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Factors affecting the determination of the dividend ratio in companies admitted to the Tehran Stock Exchange

Number of pages: 132 File Format: word File Code: 29675
Year: 2012 University Degree: Master's degree Category: Management
Tags/Keywords: cash interest - dividends - Financial management - Management - profit - Securities - stock market
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  • Summary of Factors affecting the determination of the dividend ratio in companies admitted to the Tehran Stock Exchange

    Financial Management Master's Thesis

    Abstract

    Deciding on the payment of interest and its amount is an important issue in the field of corporate finance; Because in this decision, the amount of money that should be paid to investors and also the amount of money that should be accumulated for reinvestment is determined.

    In this research, the factors affecting the dividend payout ratio in the Tehran Stock Exchange were investigated, and the results of the research show a positive relationship between the dividend payout ratio and profitability, free cash flow, institutional shareholders, and the negative relationship between dividends and risk, as well as the relationship between sales growth and investment opportunities with the amount of dividends, were not confirmed. In other words, investors in the Tehran Stock Exchange use profitability, free cash flow, risk and institutional shareholders as criteria to determine the amount of dividends of companies.

    Key words: cash profit, institutional shareholders, risk, cash flow, profitability

    Chapter 1

    General research

    -1- Introduction

    Successful companies earn profits. These profits are reinvested in operating assets, or used to buy securities, or used to repay debts, and may be distributed to shareholders.

    If it is decided to distribute profits to shareholders, three basic questions arise:

    What percentage of profits should be distributed?

    Is the distribution of profits in the form of cash dividends to shareholders or Can it be done through share buyback?

    To what extent is the profit distribution sustainable?

    The dividend policy is one of the important issues of financial management, and cash profit is a significant cash outflow for many companies. In other words, deciding on the payment of interest and its amount is an important issue in the field of corporate finance; Because in this decision, the amount of money that should be paid to investors and also the amount of money that should be accumulated for reinvestment is determined. It may seem obvious that the company always wants to return as much money as possible to the shareholders by dividing the profits. On the other hand, it is also obvious that the company can always reinvest shareholders' money instead of distributing profits. As a result, the main question in the discussion of dividend distribution is: "Should the company pay dividends to shareholders or reinvest them for the shareholders themselves?"

    There are many reasons why companies pay or not pay dividends. So far, the findings show why companies pay dividends and investors pay attention to dividend payments, which is the mystery of dividends that is still problematic. Bernstein (1996) [1] and Ivisin et al. 2003) [2] addressed the dividend puzzle again and did not find an answer for it. Therefore, establishing the company's profit allocation policy remains controversial and involves many judgments by decision makers. The lack of a fixed definition for dividend is a controversial issue according to Brook and his colleagues (1998) [3] There is no reason to believe that the company's dividend policy originates from a fixed goal. Now the question is, should the company pay dividends in cash to shareholders or invest the cash now and pay dividends later? Therefore, dividend policy is the time pattern of dividend payment. In this context, the question of special importance is, what percentage of the profit should the company share now? This is the question of dividend policy.

    Issues that arise about the company's decision to guarantee their profits to shareholders are how many percent of profits should be distributed. How should the dividend be paid (cash, dividend, or stock split) How long should the profit distribution system be sustainable? These topics have been the most discussed topics about dividend policies.

    The number of empirical and theoretical researches on dividend policy has increased so far. Research shows why companies pay dividends and investors pay attention to dividend payments, which is the dividend puzzle, which is still problematic. Bernstein [4] and Ivisin [5] (2003) again dealt with the puzzle of dividends and did not find an answer for it.Therefore, establishing the company's profit allocation policy remains controversial and involves many judgments by decision makers. The lack of a fixed definition for dividends is a controversial issue. According to Brook and his colleagues [6] (1998), there is no reason to believe that the company's dividend policy originates from a fixed goal.

    The agency theory is to minimize the costs associated with separating ownership from management. In companies where the owners have a greater share of management, due to the better arrangement of shareholders and the existence of managerial control, agency costs are reduced, Jensen and Meckling [7] (1976). Companies that have large pledges of shareholders are able to better control management activities. According to the theory of Fama and Jensen (1983), these effects can be controlled by paying high dividends to shareholders. Debt covenants are required to reduce interest payments to prevent bondholder wealth transfers to shareholders John and Calley[8] (1982). On the other hand, the profit sharing policy affects agency costs, which reduces agency costs and increases capital market monitoring. In the free cash flow hypothesis, Jensen (1986) states that cash remaining after financing all projects with a positive net present value affects the interests of managers and shareholders and creates agency costs. Mazilis and Treiman [9] (1988) conclude that as tax liabilities increase (decrease), dividend payments decrease (increase) while reinvestment of earnings will increase (decrease). The adjusted tax model also assumes that investors maximize their after-tax profits. Frakfurter and Lan [10] (1992) argue that information asymmetry and shareholders make dividend payments increase the attractiveness of capital issues. Based on the theory of Michel [11] (1979), the systematic relationship between the type of industry and the dividend policy implies that managers are influenced by executive activities in competing companies when determining the levels of dividend payments, if they understand that shareholders expect more dividends, managers may increase dividend payments in order to satisfy investors. 1-3 Importance And the necessity of research

    The cash profit of each share is of special importance for the stock holder as one of the sources of creating liquidity for people due to its objectivity and tangibility. This issue is also important for the managers of the companies, therefore, part of the power and attention of the managers of the companies is directed to the category which is referred to as "dividend policy". But the main issue is finding the root of the reasons for adopting a specific dividend policy by companies. In this research, we try to determine the factors that have an effect on the cash profit ratio, which is used by investors to make decisions. Previous empirical research mainly focused on developed economies. This research examines the relationships between interest payment ratio indicators within a developing country. Therefore, in this research, we try to investigate the factors that affect the dividend ratio in companies listed on the Tehran Stock Exchange, because one of the important factors in making investment decisions, especially for institutional investors, as well as in stock valuation, is the cash dividend. 4-1- Research hypotheses. Net free cash flow has a significant relationship with the dividend payout ratio.

    Investment opportunities have a significant relationship with the dividend payout ratio.

    Company risk has a significant relationship with the dividend payout ratio.

    Profitability has a significant relationship with the dividend payout ratio.

    Institutional shareholders have a significant relationship with the dividend payout ratio.

    Company growth has a significant relationship with the dividend payout ratio.

    5-1- Research background

    The extensive literature on dividend payout ratios for companies does not establish uniform predetermined policies for dividend payout levels that maximize stock value.

    There are many reasons why companies pay or not pay dividends. So far, the findings show why companies pay dividends and investors pay attention to dividend payments, which is the dividend puzzle.

  • Contents & References of Factors affecting the determination of the dividend ratio in companies admitted to the Tehran Stock Exchange

    List:

    First chapter: 1

    1-1- Introduction. 2

    2-1- Defining the subject and stating the problem. 3

    3-1- Importance and necessity of research. 6

    4-1- Research hypotheses. 6

    5-1- Research background. 7

    6-1- Operational definition of variables 11

    7-1- Research scope. 13

    8-1- Definition of research specialized words. 13

    9-1- Summary. 14

    Chapter Two: Theoretical foundations and research background. 16

    1-2- Introduction. 17

    2-2- Dividend strategies. 20

    3-2- Placement of profit sharing strategy. 21

    4-2- Profit sharing policy and company life cycle. 22

    5-2- Objectives of profit sharing policy. 23

    6-2- Factors affecting profit sharing policy. 24

    1-6-2- Liquidity. 24

    2-6-2- Debt repayment 24

    3-6-2- Stability of profitability. 25

    4-6-2- Competitors' profit sharing policy 25

    5-6-2- Investors' interests. 25

    6-6-2- Profitability of future opportunities. 26

    7-6-2- Tax priorities. 26

    8-6-2- Legal requirements. 27

    9-6-2- warning effects. 27

    10-6-2- Cost considerations. 28

    11-6-2- inflation. 28

    12-6-2- Control. 28

    13-6-2- Transfer costs and share divisibility. 29

    14-6-2- Expenses related to issuing new shares 29

    15-6-2- Ability to borrow 30

    16-6-2- Tax evasion due to unreasonable accumulation of profits. 30

    17-6-2- Growth and development rate of the company. 31

    18-6-2- The effect of the commercial period. 31

    19-6-2- Type of company. 31

    20-6-2- Agency fee 32

    21-6-2- Degree of financial leverage. 32

    7-2- Determining the profit sharing policy. 33

    1-7-2- The policy of dividing the remaining profit. 33

    2-7-2- Stability of cash interest. 34

    3-7-2- Intermediate cash interest policy. 34

    8-2- Dividends versus capital gains. 35

    9-2- Proposed theories in the field of profit sharing policy. 36

    1-9-2- The theory of the irrelevance of profit sharing. 36

    2-9-2- Theory of the bird in the hand. 38

    3-9-2- Theory of tax preference. 39

    10-2- Factors that justify low cash profit. 39

    11-2- Factors that justify high cash profit. 40

    12-2- Theories justifying the amount of dividends. 40

    13-2- Dividend payment methods. 41

    1-13-2- Payment of cash interest. 42

    2-13-2- Payment of committed interest. 42

    3-13-2- Payment of dividend. 42

    4-13-2- Splitting shares. 43

    14-2- The relationship between the company's projects and cash flow with the profit sharing policy. 43

    15-2- Experimental studies in different countries. 45

    16-2- Experimental studies in Iran. 55

    17-2- Summary. 60

    Chapter three: Chapter three: research method. 62

    1-3- Introduction. 63

    2-3- Type of research. 63

    3-3- Method of data collection 63

    4-3- Scope of research. 64

    1-4-3- The temporal domain of research. 64

    2-4-3- Statistical population. 64

    3-4-3- Statistical sample. 64

    5-3- Research hypothesis. 66

    6-3- Research variables. 67

    3-7- Statistical techniques used. 68

    1-7-3- Consolidated data template. 68

    2-7-3- Statistical tests for data analysis 70

    3-8- Summary. 72

    Chapter four: Data analysis and hypothesis testing. 74

    1-4- Introduction. 75

    2-4- Data description 75

    3-4- An overview of the research hypothesis. 76

    4-4- Descriptive statistics. 77

    5-4- Limer's F test and Hausman test 79

    6-4- Results and hypothesis test. 80

    6-1-4-Fixed effects test. 81

    2-6-4- Random effects test. 82

    7-4- The results of research hypothesis testing. 85

    8-4- Summary. 89

    Chapter five: analysis of findings and conclusions. 90

    1-5- Introduction. 91

    2-5- Research summary. 91

    3-5- Research results. 93

    4-5- Research limitations. 94

    5-5- Suggestions 95

    6-5- Suggestions for future research. 95

    Sources and sources. 96

    Research Appendices.

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    .

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