Impact of Dividend Policy on Share Holder's Wealth: A study of Selected Indian Automobile Companies

In the modern and complex environment globalization and privatization have lead the companies to aim towards the long run objectives of maximizing shareholder's wealth. Shareholder's wealth is reflected in the market price of share of company's common stock. Hence, maximizing shareholder's wealth is possible if the price of company's common stock is maximized. Shareholders are interested in cash dividends and growth in Earnings per share that results from investing the Earnings of business back into it. The best dividend policy is the one that maximises the company's stock price leading to shareholder's wealth maximization. The present study aims at analysing the impact of dividend policy on shareholder's wealth and growth in Earnings per share. It also reveals how much importance the shareholders give to the lagged market price of stock while taking buying decision of stock particularly for automobile sector of India. Five major companies from Indian automobile sector have been selected for this study with the data on the relevant market price and dividend policy variables for the period of Eleven years from 2005–2015. The study uses multiple regression analysis to meet these objectives. Dividend per share is having highest impact on market price per share. Lagged market per share is the most important determinant affecting Market price per share positively.