched Inter-City ATM network, being the first bank to have been awarded ISO Certification for one of its branches, providing credit card for farmers for the first time in India along with offering Agricultural Consultancy Services.

Vital DetailsCanara Bank has established a strong presence in the country, with 2710 branches across the nation as of September 2008. The bank boasts of having the maximum number of ATM installations among all the nationalized banks summing up to more than 2000 of them at 698 centers. Also, 1351 branches of the bank provide Internet and Mobile Banking (IMB) services, while ‘Anywhere Banking’ services are being provided at 2027 of its branches. All the branches of Canara Bank are enabled with Real Time Gross Settlement (RTGS) and National Electronic Fund Transfer (NEFT) transaction facilities, insuring smooth and swift money transfer from any corner of the nation to another corner.

Head OfficeCanara BankHead Office112, J C RoadBANGALORE - 560 002 Website: http://www.canarabank.com

Source: www.iloveindia.com

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BANK PERFORMANCEEXIBIT NO. 11

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EXIBIT NO. 12


EXIBIT NO. 13Stock prices from Feb 05 to Aug 05

MonthOpen Price

High Price

Low Price

Close Price

Average price

No. of Shares

No. of Trades

Total Turnover(Rs.)

* Spread(Rs.)

H-L C-O

Feb 05 210.20 220.90 197.25 218.25 209.08 57,89,570 54,524 1,20,80,09,712 23.65 8.05

Mar 05 220.00 241.55 187.55 200.40 214.55 84,56,756 64,912 1,85,71,09,436 54.00 -19.60

Apr 05 205.00 212.50 172.25 174.95 192.38 33,96,812 26,098 64,44,89,127 40.25 -30.05

May 05 182.00 204.40 170.10 199.55 187.25 45,95,225 34,239 87,82,62,603 34.30 17.55

Jun 05 200.00 220.90 197.00 210.90 208.95 43,75,074 30,599 91,85,80,951 23.90 10.90

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Jul 05 212.00 256.90 210.15 252.10 233.53 34,63,968 27,790 81,11,38,611 46.75 40.10

Aug 05 250.10 258.00 211.00 224.60 234.50 20,75,074 15,546 49,16,83,210 47.00 -25.50

Dividend declared in may 05 @ 30%. source: www.bseindia.com

EXIBIT NO. 14Stock prices from Jan 06 to Jul 06

MonthOpen Price

High Price

Low Price

Close Price

Average price

No. of Shares

No. of Trades

Total Turnover(Rs.)

* Spread(Rs.)

H-L C-O

Jan 06 243.00 252.00 221.35 249.15 236.68 49,76,661 34,159 1,16,90,32,500 30.65 6.15

Feb 06 251.00 300.00 232.10 286.15 266.05 1,01,41,162 73,439 2,76,18,94,785 67.90 35.15

Mar 06 286.50 291.80 261.00 266.90 276.40 35,19,011 39,271 97,92,93,204 30.80 -19.60

Apr 06 267.95 282.00 214.00 254.10 248.00 23,09,937 24,808 60,07,81,883 68.00 -13.85

May 06 256.30 279.95 185.00 229.25 232.48 20,84,538 23,320 52,65,24,070 94.95 -27.05

Jun 06 232.00 232.95 187.00 200.80 209.98 12,26,047 18,118 25,37,65,701 45.95 -31.20

Jul 06 201.10 212.00 165.10 196.65 188.55 15,48,978 28,374 29,45,85,285 46.90 -4.45

Dividend declared in April 06 @ 66%. source: www.bseindia.com

Exibit no. 15Stock prices between feb 07 and aug 07

MonthOpen Price

High Price

Low Price

Close Price

Average price

No. of Shares

No. of Trades

Total Turnover(Rs.)

* Spread(Rs.)

H-L C-O

Feb 07 243.00 249.00 200.00 210.50 224.50 16,63,254 20,549 37,24,09,268 49.00 -32.50

Mar 07 209.70 216.90 174.00 194.70 195.45 19,76,786 35,889 38,14,58,294 42.90 -15.00

Apr 07 188.00 231.90 176.55 217.65 204.22 17,28,699 26,962 34,91,77,115 55.35 29.65

May 07 219.80 280.00 205.00 244.20 242.50 27,26,163 37,475 67,33,69,849 75.00 24.40

Jun 07 254.40 277.00 231.20 269.65 254.10 17,90,642 28,023 45,86,10,916 45.80 15.25

Jul 07 273.95 300.00 253.50 261.75 276.75 28,84,356 38,044 80,19,86,504 46.50 -12.20

Aug 07 260.00 286.70 222.00 244.00 254.35 17,01,207 26,389 42,86,35,974 64.70 -16.00

Dividend declared in may 07 @ 70% source: www.bseindia.com

EXIBIT NO. 16Stock prices from jan 08 to jul 08

MonthOpen Price

High Price

Low Price

Close Price

Average price

No. of Shares

No. of Trades

Total Turnover(Rs.)

* Spread(Rs.)

H-L C-O

Jan 08 334.00 421.45 230.00 289.45 325.73 65,21,929 70,128 2,10,39,60,752 191.45 -44.55

Page 20


Feb 08 293.55 324.00 253.25 278.10 288.63 83,39,606 51,204 2,41,23,83,041 70.75 -15.45

Mar 08 269.90 271.65 198.20 225.20 234.93 34,02,566 41,880 77,24,15,090 73.45 -44.70

Apr 08 229.00 245.85 213.60 237.10 229.73 26,47,043 29,256 60,98,53,544 32.25 8.10

May 08 240.50 249.95 210.50 216.00 230.23 11,78,849 16,142 27,53,83,567 39.45 -24.50

Jun 08 218.05 221.80 173.50 178.00 197.65 29,87,115 26,351 56,58,77,668 48.30 -40.05

Jul 08 178.40 196.90 158.00 183.75 177.45 38,71,835 42,060 68,69,52,925 38.90 5.35

Dividend declared in April 08 @ 80% source: www.bseindia.com


MonthOpen Price

High Price

Low Price

Close Price

Average price

No. of Shares

No. of Trades

Total Turnover(Rs.)

* Spread(Rs.)

H-L C-O

Jan 09 190.00 222.90 167.40 180.25 195.15 69,91,420 80,914 1,30,58,84,342 55.50 -9.75

Feb 09 180.00 194.50 148.60 165.35 171.55 18,01,266 26,699 31,84,93,839 45.90 -14.65

Mar 09 161.35 169.40 144.25 165.90 156.82 36,79,512 39,139 56,76,58,804 25.15 4.55

Apr 09 165.00 211.80 158.50 197.55 185.15 37,55,169 38,480 69,25,64,693 53.30 32.55

May 09 207.00 297.20 200.30 283.95 248.75 46,36,795 46,585 1,13,43,89,506 96.90 76.95

Jun 09 288.50 295.00 232.00 262.45 263.50 38,44,523 43,669 99,32,07,600 63.00 -26.05

Jul 09 265.00 289.00 235.00 285.50 262.00 31,04,236 39,593 83,73,02,981 54.00 20.50


EXIBIT NO. 18Stock prices from Jan 10 to Jun 10

MonthOpen Price

High Price

Low Price

Close Price

Average price

No. of Shares

No. of Trades

Total Turnover(Rs.)

* Spread(Rs.)

H-L C-O

Jan 10 392.00 414.00 360.00 390.45 387.00 17,58,573 25,734 68,62,76,062 54.00 -1.55

Feb 10 391.85 411.90 369.00 391.95 390.45 9,55,750 17,704 37,51,33,439 42.90 0.10

Mar 10 400.00 441.50 393.05 410.35 417.28 13,74,514 24,544 56,91,77,838 48.45 10.35

Apr 10 412.00 433.10 386.65 429.55 409.88 15,98,472 28,470 65,75,62,248 46.45 17.55

May 10 429.00 442.95 386.05 408.20 414.50 16,79,620 34,066 70,58,43,547 56.90 -20.80

Jun 10 408.00 436.50 345.00 433.50 390.75 9,79,806 18,104 41,47,76,414 91.50 25.50

Dividend declared in April 10 @ 100%. source: www.bseindia.com

Page 21


HDFC BANKHousing Development Finance Corporation Limited, more popularly known as HDFC Bank Ltd, was established in the year 1994, as a part of the liberalization of the Indian Banking Industry by Reserve Bank of India (RBI). It was one of the first banks to receive an 'in principle' approval from RBI, for setting up a bank in the private sector. The bank was incorporated with the name 'HDFC Bank Limited', with its registered office in Mumbai. The following year, it started its operations as a Scheduled Commercial Bank. Today, the bank boasts of as many as 1412 branches and over 3275 ATMs across India.

AmalgamationsIn 2002, HDFC Bank witnessed its merger with Times Bank Limited (a private sector bank promoted by Bennett, Coleman & Co. / Times Group). With this, HDFC and Times became the first two private banks in the New Generation Private Sector Banks to have gone through a merger. In 2008, RBI approved the amalgamation of Centurion Bank of Punjab with HDFC Bank. With this, the Deposits of the merged entity became Rs. 1,22,000 crores, while the Advances were Rs. 89,000 crores and Balance Sheet size was Rs. 1,63,000 crores.

Capital StructureAt present, HDFC Bank boasts of an authorized capital of Rs 550 crores (Rs5.5 billion), of this the paid-up amount is Rs 424.6 crores (Rs.4.2 billion). In terms of equity share, the HDFC Group holds 19.4%. Foreign Institutional Investors (FIIs) have around 28% of the equity and about 17.6% is held by the ADS Depository (in respect of the bank's American Depository Shares (ADS) Issue). The bank has about 570,000 shareholders. Its shares find a listing on the Stock Exchange, Mumbai and National Stock Exchange, while its American Depository Shares are listed on the New York Stock Exchange (NYSE), under the symbol 'HDB'.

Head Office HDFC BankRamon House, 169, Backbay Reclamation, H T Parekh Marg, Churchgate Mumbai - 400020Phone: +91 (22) 66316000, 66636000, 66316060Fax: +91 (22) 22048834Website: www.hdfc.com

Source: www.iloveindia.comBANK PERFORMANCE

EXIBIT NO. 19

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http://www.hdfc.com/


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EXIBIT NO. 20

Page 24




MonthOpen Price

High Price

Low Price

Close Price

Average price

No. of Shares

No. of Trades

Total Turnover(Rs.)

* Spread(Rs.)

H-L C-O

Jan 05 522.00 570.00 461.15 564.40 515.58 27,49,649 35,820 1,41,11,64,800 108.85 42.40

Feb 05 567.00 599.00 550.65 586.90 574.83 21,93,879 24,927 1,24,57,72,799 48.35 19.90

Mar 05 589.00 629.95 508.00 544.25 568.98 1,36,42,846 21,484 8,31,25,07,982 121.95 -44.75

Apr 05 544.95 573.25 512.05 537.20 542.65 18,41,564 10,560 1,00,31,32,832 61.20 -7.75

May 05 549.90 564.00 515.00 540.05 539.50 13,31,706 6,687 71,66,86,025 49.00 -9.85

Jun 05 536.00 643.00 534.05 634.10 588.53 1,74,62,842 14,505 10,89,28,66,541 108.95 98.10

Jul 05 625.00 724.90 600.00 685.50 662.45 45,14,247 21,171 2,95,06,04,859 124.90 60.50



Page 25


MonthOpen Price

High Price

Low Price

Close Price

Average price

No. of Shares

No. of Trades

Total Turnover(Rs.)

* Spread(Rs.)

H-L C-O

Jan 06 710.90 774.00 707.00 762.55 740.50 27,50,074 28,258 2,02,45,58,679 67.00 51.65

Feb 06 767.90 776.00 705.25 736.05 740.63 23,20,754 23,615 1,71,81,29,727 70.75 -31.85

Mar 06 738.00 790.00 726.00 773.50 758.00 1,70,09,416 19,604 12,81,06,17,347 64.00 35.50

Apr 06 765.00 865.00 740.90 826.60 802.95 31,74,611 23,118 2,63,70,09,015 124.10 61.60

May 06 835.00 898.00 710.00 740.20 804.00 38,55,140 25,947 3,24,66,35,471 188.00 -94.80

Jun 06 740.00 810.90 620.00 791.15 715.05 29,28,796 33,036 2,10,58,94,033 190.90 51.15

Jul 06 740.00 819.00 693.10 795.05 756.05 35,23,646 34,294 2,74,26,06,664 125.90 55.05



MonthOpen Price

High Price

Low Price

Close Price

Average price

No. of Shares

No. of Trades

Total Turnover(Rs.)

* Spread(Rs.)

H-L C-O

Jan 07 1,070.00 1,104.95 980.55 1,078.15 1042.75 29,10,408 32,807 3,06,65,06,314 124.40 8.15

Feb 07 1,079.70 1,124.00 903.60 932.60 1013.80 58,55,279 32,103 5,98,93,23,640 220.40 -147.10

Mar 07 957.00 1,030.00 890.00 949.40 960.00 32,88,791 37,528 3,11,66,02,597 140.00 -7.60

Apr 07 930.00 1,045.00 895.00 1,026.15 970.00 43,35,788 30,551 4,20,73,43,853 150.00 96.15

May 07 1,035.00 1,274.00 980.30 1,139.75 1127.15 42,24,941 39,466 4,38,54,52,232 293.70 104.75

Jun 07 1,156.00 1,181.00 1,050.35 1,144.10 1115.67 16,10,148 27,483 1,78,07,01,284 130.65 -11.90

Jul 07 1,153.00 1,257.00 1,120.00 1,198.65 1188.50 21,09,087 33,432 2,49,23,11,132 137.00 45.65



MonthOpen Price

High Price

Low Price

Close Price

Average price

No. of Shares

No. of Trades

Total Turnover(Rs.)

* Spread(Rs.)

H-L C-O

Jan 08 1,728.00 1,825.00 1,325.05 1,568.00 1575.03 31,22,114 47,019 5,17,12,44,107 499.95 -160.00

Feb 08 1,599.00 1,615.00 1,358.00 1,453.45 1486.50 29,91,571 53,630 4,40,76,25,037 257.00 -145.55

Mar 08 1,439.40 1,470.00 1,100.00 1,319.95 1285.00 19,33,819 62,732 2,58,81,97,112 370.00 -119.45

Apr 08 1,320.00 1,561.10 1,271.00 1,514.85 1416.05 20,71,938 76,388 2,86,74,97,294 290.10 194.85

May 08 1,540.00 1,575.00 1,308.00 1,357.85 1441.50 15,19,813 39,874 2,17,01,44,251 267.00 -182.15

Jun 08 1,562.00 1,562.00 993.40 1,002.30 1277.70 31,77,269 82,364 3,60,49,87,808 568.60 -559.70

Jul 08 1,006.10 1,265.00 890.00 1,095.25 1077.50 72,78,963 1,94,605 7,61,86,33,104 375.00 89.15

Page 26




MonthOpen Price

High Price

Low Price

Close Price

Average price

No. of Shares

No. of Trades

Total Turnover(Rs.)

* Spread(Rs.)

H-L C-O

Jan 09 1,007.25 1,124.00 865.00 924.60 994.50 60,22,729 2,02,634 5,83,15,68,779 259.00 -82.65

Feb 09 917.00 957.00 835.10 884.85 896.05 37,05,318 1,01,247 3,32,03,52,942 121.90 -32.15

Mar 09 867.00 1,014.00 774.00 967.85 894.00 1,11,99,257 1,99,338 9,60,54,53,532 240.00 100.85

Apr 09 978.00 1,138.00 952.00 1,100.70 1045.00 46,07,582 1,31,399 4,94,67,49,851 186.00 122.70

May 09 1,119.00 1,498.00 1,110.10 1,442.35 1304.05 1,77,05,412 1,18,521 20,52,06,42,072 387.90 323.35

Jun 09 1,455.00 1,580.00 1,352.80 1,491.75 1466.40 28,64,087 97,168 4,26,60,45,213 227.20 36.75

Jul 09 1,499.00 1,548.80 1,333.00 1,499.60 1440.90 39,36,288 1,23,698 5,61,31,76,912 215.80 0.60



MonthOpen Price

High Price

Low Price

Close Price

Average price

No. of Shares

No. of Trades

Total Turnover(Rs.)

* Spread(Rs.)

H-L C-O

Jan 10 1,690.25 1,794.70 1,552.25 1,630.85 1673.48 24,83,906 54,083 4,19,13,83,013 242.45 -59.40

Feb 10 1,615.00 1,733.00 1,550.00 1,704.65 1641.50 24,04,312 55,148 3,96,20,06,591 183.00 89.65

Mar 10 1,720.00 1,986.00 1,706.50 1,932.50 1846.25 17,82,555 68,738 3,28,44,09,133 279.50 212.50

Apr 10 1,939.00 2,009.90 1,893.30 1,991.60 1951.60 13,47,109 50,714 2,63,13,37,438 116.60 52.60

May 10 1,990.00 1,995.00 1,785.00 1,885.40 1890.00 14,26,241 46,908 2,71,94,68,100 210.00 -104.60

Jun 10 1,880.00 2,009.00 1,825.00 1,947.80 1917.00 16,28,884 44,496 3,16,80,27,812 184.00 67.80


KARNATAKA BANKKarnataka Bank Limited is a leading private sector bank in India. It was incorporated on 18th February 1924 at Mangalore, a town located in the Kannada district of Karnataka. The bank emerged as a major player during the freedom movement of 20th Century India. During its process of expansion, the Karnataka Bank merged with other banks like Sringeri Sharada Bank Ltd., Chitradurga Bank Ltd. and Bank of Karnataka. Today, Karnataka Bank has emerged as one of the top financial service institutions in India.

Page 27


Karnataka Bank: Branches and BusinessKarnataka bank has expanded its reach to various parts of India, over the 85 years of its existence. Today, the bank has a total of 447 branches, spread across 19 states and 2 Union Territories, with a total business of about Rs. 31248 Crores. The bank presently employs over 4,900 employees and is answerable to about 71,822 shareholders and over 3.7 million customers. The bank has specialized branches like Agricultural Development Branch, Overseas Branches, Foreign Exchange Branches, Specialized SSI Branches, Asset Recovery Management Branches, Currency Chests, Central Processing Centre spread across the length and breadth of the country.

Corporate OfficeMahaveera Circle Kankanady Mangalore - 575 002 Ph: 0824 - 2228222 Fax: 0824 - 2228284 E-mail: [email protected] URL: www.ktkbankltd.com

Source: www.iloveindia.com

BANK PERFORMANCEEXIBIT NO. 27

Page 28



Page 29


EXIBIT NO. 28


EXIBIT NO. 29Stock prices from Jan 06 to Aug 06

MonthOpen Price

High Price

Low Price

Close Price

Average price

No. of Shares

No. of Trades

Total Turnover(Rs.)

* Spread(Rs.)

H-L C-O

Feb 06 112.50 113.50 101.20 106.00 107.35 18,98,274 14,028 20,44,43,266 12.30 -6.50

Mar 06 106.40 108.70 96.85 100.15 102.78 31,66,353 16,552 32,50,60,152 11.85 -6.25

Apr 06 102.00 111.45 90.00 98.50 100.73 30,63,157 18,522 31,66,30,018 21.45 -3.50

May 06 99.50 110.00 75.55 98.65 92.78 54,67,321 28,344 54,32,16,032 34.45 -0.85

Jun 06 99.00 100.90 74.10 91.65 87.50 22,72,644 18,636 19,66,70,564 26.80 -7.35

Jul 06 92.50 98.00 80.10 95.00 89.05 11,25,202 10,679 10,18,78,100 17.90 2.50

Aug 06 95.00 114.00 94.50 110.75 104.25 30,62,234 16,688 31,75,36,025 19.50 15.75

Dividend declared in May 2006 @ 30% source: www.bseindia.com


MonthOpen Price

High Price

Low Price

Close Price

Average price

No. of Shares

No. of Trades

Total Turnover(Rs.)

* Spread(Rs.)

H-L C-O

Feb 07 173.00 193.00 160.05 175.00 176.53 36,13,315 23,888 65,79,18,193 32.95 2.00

Mar 07 176.00 180.80 154.50 171.05 167.65 16,66,972 10,889 28,29,22,603 26.30 -4.95

Page 30


Apr 07 161.05 184.40 160.00 168.10 172.20 24,41,772 18,919 41,93,53,328 24.40 7.05

May 07 172.50 186.30 164.00 170.35 175.15 30,10,899 22,471 52,69,11,441 22.30 -2.15

Jun 07 172.00 177.90 164.00 174.90 170.95 12,14,311 12,070 20,88,63,907 13.90 2.90

Jul 07 176.00 203.40 170.00 185.20 186.70 46,19,294 39,329 88,09,83,374 33.40 9.20

Aug 07 181.60 193.00 165.15 190.60 179.08 33,76,368 12,692 60,56,78,506 27.85 9.00


Exibit no.31Stock price between feb 08 and aug 08

MonthOpen Price

High Price

Low Price

Close Price

Average price

No. of Shares

No. of Trades

Total Turnover(Rs.)

* Spread(Rs.)

H-L C-O

Feb 08 253.00 286.00 241.00 263.95 263.50 19,10,524 11,125 49,16,20,195 45.00 10.95

Mar 08 264.00 264.00 187.00 199.95 225.50 16,89,379 10,273 38,39,78,348 77.00 -64.05

Apr 08 200.10 215.00 195.10 202.00 205.05 2,23,138 4,156 4,59,99,559 19.90 1.90

May 08 205.85 218.00 191.25 202.15 204.62 3,55,664 5,646 7,30,88,015 26.75 -3.70

Jun 08 200.00 207.95 138.00 138.15 172.97 13,93,868 10,770 24,20,13,784 69.95 -61.85

Jul 08 138.00 152.95 117.00 125.90 134.97 6,17,374 7,937 8,07,57,073 35.95 -12.10

Aug 08 125.75 149.00 125.00 140.45 137.00 4,44,867 5,858 6,20,43,316 24.00 14.70

Dividend declared in may 08 @ 50% source: www.bseindia.com


MonthOpen Price

High Price

Low Price

Close Price

Average price

No. of Shares

No. of Trades

Total Turnover(Rs.)

* Spread(Rs.)

H-L C-O

Feb 09 70.30 72.40 60.50 63.35 66.45 1,78,332 4,382 1,18,99,498 11.90 -6.95

Mar 09 62.85 70.75 55.15 65.20 62.95 3,90,579 5,030 2,48,53,661 15.60 2.35

Apr 09 66.20 91.55 65.30 82.10 78.43 11,27,737 11,096 9,37,84,241 26.25 15.90

May 09 83.10 155.00 83.10 137.70 119.50 72,82,173 24,652 89,64,25,933 71.90 54.60

Jun 09 139.90 154.00 129.05 139.90 141.53 19,91,220 16,264 28,04,10,553 24.95 0.00

Jul 09 140.50 149.45 125.65 136.50 137.55 7,99,053 9,331 11,14,86,557 23.80 -4.00

Aug 09 137.10 143.25 122.45 126.05 132.85 11,71,170 7,204 15,05,17,207 20.80 -11.05



Month Open High Low Close Average No. of No. of Total Turnover * Spread

Page 31


Price Price Price Price price Shares Trades (Rs.)(Rs.)

H-L C-O

Feb 10 128.50 130.00 108.45 111.70 119.23 7,97,239 9,777 9,31,33,451 21.55 -16.80

Mar 10 112.50 132.00 112.50 119.80 122.25 48,69,683 23,270 59,90,34,469 19.50 7.30

Apr 10 119.00 141.35 119.00 137.80 130.18 32,20,521 26,111 43,55,71,342 22.35 18.80

May 10 137.00 175.40 128.30 170.60 151.85 1,39,71,750 1,02,342 2,17,99,78,114 47.10 33.60

Jun 10 173.40 188.85 154.65 178.50 171.75 2,48,83,210 2,15,383 4,26,52,52,034 34.20 5.10


ANALYSIS AND RESULTS:The declaration and payment of dividends has a varied impact on the market price of the shares depending upon the various underlying and inherent factors that operate in the market and within the firm itself. The entire data above reveals that how the market prices of the shares of a company fluctuate with the payment of dividends. These fluctuations have been interpreted by various analysts in terms of the models they have developed over the past few decades. The analysis of the companies under consideration can be carried out on the basis of those models and their application in varied firms could be sought.The facts revealed from the data summarised above can be looked into from different perspectives showing the impact of dividends on the market price of the shares of a company.

BANK OF BARODA:The graphical representation of the impact of dividend declarations on the market price of the shares of BANK OF BARODA can be shown as under;

Page 32


In the year 2005, the bank declared a dividend @ 32% (exibit no. 3), which had an impact on the market of the shares. In the prior quarter, the share prices were fluctuating between Rs.198 to Rs.206 but in may it went down to Rs.187. The share prices again went up in the following quarter showing that the dividend had not a lasting impact on the share prices but was very much temporary in nature. This may also be in view of the fact that the shareholders thought of behaving in a rational approach, in the light of earlier dividend declared in that year in the month of january @18% (exibit no. 3), and do not attach a lasting negative semtiment to the low rate of dividend in may itself.

In the year 2006, the rate of dividend paid was 50%. In this year the earnings per share(EPS) of the company were Rs. 22.62 crores which led to the payment of dividend @ Rs. 5 per share (i.e 50% of the face value of the shares. The stock prices of the bank were decreasing in the prior quarter ( i.e. from Rs. 249.52 to Rs.226.05----exibit no. 5) following which the dividend was declared in the month of april and it resulted in the increase in share prices to Rs. 239.00 in the month of may but the company could not sustain the impact of the dividend and the ahsre prices again went down to Rs.207.50 and then further to Rs.202.37. This reveals that the dividend did not had a lasting impact on the share prices and because the share prices showed a very sharp decrease, it may also be because of

Page 33


the reason that some negative information may have flown into the market leadin to the attachment of discount.

It may be because of the two consecutive payments of dividend in the months of march 07 and april 07 that the decreasing trend of the share prices showed a sharp and consistent increase --- exibit no. 6. The dividend payments resulted in the share price increase from Rs.208.75 to Rs.222.00 to Rs.263.45 which finally reflected at Rs. 292.25 at the end of the quarter.

The 2008 dividends were not much effective as the decreasing share price trend continued to decrease almost to the end of the quarter. However, 2009 dividends had an indellible impact on the share prices which rose from Rs.261.32 at the start of the prior quarter to Rs.412.55 at the end of the following quarter.

2010 did not experience heavy impact as the share prices were increasing prior to dividend declaration and further continued to increase.

Such kind of varied impacts of dividend declaration on the share prices was experienced by the bank of baroda because of the various reasons and the different conditions under which the dividends were declared. Some of them may be enumerated as under:

There were two dividends declared in the year 2007, may be because the company wanted to compensate the negative sentiment associate with their shares as a result of the dividend payments in the preceeding year.It may also be because of the increase in the sales and EPS (from Rs. 22.62 crores to Rs. 28.08 crores---exibit no. 1) of the company.The 2008 dividends were not effective because the rate of dividend was not in complete correlation with the increase in the performance of the bank. The dividends stood @ 80% while the improvement in bank performance was more better i.e EPS increased by Rs. 11.32 crores in comparisson to the previous year while the dividend per share increased by only Rs.2.On the same lines but in opposite direction, the improvement in the bank performance was clearly reflected in the share prices. No doubt that the dividend rates were not quite high in 2009 also but upto this period of time the shareholders might have understood that the company performance is improving quite decently and hence it may be having more investment opportunities, therefore, positive sentiment was attached to the retention of the earnings resulting in the increase in share prices.Dividend @150% might was sufficient to continue the increasing trend of the share prices.

Page 34


CANARA BANK:The graphical representation of the dividend and share price combo is as under;

The fluctuating share prices of the bank showed an increasing trend after the declaration of the dividend in the month of may in 2005 @ 30% ---- exibit no. 12 and 13.

However, in the year 2006 the share prices were increasing in the preceeding quarter but with the declaration of the dividend the share prices went down very sharply and continued to do so during the whole qurater ranging from Rs. 248.00 to Rs. 188.55. This signifies that intense negative sentiment was associated with the dividend declaration. This could be because of the reason that a dividend of Rs. 6.60 per share might not have been in the line of acceptance for the shareholders keeping in view the EPS of Rs. 32.76 crores.

While as the share prices showed a rise in the following couple of months from the dividend declaration in the month of may 2007 @ 70%. The reason is quite evident i.e despite the meager increase of Rs. 1.89 crores—(exibit no. 11) in the EPS, the company managed to pay a dividend higher by 4% as compared to the last rate. Whereas no significant impact of 80% dividend in the month of april 2008 was reflected in the stock prices as the same continued the trend of decline for the whole of prior and following quarter.

Page 35


But the same rate of dividend led to increase in the stock prices in the year 2009. This was because of the fact that the shareholders had realised that the increasing sales (from Rs. 14200.73 crores to Rs. 17119.06 crores) and gross profit margin (from 7.69% to 9.68%)---(exibit no. 11) will lead to increasing capital gains for them therefore they favored the retention decission of the company.

On the same lines when the company increased the dividend rate to 100% in the following year i.e 2010, the shareholders attached a negative sentiment to it as the earning spree was continuing at higher rates. The same wwas reflected in the decline in share prices in 2010 following quarter i.e the share prices dropped from Rs.417.28 to Rs.390.75. As said above, it was because of the increasing earnings i.e. EPS increased by Rs.23.14 crores—exibit no.11, gross profit increased from Rs. 3963.77 crores to Rs.5060.81 crores.

The overall dividend policy of the bank was not quite satisfactory as they were not able to percieve the sentiments of their shareholders accurately and cuold have devised a better dividend policy.

HDFC BANK:The graph containing the impact of dividend on the share prices takes the

following shape;

Page 36


In the year 2005 the company declared a dividend @ 45% in the month of april which had a very short run impact on the share prices as the same dropped from Rs. 568.98 to Rs. 542.65 and further to Rs. 539.50 in the months of march, april and may respectively—exibit no. 21. However, the share prices again went upto Rs.588.53 and then to Rs.662.45 in the following two months which signifies that the dividend declaration could not sustain its impact on the shareholders.

The situation in 2006 is quite rare as there hardly seems to be any impact of dividend on the share prices. There does not seem to be any pattern in the change in the share prices following the dividend declaration and the fluctuating prices in the prior quarter still continue to wobble in the following quarter as well. While there seems to be no significant reason for such behavior of the shareholders. It might be because of the economic circumstances prevailing during that time period that the shareholders neither discunted not attached any premium to the dividend payments.

The decreasing trend showed a little stabilisation with a spice of increase as a result of the declaration of dividend in the month of april 07. The prices in the prior quarter were decreasing from Rs.1042.75 in jan07 to Rs.960.00 in march 07. But once the dividend was declared in april, the trend showed a slight increase to Rs.970 in april itself and then to Rs.1127.15 in may 07 which again wobbled in june but yet again increased in july to Rs.1188.50. this reveals a short run impact of dividend on the shareprices.

The 2009 dividends have proven quite effective for the company as the decreasing trend of the share prices showed some kind of reversal. The share prices were dipping from Rs.994.50 to Rs.894.00 in the prior quarter but shooted upto Rs. 1466.40 in the following quarter. This might be because of the fact that the dividend rate matched the expectations of the shareholders keeping in view the increase in the EPS of the company from Rs. 44.87 crores in the the year 2008 to Rs.52.78 crores in the year 2009. This increased the dividend per share by Rs. 1.50. There is no doubt that the operating profit per share decreased in the year 2009 as compared to 2008 (i.e. from Rs.107.32 crores to Rs.92.36 crores---exibit no.19), still the company paid a dividend of 100%. This could have been because of the reason that the earlier dividends did not have a lasting impact on the share prices and that might have forced the company to take such a step and it paid for the company.

Because of certain unrevealing reasons, the share prices of HDFC bank in the year 2010 did not showed a specific trendas it is fluctuating in both the prior and posterior quarters. It certainly signifies the influence of some other factors

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than dividend that have their role in manipulating the stock prices. And because of the EFFICIENT MARKET HYPOTHESIS into account the market attaches a sentiment to each and every bit of information that is flown into the market.

KARNATAKA BANK:The dividend-share price graph of the Karnataka bank takes the following

shape

The general impact of the dividend declarations on the share prices of the Karnataka bank has been quite fluatuating as is evident from the exibits—29, 30, 31, and 32. These reveal that the share prices have not been lastingly affected by the dividend declarations and there have been surely certain other factors operating in the market that have had a greater influence on the share prices than the dividend policy of the company.

It could be vsualised from the exibit no. 29 that the share prices decrease from Rs.107.35 to Rs.102.78 and further to Rs.100.73 in the next month, but with the declaration of the dividend in the commnig month the share prices further reduce and then increase in the last month of the quarter. This reveals that the dividend declaration could not sustain its impact on the market prices of the company.

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The next year i.e. 2007 is even more paradoxical in nature I terms of the impact of dividend on the share prices as is reflected in the exibit no. 30. The share prices first decrease then increase then decrease then increase and then again decrease which means no definite pattern of changes in the prices takes place in the market.

Same is the case with the year 2009, however, with some kind of difference. i.e. even though there has been no specific pattern in the share price changes but the wobbling share prices have shown a fluctuating increasing trend. This could be seen from the exibit no. 32. It shows that the share price in the month of feb 2009 was Rs.66.45 which went down to Rs.62.95 in the next month, then it increased to Rs.78.43 and then to Rs.119.50 and then even to Rs.141.53 in the month of june. This might have come as a relief for the company as though their dividend policy is not working as per the expectations but it they have managed to incresed their share prices. However, they have to also keep this fact in view that more wobbling in the share prices might affect the credibility of the company in terms of it value creation.

The only year that has shown only increasing trend in the share prices right through the prior and the posterior quarter is the year 2010. Exibit no.33 reveals that the share prices continue to increase from Rs.119.23 to Rs.122.25 to Rs.130.18 to Rs.151.85 and finally to Rs.171.75 in the month of june 2010. However, this could be because of the reason that despite the decrease in the EPS of the company from Rs.21.94 crores in 2009 to Rs. 12.47 crores in 2010, the company still managed to pay a dividend of 40% to its shareholders. This led to the attachment of a positive sentiment to the decision and operations of the company.

ConclusionsFollowing the above analysis, it can be safely said that the changes in the share prices follow a specific pattern many a time but also fluctuate randomly at some other time. This reveals the varied impact of dividend decisions of a company on its share prices. However, it must also be taken care of that dividend policy of a company does not work in isolation. It has various other other factors associated with it that have a very infulential bearing on the share prices of the company but in those factors do not fall under the ambit of the project.

Assuming those factors to be constant, in certain cases the dividend decisions don not impact on the share prices, reverberating the NON-RELEVANCE approach that was put forth by MODIGILLIANI and MILLER. Such kind of senario

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was seen in case of the companies that have a strong holding in the market and investors have firm belief in the operations of the company e.g. in HDFC bank (only in some years). This also assumes the markets to be efficient i.e. operating under the EFFICIENT MARKET HYPOTHESIS and the investors being rational--- which seem to quite acceptable in the present world condidtions. However, the other assumptions do not seem to be on a sound rationale---ref page no.7.

In most of the cases, the dividend decision had a bearing on the market price of the shares and hence is vindication of the RELEVANCE SCHOOL OF THOUGHT under which various models have been developed over time by the researchers to understand the dividend policy of a company and its bearing on the share prices i.e. the value of the firm.

As mentioned by Richard Fairchild in his article DIVIDEND POLICY, SIGNALLING AND FREE CASH FLOW: AN INTEGRATED APPROACH that sometimes a miscommunication about the future projects can be a cause of change in the share prices and hence by paying relatively low rates of dividend, company may not be able to capitalise on the share prices. This kind of situation is reflected in HDFC bank in the year 2008----exibit 24.

Hence, it can be concluded that changes in the share prices are a function of the dividend policy of a company but at the same time other factors like investment opportunities, capital structure, leverage etc have a very strong bearing on the market price of the shares. Thus dividend policy does not impact share prices in isolation. The various unpredictable changes in the share prices reflected in this project are a clear vindication of the same.

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