Nahid's Thesis Paper

I
Chapter 1:
ntroduction
Impact of Dividend Policy on Stock Price: Evidence from Selected Commercial Banks in Bangladesh
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1.1 Introduction:
Dividend policy is an important term in financing decision. Investor invests their money to earn
profit. Dhaka Stock Exchange (DSE) is working as the intermediary to meet with the deficit
group of people and the surplus group of people. Surplus group known as stockholder invests
their money to purchase share from DSE. There are several investor invest their money on time
horizon basis; Short term investor, mid-term investor and long term investor. On the other hand
deficit group is known as the public companies. Public companies collect their capital from
capital market by issuing financial instruments like share, bond etc. Over the past ten years
banking sector has become the leading and reliable sector of investment for general investor.
Selecting a suitable dividend policy is an important decision for the bank because flexibility to
invest in future projects depends on the amount of dividends that they pay to their shareholders.
If company pay more dividends then fewer funds available for investment in future projects.
Lenders are also interested in the amount of dividend that a company declares, as more amounts
is paid as dividend means less amount would be available to the company to pay off their
obligations.
1.2 Background of the Study:
Dividend policy of a company is very crucial in order to maintain good relations with the
Shareholders of the company. When a company makes a profit, the management decides on what
to do with those profits.They have the option of retaining the profits and reinvesting them so asto
earn more profits and increase shareholder wealth in terms of increase in share prices or paying
the profits earned as dividend to shareholders so that the shareholders can have some cash in
hand. However, once the company decides to pay dividends, it should establish a permanent
dividend policy, which may impact on investors and perceptions of the company in the financial
markets.Generally, companies paying dividends are respected by the shareholders given the
liquidity preference theory.If the company thinks that it has enough investment opportunities and
they would be able to substantially increase the value of the company for the shareholders, it
should remain the profits. What they decide depends on the situation of the company now and in
the future.It also depends on the preferences of investors and potential investors.
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1.3 Objectives of the Study:
Objective guides the power of thinking of any set of operation either directly or indirectly. It works
as a lamp-post in a dark night to find out the right way. There are two types of objectives.
1.3.1 General Objective:
The general objective of the study is to review the dividend policy and to know whether it has
any impact on the stock price.
1.3.1 Specific Objectives:
The followings are the specific objectives of the study-
I. To find the relationship between the dividend policy and market price.
II. To measure the impact of bank’s dividend policy on the shares market price.
III. To know about the dividend indicators for the banking sectors.
IV. To observe the economic condition of banking industry.
V. To analyze the financial statements of banking industry.
VI. To measure the efficiency of selected companies in dividend policy.
1.4 Problem Statement:

Dividend policy is an integral part of financial management decision of a business firm.
Dividend refers to that portion of a firm’s net earning which are paid out to the shareholders.
Whether dividends have an influential on the value of the firm is the most critical question in
dividend policy. If dividends are irrelevant, the firm should retain earnings for investment
opportunities. If there are not sufficient investment opportunities providing expected returns in
excess of the required return, the unused funds should be paid out as dividends.
Dividend is the most inspiring factor for the investment on shares of the company is thus
desirable from the stockholder's point of view. In one hand the payment of dividend makes the
investors happy. But in the other hand the payment of dividend decreases the internal financing
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required for making investment in golden opportunities. This will hamper the growth of the firm,
which in turn affects the value of the stock.
Where firm pays dividend, it may need to raise capital through capital that will effect on
risk characteristics of the firm. Therefore there are many dimensions to be considered on
dividend theories, policies and practices.
There are many empirical studies on dividend and stock price behavior. For example, few of
them are Linter (1956), Miller and Modigliani (1961), Durand and May (1960), Friend and
Puckett (1964), Fama and Babiak (1968), Elton and Gruber (1970), Frank and Jagannathan
(1998), Uddin (2003), Foong, Zakaria and Tan (2007). However, conclusive relationship exists
between the amount paid out in dividend and the market price of the share. There is still a
considerable controversy concerning the relation between dividend and stock price.
Theoretically, the share price should fall down after the book closure by an amount to the
amount of cash dividend, in case the company is going to distribute cash dividend. For example,
if the share price of XYZCompany on one day before the book closure was tk. 1000 and the
company had declared tk 50 per share as cash dividend, which was to be formalized in the
coming AGM. The price per share in the first transaction after the book closure should be around
tk. 950.
1.5 Research Question:

Dividend announcement conveys information about the organization to the investors. The
research paper deals with dividend policy and its impact on stock price.
 What is the relationship between dividend and stock price?
 Is there any impact on stock price by dividend policy?
1.6 Conceptual Framework:
Capital market is one of the most important topics in Bangladesh economy. Large portions of
people are involved in this market directly or indirectly. There are generally three types of
investors, who invest in the market to get return. Some of them prefer capital gain, some want
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dividend and other types of investors wish to reinvest in the capital market. But investors do not
get proper feedback. Because of most of the investors are unaware about capital market. The
study is aimed at to determine the impact of dividend policy and its’ positive and negative
momentous in the stock price.
1.7 Significance of the Study:
In the capital market the investor can earn return in two ways, one is dividend and another is
capital gain. The term dividend is defined as a return from investment inequity shares. So
dividend is important factor for investor while investing in equity shares. This study helpful to
investor to take rational decision like where to invest, how to invest, what portfolio should be
made to obtain maximum profit from their investment? When a new company floats shares
through capital market, large numbers of people gathers to apply for owner's certificate. It
indicates people’s expectation on higher return of investment in shares. In Bangladeshi context,
most of investors are investing in the stock without adequate knowledge of the company and
performance and dividend policies. This study helps to aware the Bangladeshi investors. This
study is useful for the firm’s perspective too. They can know the investor objective’s from this
study. There are basically two types of objective one is receiving dividend and another is
receiving capital gain. Basically this study is conducted to help the investor while investing in
share capital. So that they can make correct decision at right time about the influence of dividend
in market price of share and make investment.
1.8 Limitations of the Study:

The study of this thesis paper is encountered with the following limitations:
 Data accuracy cannot be ensured as mainly secondary data, collected from Annual
Reports, Financial Reports, Economic trends are used in this study.
 Lack of my sufficient experience and efficiency to prepare this report.
 Short period of time.
 Sometimes information was contradictory and inadequate.
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L
Chapter 2:
iterature
Review
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2.1 Literature Review:
Dividend is widely studied important topic. Several authors have provided their contribution
with theoretical and logical explanationAbdullah Al Masum (2014) have studied that Dividend
policy has significant positive effect on stock prices in Bangladesh perspective. He concluded
that Dividend policy increased by the increasing of stock price.
Rashid and Anisur Rahman,(2008) found that there is positive but irrelevant relationship
between share price volatility and dividend yield for 104 nonfinancial firms listed in the Dhaka
Stock exchange during the period of 1999 – 2006 Similarly, debt and growth also show positive
and irrelevant relationship with share price volatility. The author found that share price response
to the earnings announcement in Bangladesh is different from other developed countries. Since
Bangladesh has inefficient capital market, the influence of share price risk through dividend still
uncertain. Thus, the managers may not make decision and choose dividend policy to influence
their stock’s risk. This result oppose to Baskin’s (1989) based on the US data where dividend
yield is not correlated to share price volatility. The conflict could be occur because of the
different economic and business environments of the two countries
Gittman (2004, pp. 312) divided stock into two types, such as common stock and preferred stock.
He also showed that dividends are the outcome of investment. So, common stocks are an
ownership claim against primarily real or productive asset (Higgins, 1995), but he also said that
if the company prospers, stockholders are the chief beneficiaries, if it falters, they are the chief
losers Stockholders expect dividend but it is not promised (Gittman, 2004). Common stocks are
hold by true owners of the business. Sometimes they are known as ‘residual owners’ as they
receive whatever left after winding up of the company (Gittman, 2004; Higgins 1995). Another
type of stock is known as publicly owned stock. Common stock owned by a broad group of
unrelated investors or institutional investors is called as publicly owned stock. However, all
common stock of a firm owned by a small group of investors is denoted as closely owned stock.
When all the stock is owned by a single person is known as privately owned stock. Due to the
limit of number of share, stock can be classified in to four types. Such as authorize share,
outstanding share, treasury stock and issued stock (Gittman, 2004). Authorized shares represent
the maximum number of shares a firm allows to issue. Outstanding shares are hold by public.
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Treasury stock is repurchased by firm itself and it is no longer considered as outstanding share.
Issued shared are the shares that have been put into circulation. Recently stock repurchase option
is very popular as it is able to increase stock value by decreasing outstanding stock number (Port,
1976). Port also suggested that firms should avoid issuing stock to pay dividend as they slow
down company growth.
Smith (1988) presented that stocks are one of the most popular forms of investment. People buy
stocks for various reasons: some are interested in the long-term growth of their investment by
buying low priced stock of a new company in the hope of substantially growth of share price
over the next few years. Another reason he suggested that in a well-established firm stockholders
expect the stock growth will be stable over the long run.
Fama and Babiak (Fama and Babiak, 1968) on the other hand, used firm-specific data to test his
hypothesis. They investigated a different model for explaining dividend behavior using a sample
of 201 firms with data of 17 years to i) explain dividend policy for a holdout sample of 191 firms
and ii) predict dividend payments for one year.
The ‘Bird Hand’ theory, hypothesized by Gordon and by Shapiro that is known as (Gordon and
Shapiro, (1963). It has conclusion that dividend policy of a company also influence the share
price. It can increase firm’s value by decreasing risk by investors. It holds that, other things
equal, if two firms, A and B, are identical in all respects save that firm A pays a dividend with
expectations of future dividend growth, then A will have a higher share price.
At the other end of the range, there is the position that suggests that in the face of market
inadequacies such as transaction costs and taxes, dividends can have negative consequences for
shareholder wealth. Advocates of this position argue that if the income tax rate is greater than the
rate of capital gains tax, then dividend payments are economically irrational. Similarly, if a firm
pays a dividend, but then raises equity finance to fund investment the consequent flotation
expenses represent an unnecessary reduction in shareholder wealth.
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Many researchers have studied the dividend policy so hardly. The issue still remains unresolved.
Researchers at this time cannot tell corporate decision makers exactly how dividend policy
affects stock prices (Besley and Brigham 2008). Miller and Modigliani (1961) developed the
dividend irrelevance theory, which holds that a firm’s dividend policy has no effect on the value
of its stock. Then, there is the dividend relevance theory which holds that the value of a firm is
affected by its dividend policy. Some proponents of this theory argue that stock price changes
with dividend statements occur because investors consider these statements as signals of
management’s earnings forecasts. Thus, investors are less concerned with the actual dividend
and are more concerned with the information content of the dividend statements. This theory is
known as the information content or signaling hypothesis (Besley and Brigham 2008).
Linter (1956) was another observer of the impact of dividend policy on share prices. He studied
that dividends are relevant in determining the value of firm. Linder concluded that purely
competitive markets, identical interest rates, absence of cost and taxes, and maximizing behavior
are not sufficient to make investors indifferent to substitutions between retained earrings and
debt in financing fixed budget. Investors will prefer for dividend as a result of time value of
money.
2.2 Meaning of Dividend:
The term dividend is defined as a return from investment in equity shares. The profit made by the
firm which is distributed to the shareholders known as dividend.The dividend policy is followed
by the firm regarding the dividend versus retention decision.Every firm after making profit either
retain the money for further investment or distribute it among the shareholders. The firm should
decide whether to keep the money as retained earnings or pay the dividend. It may be in cash,
share and combination of both.Dividend policy decision is one of the important decisions of
financial management because it affects the financial structure, the flow of funds, corporate
liquidating and investors’ attitudes.The main feature of dividend policy is to determine the
amount of earning to be distributed the shareholder and the amount to be retained in the firm.
When a company pays dividend, the shareholder benefitted directly. If the company retains the
funds for investment opportunities, the shareholders can be benefitted indirectly through future
increase in the price of their stock. Thus, shareholders wealth can be increase through either
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dividend or capital gain.Any change in dividend policy has both favorable and unfavorable
effects on the firm’s stock price. Higher the dividend means higher the immediate cash flows to
investors, which is good, but lower future growth, which is bad. The dividend policy should be
optimal which balances the opposing forces and maximizes stock prices.There is an adverse
relation between retained earnings and cash dividend. When the amount of retain earning is high,
the company declares less dividend and when the high dividend is paid than retain earning is
reduced, which reduce the opportunity to reinvest the organization. So dividend decision is one
of the major decisions of managerial finance. Dividend is the portion of the net earnings, which
is distributed to the shareholders by a company. After successfully completing the business
activities of a company, if the financial statement shows the net profit, the Board of Directors
(BOD) decides to declare dividend to the shareholders. Therefore, the payment of corporate
dividend is at the caution of the BOD.
2.3 Types of Dividend:
There are different kinds of dividend in financial markets. Some of these are given below:
A.Stock Dividend/Bonus Share
A stock dividend occurs when the board of directors authorizes a distribution of common stock
to existing shareholders. Stock dividend increases the number of outstanding shares of the firm’s
stock.Under stock dividend, shareholders receive additional shares of the company instead of
cash dividends.Stock dividend requires an accounting entry transfer from the retained earnings
account to the common stock and paid in capital accounts. Retained earnings = Number of
shares outstanding *Percentage of stock dividend * Market price of the stock. This has the
effect of increasing the number of outstanding shares of the company as a result the decrease in
EPS which effect the reduction in the market price of the share. Since the shares are distributed
proportionately, shareholders retain his proportionate ownership of the company.
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B. Bond Dividend:
Bond dividend is a promise to pay the dividend in maturity period. Its maturity period is longer
than others. Bond dividends are the dividends that delay for a while but more it is requirement. It
couldn’t bring back the value as the cash dividend.
C. Scrip Dividend
A script dividend is the form of notes or promises to pay the dividend at a certain period. The
notes are called dividend certificates or scrip. It has less maturity period than bond dividend.
Sometime companies need cash generated by business earning to meet business requirements of
payment of cash dividend because of temporary shortage of cash. In such circumstance the
company may issue scrip dividend payable at future dates.
D.Cash Dividend
The most common way to pay dividend is in the form of cash. A company should have enough
cash in its bank account when cash dividends are declared. If the company doesn’t have enough
cash at the time of paying cash dividend, arrangement should be made to borrow funds. Payment
of cash dividend shouldn’t lead to liquidity problem for the company. The cash account and the
reserve account of a company will be reduced when the cash dividend is paid. Both the total
assets and the net worth of the company are reduced by the distribution of cash dividend. Beside
the market price of the share affected in most cases by the amount of cash dividend distributed.
Cash dividend has the direct impact on the shareholders. The volume of the cash dividend
depends upon earnings of the firm and on the management attitude or policy. Cash dividend has
psychological value for stockholders.
2.4 Factors affecting Dividend Policy:
2.4.1 Legal Requirements
The legal rules provide that the dividends must be paid from earnings either form the current
year’s earnings or from past years’ earnings as reflected in the balance sheet account ‘retained
earnings’. State laws emphasize three rules).
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Capital impairment Rules
The firm cannot pay dividend out of its paid up capital. If it does so there would be reduction in
the capital that would affect the creditors of a corporation).
Insolvency Rule
This rules state that cash dividend should be prohibited, if the company is insolvent. Insolvency
in the legal services defined as the situation when the recorded value of liabilities exceeds the
recorded value of assets. Similarly in the technical sense, it is the firm’s inability to pay its
current debtors).
Net profit rule
This rule provides that dividend can be paid form past and present earnings.
2.4.2 Liquidity position
The cash or liquidity position of the firm influences its ability to pay dividends. A firm may have
sufficient retained earnings, but if they are invested in fixed assets, cash may not be available to
make dividend payment.
2.4.3 Access to the capital markets
A large, well-established firm with a record of profitability and stability of earnings has easy
access to capital markets and other forms of external financing. A small, new or venture firm,
however, is riskier for potential investors. Its ability to raise equity or debt funds from capital
markets is restricted, and it must retain more earnings to finance its operations. A well-
established firm is thus likely to have a higher dividend payout ratio than a new or small firm.
2.4.4 Need to repay debt
Firms may have the policy to retire its past debts by means of retained earnings. If such
alternative are being adopted then such firm will retain more and pays less dividend.
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2.4.5 Growth rate
Growth is measured based on market to book asset ratio. Market to book asset ratio is calculated
as book value of asset minus book value of equity plus market value of equity than divided by
book value of assets.
2.4.6 Control
Another important variable is the effect of alternative sources of financing on the control
situation of the firm. As a matter of policy, some corporations increase only to the amount of
their internal earnings. This policy is defended on the ground that raising funds by selling
additional common stock dilutes the control of the leading group in that company.
2.4.7 Stability of earnings
A firm that has relatively stable earnings is often able to predict approximately what its earnings
will be. Such a firm is therefore more likely to pay out a higher percentage of its earnings than a
firm with fluctuating earnings. The unstable firm is not certain that in subsequent years earning
will be realized, so it is likely to retain a high proportion of current earnings. A lower dividend
will be easier to maintain if earning fall off in the future.
2.4.8 Tax position of shareholders
The tax position of a corporation’s owners greatly influences the desire for dividends. For e.g. a
corporation owned by largely taxpayers in high income tax brackets tend toward lowerdividend
payout where corporations owned by small investors tend toward higher dividend payout.
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D
Chapter 3:
ata and
Research
Methodology
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3.1 Methodology:
The purpose of this research is to contribute towards a very important aspect of corporate
financial management known as dividend policy with reference to banking industry in
Bangladesh. Here shows the relationship between dividend declaration practice and its impacts
on share market price. This study is based on secondary sources. Such report has reviewed
different articles, books, financial reports, newspapers and websites. The reports have been also
collected from relevant information on present scenario of banking industry including in Dhaka
Stock Exchange (DSE). Precise references are mentioned in this report. I have collected relevant
data regarding on banking industry Dhaka Stock Exchange (DSE). The using of panel data
methodology has certain benefits like using the assumption that the banks are dissimilar, more
variability, less co-linearity between variables, more informative data, more degree of freedom
and more efficient.
3.2 Population Size:

I have selected the commercial banking sectors in Bangladesh. There are almost 32 commercial
banks in Bangladesh listed under Dhaka Stock Exchange (DSE). All of these banks are
performed well to develop our economy sectors.
3.3 Sample Size:

From this population I have selected only 8 private commercial banks as sample and analysis the
data from 2013 to 2017. There are more than thirty million investors under Dhaka Stock
Exchange (DSE). Here I attach the list of my selected banks:
i. Dutch-Bangla Bank Limited

ii. Dhaka Bank Limited
iii. Prime Bank Limited
iv. United Commercial Bank Limited
v. Eastern Bank Limited
vi. Brac Bank Limited
vii. IFIC Bank Limited
viii. Standard Bank Limited
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3.4 Sources of Data:
For this research, Data have been collected from annual reports of eight commercial banks for
five years. Related financial reports, articles, books and websites have been used for data
collection.
3.5 Definition of Key Variables:

Dependent Variables
Market Price:
Market price is taken as dependent variable which is calculated by taking the average of twelve
months market prices (Appendices: H, P: 98) of the shares while in the previous studied
researchers like Rashid &Rahman (2009), Nazir, Nawaz, Anwar, & Ahmed (2010), Asghar,
Shah, Hamid, &Suleman (2011), Hussainey, K., Mgbame, C.O., &Chijoke-Mgbame, A.M.
(2011) and Abdullah Al Masum (2012) use price volatility as a dependent variable to see the
effect of dividend policy on stock market prices.
Independent Variables
The independent variables investigated as Dividend Yield (DY), Earnings per Share (EPS),
Return on Assets (ROA), and Return on Equity (ROE) of the balance sheet data, income
statement and operating cash flows of the companies listed in the Dhaka Stock Exchange
(DSE) during 2013 to 2017.
Dividend Yield (DY):
Dividend yield of a stock signifies how much a company pays dividend in relation to its stock
price. It is calculated as a fraction of annual dividends paid by the company upon its stock
price.It implies how much return in dividend in a year got by an investor for every 100 invested
in the stock price. So, higher yield means more returns for the shareholders. Dividend yield is
denoted by percentage (%).
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Dividend per Share: (DPS)
The amount of dividend that a stockholder will receive for each share of stock held. It can be
calculated by taking the total amount of dividends paid and dividing it by the total shares
outstanding.
Earnings per Share: (EPS)
Earnings per share are the amount of earning per each outstanding share of a company’s stock.
Earnings per share are calculated as earnings available for common stockholders divided by total
number of share common stock outstanding.
Earnings per Share= Earnings available for common stockholders/Number of shares of

common stock outstanding
Return on Assets: (ROA)
Return on assets is a financial ratio that shows the percentage of profit a company earns in
relation to its overall resources. It is defined as net income divided by total assets. Net income is
derived from the income statement of the company and is the profit after taxes. The assets are
read from the balance sheet. So, the ROA for a quarter should be based on net income for the
quarter dividend by average assets in that quarter. ROA is a ratio but presented by percentage
(%). Equation is:
Return on Assets= Net Income/Total Asset
Return on Equity: (ROE)
Return on equity is calculated by dividing profit after tax with shareholders equity. Liu & Hu
(2005), Raballe&Hedensted (2008) and Ling, Mutalip, Shahrin& Othman (2008) used Return on
equity. In their studies and found positive relationship between ROE and stock price.
Return on Equity= Net Income/ Shareholder’s Equity
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3.6 Research Hypothesis:
Research hypothesis for this study is given below:
1. Hypothesis One:
H0a: There is a relationship between dividend policy and stock price
H1a: There is no relationship between dividend policy and stock price.
2. Hypothesis Two:
H0a: Dividend Policy insignificantly affects Stock Price.
H1a: Dividend Policy significantly affects Stock Price.
3.7 Model Specification:

In order to find out the relationship between dividend and stock price, regression analysis is used
to analyze the results.
So for these 2 variables, model is
MPit = ß0 + ß1 (Dit) +e
Where, Dependent Variable=Market Price (MP)
Independent Variable= Dividend (D)
e is the error term
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A
Chapter 4:
nalysis of the
Results
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4.1 Impact of Dividend on Stock Price:
4.1.1 Regression Statistics of Dutch- Bangla Bank Limited:
With the intention of find out the relationship between dividend and stock price and impacts of
dividend on stock price Regression Statistics model is given below.
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.774564
R Square 0.59995
Adjusted R Square 0.4666
Standard Error 14.90824
ANOVA
Significance
df SS MS F F
Regression 1 999.9413 999.9413 4.499061 0.124053
Residual 3 666.7667 222.2556
Total 4 1666.708
Standard
Coefficients Error t Stat P-value Lower 95% Upper 95%
Intercept 221.5 49.44503 4.479722 0.020741 64.14384 378.85616
Dividend -288.667 136.093 -2.1211 0.124053 -721.775 144.4419
Table 4.1.1: Regression analysis of Dutch-Bangla Bank Limited
Interpretation:
Regression analysis of Dutch-Bangla Bank Limited shows that Multiple R is 0.774564 that
indicates the relationship between dividend and price is good. R square is 0.59995. It indicates
approximately 60% of price is explained by dividend. Adjusted R Square is 0.4666. It indicates
almost 46.66% value of dividend adjusted with price and rest of the 53.34% affected by other
variables. Standard Error is 14.90824 that is comparatively low so it indicates that result is
accurate.
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4.1.2 Regression Statistics of Dhaka Bank Limited:
SUMMARY OUTPUT
Multiple R 0.8235246
R Square 0.6781928
ANOVA
Significance
df SS MS F F
Regression 1 7.224109 7.224109 6.322351 0.0866
Residual 3 3.427891 1.14263
Total 4 10.652
Standard
Intercept 21.227344 0.889907 23.85344 0.000161 18.39526 24.05943
Dividend -20.07813 7.985164 -2.51443 0.0866 -45.4905 5.334231
Table 4.1.2: Regression analysis of Dhaka Bank Limited
Interpretation:
Regression analysis of Dhaka Bank Limited shows that Multiple R is 0.823525 that indicates the
relationship between dividend and price is good. R square is 0.678193. It indicates 67.82% of
price is explained by dividend. Adjusted R Square is 0.570924. It indicates almost 57.09% value
of dividend adjusted with price and rest of the 42.91% affected by other variables. Standard
Error is 1.068939 that is comparatively low so it indicates that result is accurate.
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4.1.3 Regression Statistics of Prime Bank Limited:
SUMMARY OUTPUT
Multiple R 0.896069
R Square 0.80294
ANOVA
Significance
df SS MS F F
Regression 1 67.03907 67.03907 12.22379 0.039588
Residual 3 16.45293 5.484311
Total 4 83.492
Standard
Intercept 36.44549 4.3345 8.408234 0.003529 22.65118 50.2398
Dividend -112.256 32.10741 -3.49625 0.039588 -214.436 -10.0755
Table 4.1.3: Regression analysis of Prime Bank Limited
Interpretation:
Regression analysis of Prime Bank Limited shows that Multiple R is 0.896069 that indicates the
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4.1.4 Regression Statistics of United Commercial Bank Limited:
SUMMARY OUTPUT
Multiple R 0.490134
R Square 0.240232
Adjusted R Square -0.01302
ANOVA
Significance
df SS MS F F
Regression 1 10.5625 10.5625 0.948571 0.401916
Residual 3 33.4055 11.13517
Total 4 43.968
Standard
Intercept 28.995 5.223137 5.551262 0.011528 12.37265 45.61735
Dividend -32.5 33.3694 -0.97395 0.401916 -138.696 73.69631
Table 4.1.4: Regression analysis of United Commercial Bank Limited
Interpretation:
Regression analysis of United Commercial Bank Limited shows that Multiple R is 0.490134 that
indicates the relationship between dividend and price is good. R square is 0.240232. It indicates
24.02% of price is explained by dividend. Adjusted R Square is -0.01302. It means a change in
stock price is affected by other variables rather than dividend. Standard Error is 3.33694 that is
comparatively low so it indicates that result is accurate.
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4.1.5 Regression Statistics of Eastern Bank Limited:
SUMMARY OUTPUT
Multiple R 0.325028
R Square 0.105643
ANOVA
Significance
df SS MS F F
Regression 1 43.50588 43.50588 0.354365 0.593569
Residual 3 368.3141 122.7714
Total 4 411.82
Standard
Intercept 45.14118 20.98887 2.15072 0.120626 -21.6548 111.9371
Dividend -50.5882 84.98144 -0.59529 0.593569 -321.037 219.8606
Table 4.1.5: Regression analysis of Eastern Bank Limited
Interpretation:
Regression analysis of Eastern Bank Limited shows that Multiple R is 0.325028 that indicates
the relationship between dividend and price is good. R square is 0.105643. It indicates 10.56% of
price is explained by dividend. Adjusted R Square is -0.19248. It means a change in stock price
is affected by other variables rather than dividend. Standard Error is 11.08022 that is
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4.1.6 Regression Statistics of Brac Bank Limited:
SUMMARY OUTPUT
Multiple R 0.716638
R Square 0.51357
ANOVA
Significance
df SS MS F F
Regression 1 1921.501 1921.501 3.16738 0.173168
Residual 3 1819.959 606.6531
Total 4 3741.46
Standard
Intercept 87.43289 19.77705 4.420928 0.021489 24.4935 150.3723
Dividend -224.868 126.3509 -1.77971 0.173168 -626.973 177.2366
Table 4.1.6: Regression analysis of Brac Bank Limited
Interpretation:
Regression analysis of Brac Bank Limited shows that Multiple R is 0.716638 that indicates the
Page 25
4.1.7 Regression Statistics of IFIC Bank Limited:
SUMMARY OUTPUT
Multiple R 0.869921
R Square 0.756762
ANOVA
Significance
df SS MS F F
Regression 1 124.0333 124.0333 9.333612 0.055206
Residual 3 39.86667 13.28889
Total 4 163.9
Standard
Intercept -20.6333 14.73268 -1.40051 0.255869 -67.5193 26.25263
Dividend 338.8889 110.9258 3.055096 0.055206 -14.1264 691.9042
Table 4.1.7: Regression analysis of IFIC Bank Limited
Interpretation:
Regression analysis of IFIC Bank Limited shows that Multiple R is 0.869921 that indicates the
Page 26
4.1.8 Regression Statistics of Standard Bank Limited:
SUMMARY OUTPUT
Multiple R 0.433001
R Square 0.18749
ANOVA
Significance
df SS MS F F
Regression 1 4.802 4.802 0.692263 0.466433
Residual 3 20.81 6.936667
Total 4 25.612
Standard
Intercept 12.35 1.316878 9.378244 0.002568 8.159108 16.54089
Dividend 24.5 29.44628 0.832024 0.466433 -69.2112 118.2112
Table 4.1.8: Regression analysis of Standard Bank Limited
Interpretation:
Regression analysis of Standard Bank Limited shows that Multiple R is 0.433001 that indicates
the relationship between dividend and price is good. R square is 0.18749. It indicates 18.75% of
price is explained by dividend. Adjusted R Square is -0.08335. It means a change in stock price
is affected by other variables rather than dividend. Standard Error is 2.633755 that is
Page 27
4.1.9 Comparative Analysis:
Comparison of Regression Statistics for all eight banks is given below:
Dutch- Dhaka Prime United Eastern Brac IFIC Standard
Bangla Bank Bank Commercial Bank Bank Bank Bank
Bank Limited Limited Bank Limited Limited Limited Limited
Limited Limited
Multiple R 0.774564 0.823525 0.896069 0.490134 0.325028 0.716638 0.869921 0.433001
R Square 0.59995 0.678193 0.80294 0.240232 0.105643 0.51357 0.756762 0.18749
Adjusted R Square 0.4666 0.570924 0.737253 -0.01302 -0.19248 0.351426 0.675683 -0.08335
Standard Error 14.90824 1.068939 2.341861 3.33694 11.08022 24.63033 3.645393 2.633755
Table 4.1.9: Comparative analysis among the banks
Interpretation:
 In the above table, Multiple R is highest in Prime Bank Limited that means it has a strong
relation between stock and price and Lowest Multiple R exists in Eastern Bank Limited
that means relation between stock and price is week among the eight banks.
 R square of Prime Bank Limited is highest, which is 0.80294 that means 80.29% of price
is explained by dividend rather than seven.
 Highest Adjusted R Square exist in Prime Bank Limited that is .737253 that means
73.73% value of dividend adjusted with price and rest of 26.27% affected with other
variables. On the other hand, Lowest Adjusted R Square -0.19248 exists in Eastern Bank
Limited that means a change in stock price affected by other variables rather than
dividend.
 Standard Error of Dhaka Bank Limited is comparatively low than others which 1.068939
that indicates the result is more accurate here than others.
So, we can say that Prime Bank Limited has a Strong position than seven other banks on the
basis of regression analysis.
Page 28
4.2 Correlation Matrix:
4.2.1 Correlation Matrix of Dutch-Bangla Bank Limited:
Price Dividend EPS ROE ROA

153.1 30% 12.3 13.20% 0.90%
116.7 30% 8.9 10.30% 0.70%
107.6 40% 15.1 19.30% 1.30%
105.8 40% 11 16.20% 1.10%
104.7 40% 10 17% 1.20%
MP Dividend EPS ROE ROA

MP 1
Dividend -0.77456 1
EPS 0.102408 0.328455 1
ROE -0.49872 0.89928 0.677954 1
ROA -0.51037 0.909718 0.624529 0.995936 1
Table 4.2.1: Correlation matrix of Dutch-Bangla Bank Limited
Interpretation:
Data reveals significant correlation among the Dividend, Market Price, EPS, ROE, and ROA.
Price with Dividend has negative relationship with -0.77456 and price with EPS also has positive
relation with 0.102408, Price with ROE and ROA has negative relation with respectively value -
0.49872 and-0.51037.There are positive relation with Dividend and EPS, ROE and ROA with
value 0.328455, 0.89928 and 0.909718.There are positive relation with EPS and ROE, ROA with
the value 0.677954 and 0.624529respectively and there is also positive relation with ROE and
ROA with value 0.995936.
Page 29
4.2.2 Correlation Matrix of Dhaka Bank Limited:

22 0.00% 2.07 9.21% 0.69%
17.9 10.00% 2.13 10.15% 0.77%
19.7 6.00% 2.3 10.74% 0.86%
18.3 14.00% 3.57 15.92% 1.34%
18.8 17.00% 3.56 16.21% 1.39%

MP 1
Dividend -0.823525 1
EPS -0.470845 0.847224 1
ROE -0.528703 0.885583 0.996512 1
ROA -0.514257 0.880374 0.995041 0.999136 1
Table 4.2.2: Correlation matrix of Dhaka Bank Limited
Interpretation:
Price with Dividend has negative relationship with -0.823525 and price with EPS also has
negative relation with value -0.470845, Price with ROE and ROA has negative relation with
respectively value -0.528703 and -0.514257.There are strongly positive relation with Dividend
and EPS, ROE and ROA with value 0.847224, 0.885583 and 0.880374.There are positive
relation with EPS and ROE, ROA with the value 0.996512 and 0.995041 respectively and there
is also positive relation with ROE and ROA with value 0.999136.
Page 30
4.2.3 Correlation Matrix of Prime Bank Limited:

27.4 7.00% 1.03 4.24% 0.38%
17.7 16.00% 2.13 8.49% 0.81%
18.1 15.00% 2.08 8.41% 0.80%
19.6 15.00% 2.32 10.08% 0.91%
25.9 12.50% 1.78 8.35% 0.72%

MP 1
Dividend -0.89607 1
EPS -0.85349 0.971763 1
ROE -0.69748 0.909323 0.96856 1
ROA -0.80173 0.958017 0.995448 0.987381 1
Table 4.2.3: Correlation matrix of Prime Bank Limited
Interpretation:
Price with Dividend has strongly negative relationship with -0.89607 and price with EPS,ROE
and ROAalso has negative relation with value -0.85349, -0.69748 and -0.80173.There are
strongly positive relation with Dividend and EPS, ROE and ROA with value 0.971763,
0.909323and 0.958017.There are positive relation with EPS and ROE, ROA with the value
0.96856 and 0.995448respectively and there is also positive relation with ROE and ROA with
value 0.987381.
Page 31
4.2.4 Correlation Matrix of United Commercial Bank Limited:

23.6 10% 2.31 9.31% 0.70%
21.3 15% 2.49 10.24% 0.84%
21.3 20% 3.96 16.54% 1.42%
29.3 10% 4.39 17.07% 1.49%
25.1 20% 3.66 15.85% 1.41%

MP 1
Dividend -0.49013 1
EPS 0.569846 0.250568 1
ROE 0.478778 0.404325 0.984947 1
ROA 0.479489 0.430596 0.976451 0.997329 1
Table 4.2.4: Correlation matrix of United Commercial Bank Limited
Interpretation:
relation with 0.569846, Price with ROE and ROA has also positive relation with respectively
value 0.478778 and 0.479489.There are positive relation with Dividend and EPS, ROE and ROA
with value 0.250568, 0.404325 and 0.430596.There are positive relation with EPS and ROE,
ROA with the value 0.984947 and 0.976451respectively and there is also positive relation with
ROE and ROA with value 0.997329.
Page 32
4.2.5 Correlation Matrix of Eastern Bank Limited:

51.1 20% 3.26 11.41% 1.04%
29 25% 3.78 12.94% 1.33%
28.6 35% 3.63 10.95% 1.23%
27.2 20% 3.45 10.93% 1.28%
29.1 20% 4.2 14.44% 1.68%

MP 1
Dividend -0.32503 1
EPS -0.58433 0.007511 1
ROE -0.21166 -0.34451 0.87875 1
ROA -0.62174 -0.18749 0.956564 0.838797 1
Table 4.2.5: Correlation matrix of Eastern Bank Limited
Interpretation:
Price with Dividend hasnegative relationship with -0.32503 and price with EPS,ROE and
ROAalso has negative relation with value -0.58433, -0.21166 and -0.62174.There is positive
relation with Dividend and EPS with value 0.007511 and there are negative relation
withDividend and ROE, ROA with value -0.34451 and -0.18749.There are positive relation with
EPS and ROE, ROA with the value 0.87875 and 0.956564respectively and there is also positive
relation with ROE and ROA with value 0.838797.
Page 33
4.2.6 Correlation Matrix of Brac Bank Limited:

108.4 0% 6.14 22.14% 1.95%
64.1 10% 5.23 22.16% 1.89%
48.7 25% 3.43 13.32% 1.13%
37.2 20% 3.19 14.11% 1.09%
32.6 10% 2.47 12.60% 0.78%

MP 1
Dividend -0.71664 1
EPS 0.941368 -0.66072 1
ROE 0.836719 -0.70552 0.961776 1
ROA 0.867914 -0.59774 0.984535 0.981635 1
Table 4.2.6: Correlation matrix of Brac Bank Limited
Interpretation:
relation with 0.941368, Price with ROE and ROA has also positive relation with respectively
value 0.836719 and 0.867914.There are negative relation with Dividend and EPS, ROE and
ROA with value -0.66072, -0.70552 and -0.59774.There are positive relation with EPS and ROE,
ROA with the value 0.961776 and 0.984535respectively and there is also positive relation with
ROE and ROA with value 0.981635.
Page 34
4.2.7 Correlation Matrix of IFIC Bank Limited:

18 12.00% 2.02 12.39% 0.92%
20.9 12.00% 1.38 9.91% 0.65%
21.2 12.00% 1.57 7.96% 0.53%
26.1 15.00% 3.07 15.66% 1.07%
34.3 15.00% 3.07 15.98% 1.09%

MP 1
Dividend 0.869921 1
EPS 0.781009 0.957765 1
ROE 0.71092 0.893982 0.950449 1
ROA 0.625327 0.82713 0.925564 0.988417 1
Table 4.2.7: Correlation matrix of IFIC Bank Limited
Interpretation:
Price with Dividend has strongly positive relationship with 0.869921 and Price with EPS, ROE
and ROA has also positive relation with respectively value 0.7810090.71092 and
0.625327.There are positive relation with Dividend and EPS, ROE and ROA with value
0.957765, 0.893982 and 0.82713.There are positive relation with EPS and ROE, ROA with the
value 0.950449 and 0.925564respectively and there is also positive relation with ROE and ROA
with value 0.988417.
Page 35
4.2.8 Correlation Matrix of Standard Bank Limited:

15.6 0.00% 1.56 9.24% 0.75%
11.9 0.00% 1.44 8.66% 0.76%
9.2 0.00% 2.12 13.91% 1.27%
12.7 0.00% 1.85 12.27% 1.06%
14.8 10.00% 1.77 10.88% 0.99%

MP 1
Dividend 0.433001 1
EPS -0.58106 0.046527 1
ROE -0.62486 -0.02898 0.989867 1
ROA -0.66712 0.06141 0.983834 0.986993 1
Table 4.2.8: Correlation matrix of Standard Bank Limited
Interpretation:
Price with Dividend has positive relationship with 0.433001 and price with EPS,ROE and
ROAalso has negative relation with value -0.58106, -0.62486 and -0.66712.There is positive
relation with Dividend and EPS with value 0.046527 and there is negative relation withDividend
and ROE with value -0.02898 and there is positive relation with Dividend and ROA with value
0.06141.There are positive relation with EPS and ROE, ROA with the value 0.989867 and
0.983834respectively and there is also positive relation with ROE and ROA with value
0.986993.
Page 36
F
Chapter 5:
indings,
Conclusion
and
Recommendati
ons
Page 37
5.1 Findings:
In this report it shows the relationship between dividend policy and market price of the share and
the relationship is positive. The percentage of dividend is declared by the board of the directors.
Dividend payment is an attractive way for the shareholders to invest in share. A firm’s profits
after-tax can either be used for dividends payment or retained in the firm to increase
shareholders' fund. By analyzing the Correlation matrix it shows the correlation of stock price
with Dividend, EPS, ROE and ROA that significantly affect the stock price. In Regression
Statistics Dividend yield is positively related to stock price and the impact is significant.After
based on the decision of the relationship individual investor or institutional investor can know
the effect of indicator over the market price before investing their money. Banks performance is
also reflected by its current market price of share traded in stock market.They must need to
analyze the effect of dividend policy over market price.Thus, the study attempts to determine the
impact of cash dividend on stock price. For this whole purpose different descriptive, financial
and statistical analysis was done using various methodologies.
Page 38
5.2 Conclusion:
In conclusion the study is concludes by knowing the impact of dividend policy on the stock
priceof some commercial banks listed by DSE (Dhaka Stock Exchange). The main reason of
thedividend payment is to provide the benefit to the shareholders of the company and to make
themthat they are the part of the company. In Bangladesh, there is a practice of providing
eitherstock dividend or cash dividend by the companies to their shareholders. From the study, we
findout that mainly the commercialbanks of the Bangladesh are regular paying dividend. The
objective of the study was to analyses the relationshipbetween Dividend Policy & Stock Price of
eight private commercial banks of Bangladesh listed in Dhaka Stock Exchange from 2013 to
2017.Shareholders make investment in equity capital with the expectation of making earning in
the form of dividend or capital gains. High payout satisfies the dividend need whereas increase in
market price of stock increases capital gain. Therefore, firm should make a proper balance
between dividends and retained earnings.Actually, paying dividend to shareholders is an
effective way to attract new investors to invest in shares.The funds sometimes could not be used
in case of lack of investment opportunities. In such a situation distribution of dividend to
shareholders is taken as the best because shareholders may have investment opportunities to
invest elsewhere. As there is a positive relationship between dividend and market price of stock
so it indicates dividend is still one of the important variables of the market price of stock. So
every organization should provide dividend regularly to attract the shareholders that is also help
them to increase their fund.
Page 39
5.3 Recommendations:
Based on findings the following recommendations are made for the further applications of
dividendpolicy regarding its impact on the stock prices:
 The investors should be careful in investing in the stock of banks and other sector on the
basis of dividend.
 Banks should ensure that they have a good and strong dividend policy in place. This will
enhance their profitability and attract investments to the organizations.
 Every company should provide the information so that investors can investigate the situation
and invest their money.
 The DSE and CSE should properly handle and inform the shareholders and the related
companies about the market price increase or decrease from the impact of dividend
declaration.
 Government should set up a body that will help to manage unclaimed dividends and also
ensure that situations that give rise to such are minimized.
Page 40
REFERENCES:
 Ahmed, H. &Javid, A. (2009). Dynamics and Determinants of Dividend Policy

inPakistan (Evidence from Karachi Stock Exchange Non-Financial Listed
Firms).International Research Journal of Finance and Economics, (XXV), 148-171.
 Annual Reports of the banks.
 Besley, S & Brigham, EF 2008, Essentials of managerial finance, The Dryden Press,
Orlando.
 Brigham, Eugene F. &Gapenski, Louis C. (1996). Financial Management, Ontario: The
Dryden Press, Harcourt Brace College Publishers.
 Chandra, P. (1999).Financial Management. New Delhi: Tata McGraw-Hill Publishing
Co. Ltd.
 Gitman and Chad J. Zutter (Dec 7, 2011),”Principles of Managerial Finance”.
 Masum, Abdullah Al, (2014). Dividend Policy and Its Impact on Stock Price – A Study
on Commercial Banks Listed in Dhaka Stock Exchange, Volume 3. No 1, Global
Disclosure of Economics and Business.
 Otieno William Otieno (oct 2016). Effect of Dividend Policy on Stock Price Volatility:
Evidence from Nairobi Securities Exchange.
 Rashid, A., &Rahman, A. Z. (2009), Dividend Policy and Stock Price Volatility:
Evidence from Bangladesh (71-81). Journal of Applied Business and Economics.
 Relly, Frank K., & Brown, Keith C. (2009). Investment Analysis & Portfolio
Management, 8th Edition Canada: Cenveo Publication.
 Uddin, Md. H. (2003). “Effect of Dividend Announcement on Shareholders’ Value:
Evidence from Dhaka Stock Exchange.”
.Web References:
 www.bb.org.bd
 www.dsebd.org
 www.google.com
 www.ibm.com
 www.wikipedia.org
 www.youtube.com
Page 41
Appendix
Dutch-Bangla Bank Limited
Year Dividend Market Price EPS ROE ROA

2017 30% 153.1 12.3 13.20% 0.90%
2016 30% 116.7 8.9 10.30% 0.70%
2015 40% 107.6 15.1 19.30% 1.30%
2014 40% 105.8 11 16.20% 1.10%
2013 40% 104.7 10 17% 1.20%
Dhaka Bank Limited

2017 0.00% 22 2.07 9.21% 0.69%
2016 10.00% 17.9 2.13 10.15% 0.77%
2015 6.00% 19.7 2.3 10.74% 0.86%
2014 14.00% 18.3 3.57 15.92% 1.34%
2013 17.00% 18.8 3.56 16.21% 1.39%
Prime Bank Limited

2017 7.00% 27.4 1.03 4.24% 0.38%
2016 16.00% 17.7 2.13 8.49% 0.81%
2015 15.00% 18.1 2.08 8.41% 0.80%
2014 15.00% 19.6 2.32 10.08% 0.91%
2013 12.50% 25.9 1.78 8.35% 0.72%
United Commercial Bank Limited

2017 10% 23.6 2.31 9.31% 0.70%
2016 15% 21.3 2.49 10.24% 0.84%
2015 20% 21.3 3.96 16.54% 1.42%
2014 10% 29.3 4.39 17.07% 1.49%
2013 20% 25.1 3.66 15.85% 1.41%
Page 42
Eastern Bank Limited

2017 20% 51.1 3.26 11.41% 1.04%
2016 25% 29 3.78 12.94% 1.33%
2015 35% 28.6 3.63 10.95% 1.23%
2014 20% 27.2 3.45 10.93% 1.28%
2013 20% 29.1 4.2 14.44% 1.68%
Brac Bank Limited

2017 0% 108.4 6.14 22.14% 1.95%
2016 10% 64.1 5.23 22.16% 1.89%
2015 25% 48.7 3.43 13.32% 1.13%
2014 20% 37.2 3.19 14.11% 1.09%
2013 10% 32.6 2.47 12.60% 0.78%
IFIC Bank Limited

2017 12.00% 18 2.02 12.39% 0.92%
2016 12.00% 20.9 1.38 9.91% 0.65%
2015 12.00% 21.2 1.57 7.96% 0.53%
2014 15.00% 26.1 3.07 15.66% 1.07%
2013 15.00% 34.3 3.07 15.98% 1.09%
Standard Bank Limited

2017 0.00% 15.6 1.56 9.24% 0.75%
2016 0.00% 11.9 1.44 8.66% 0.76%
2015 0.00% 9.2 2.12 13.91% 1.27%
2014 0.00% 12.7 1.85 12.27% 1.06%
2013 10.00% 14.8 1.77 10.88% 0.99%
Page 43
Acronyms
BOD : Board of Directors

DPS : Dividend per Share
DSE : Dhaka Stock Exchange
DY : Dividend Yield
EPS : Earning Per Share
IFIC : International Finance Invest and Commerce
Ltd. : Limited
MBA : Masters of Business Administration
MP : Market Price
ROE : Return on Equity
ROA : Return on Asset
Page 44

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I

1.2 Background of the Study:

1.3.1 General Objective:

1.3.1 Specific Objectives:

The followings are the specific objectives of the study-

IV. To observe the economic condition of banking industry.

V. To analyze the financial statements of banking industry.

VI. To measure the efficiency of selected companies in dividend policy.

1.4 Problem Statement:

1.5 Research Question:

 What is the relationship between dividend and stock price?

 Is there any impact on stock price by dividend policy?

1.6 Conceptual Framework:

1.7 Significance of the Study:

1.8 Limitations of the Study:

 Lack of my sufficient experience and efficiency to prepare this report.

 Short period of time.

 Sometimes information was contradictory and inadequate.

2.2 Meaning of Dividend:

2.3 Types of Dividend:

A.Stock Dividend/Bonus Share

2.4 Factors affecting Dividend Policy:

2.4.1 Legal Requirements

Net profit rule

2.4.2 Liquidity position

2.4.3 Access to the capital markets

2.4.4 Need to repay debt

2.4.7 Stability of earnings

2.4.8 Tax position of shareholders

3.2 Population Size:

3.3 Sample Size:

i. Dutch-Bangla Bank Limited

3.5 Definition of Key Variables:

Dividend Yield (DY):

Earnings per Share: (EPS)

Earnings per Share= Earnings available for common stockholders/Number of shares of

Return on Assets: (ROA)

Return on Assets= Net Income/Total Asset

Return on Equity: (ROE)

Return on Equity= Net Income/ Shareholder’s Equity

Research hypothesis for this study is given below:

H0a: There is a relationship between dividend policy and stock price

H1a: There is no relationship between dividend policy and stock price.

H0a: Dividend Policy insignificantly affects Stock Price.

H1a: Dividend Policy significantly affects Stock Price.

3.7 Model Specification:

So for these 2 variables, model is

Where, Dependent Variable=Market Price (MP)

Independent Variable= Dividend (D)

e is the error term

Table 4.1.1: Regression analysis of Dutch-Bangla Bank Limited

Table 4.1.2: Regression analysis of Dhaka Bank Limited

Table 4.1.3: Regression analysis of Prime Bank Limited

Table 4.1.4: Regression analysis of United Commercial Bank Limited

Table 4.1.5: Regression analysis of Eastern Bank Limited

Table 4.1.6: Regression analysis of Brac Bank Limited

Table 4.1.7: Regression analysis of IFIC Bank Limited

Table 4.1.8: Regression analysis of Standard Bank Limited

Comparison of Regression Statistics for all eight banks is given below: