On the Dividend and Bonus policies of the Indian companies.

Mohanty, Pitabas (1998) On the Dividend and Bonus policies of the Indian companies. TAPMI, Manipal.

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Abstract

The Indian shareholders consider bonus issue as a gift from the management though the theory of finance discounts bonus issue of shares (Of stock dividends as known abroad) as an accounting gimmick without having any impact on the value of the company. This phenomenon is something new to India and it happens here mainly because of two reasons. First, the shareholders expect that after the bonus issue, the dividend rate (defined as the ratio of equity-dividend per share and the faIvalue of the share) will not go down and therefore the total cash inflow through dividends increases (because the same dividend per share is expected to be paid on the new shares issued). The second reason is that the liquidity of the stock increases after the bonus issue. The stock prices also fall thus making it more affordable to the shareholders. This paper attempts to see the dividend paying behaviour of around 200 to 250 (it varies across years) companies for a period of 15 years to see whether the above-mentioned expectation of the shareholders is valid, i.e., whether it is supported by empirical data. It was found that most of the companies either maintained the dividend rate after the bonus issue at the pre-bonus level or have decreased it proportionately). (but not A well performing company can either make a bonus issue and maintain a more or-less constant dividend rate or it can Increase the dividend rate without giving any bonus shares. Therefore this paper also attempts to see whether the companies making bonus issue have been able to generate more retll'ns to their shareholders compared to companies that have not made any bonus issue but have maintained a steadily increasing dividend rate. It has been found that in the 1982-91 period the bonus issuing companies have been able to generate more returns to their shareholders than the companies that have not made any bonus issue in the said period but have maintained a steadily increasing dividend rate. However, this phenomenon was reversed in the second period of the study namely, 1992-96. The declining tendency of the MNCs to issue bonus shares was found to be one of the reasons of such return behavior.

Item Type:	TAPMI Working Papers
Uncontrolled Keywords:	Dividend and Bonus policies: Finance;
Subjects:	Finance
Divisions:	Finance and Strategy
Depositing User:	Ms. Vanitha K
Date Deposited:	17 Nov 2018 10:41
Last Modified:	21 Nov 2018 10:42
URI:	http://tapmi.informaticsglobal.com/id/eprint/395

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