Role of dividend signalling in corporate finance Dissertation

Role of dividend signalling in corporate finance - Dissertation Example as a major role in corporate finance. The study also provides a detailed research on the impact of dividend announcement on shareholder. Dividend is an important parameter to evaluate investment decision by the investors. So, there is a substantial role of dividend signalling on corporate finance as companies share value of organization through dividend payment.Thus, annual dividend announcement by a company always remains the most awaited news for its shareholders. This paper provides a clear understanding ofthe impact of dividend signalling on corporate finance in theoretical aspect and its impact on shareholders in practical aspect. Chapter 1: Introduction Motivation Firms communicate value and financial well-beings through payment of dividend to its shareholders. Investors generally practice a common activity i.e. â€Å"dividend check in mail† at each quarter when their invested firms declare their quarterly financial results. Dividend is a way of sharing or distribution o f companies’ earnings to the shareholders at a regular basis. Companies distribute dividend quarterly, half yearly or on yearly basis. Regular payment of dividend by a firm shows its sustainable financial growth and it also determines a firm’s future performance and prospect. Dividend payment record of a firm is one of the most important factors for investment decision making for the shareholders and shareholders always expect regular payment of dividend from the companies where they invest. So, a company’s ability and willingness to pay regular dividend payout determines the strong financial condition of the company. Concept of dividend payment was not there in business practice before Securities and Exchange Act was introduced in the year 1934. Companies required a law for mandatory disclosure of financial information. Since the initial time of dividend payment by the limited companies, it has become one of the most important parameter of financial health and also remains one worthwhile yardstick to evaluate a company’s current and future prospect. Mature profitable companies generally pay dividend to its shareholders. However, if a company do not pay dividend that does not mean that the company is not able to generate substantial earnings. Growth companies generally pay dividend. If management of a company thinks that growth opportunity of the company is much better than its investment opportunity available to the new investors or the existing shareholders then the company pays dividend to enhance the investment opportunity of the company (Lonkani & ratchusanti, 2007, p.4). So, dividend is one of the mos