Impact of dividends on share prices: a study of Indian firms

The present study has been undertaken to examine the impact of dividends and retained earnings on share prices of Indian firms, after controlling for the effects of lagged Price to Earnings ratio and Lagged share prices. CNX 100 companies listed on National Stock Exchange of India Ltd. have been analyzed for a period spanning from 2009 to 2013. Multivariate Regression Analysis has been applied to study the relationship between dividends, retained earnings and stock prices. The findings of the study indicate a highly significant and a positive impact of dividends and retained earnings on the stock prices. The results also provide evidence of a significant-positive relationship of both lagged Price to Earnings Ratio and Lagged Share Price with the market share prices of the sample firms. The study concludes that dividends have the most dominant impact on the share prices and the investors prefer dividends over retained earnings.