CORPORATE DIVIDEND BEHAVIOR AND IT`S IMPACT ON MARKET VALUE OF FIRM (AN ALYTICAL STUDY)

SUBMITTED TO DR Bashir Ahmad joo

Professor, THE BUSINESS SCHOOL-KU

Kashmir

University

CORPORATE DIVIDEND BEHAVIOR AND IT`S IMPACT ON MARKET VALUE OF FIRM (AN ALYTICAL STUDY)

SUBMITTED BY
ABID REYAZ SHAH Roll NO: 256 NUZHAT WANI Roll No: 233

Kashmir
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MOHSIN EJAZ NASTI ROLL NO: 241

TAHIR AHMAD WANI Roll NO: 205

University

INDEX
S.no 1. 2. 3. 4. 5 6. 7. 8. 9. 10 11. Topic Abstract Introduction Theories of Dividend Pay-outs Review Of Literature: Theoretical Framework Industry Profile Companies Profile Methodology Findings Conclusion References Page No 4 4 6 8 15 15 16 21 34 35 36

TITLE OF STUDY: CORPORATE DIVIDEND BEHAVIOR AND IT`S IMPACT ON MARKET VALUE OF FIRM (AN ANALYTICAL STUDY)
1. ABSTRACT: This paper attempts to explore the possible links between dividend policy and stock price behavior in Indian corporate sector. A sample of 5 listed companies of steel from BSE is examined for the previous seven years. Dividend policy has always been a source of controversy despite years of theoretical and empirical research both in developed countries and emerging economies. The present paper features a panel data approach to analyze the relationship between dividend-payout and stock-price behavior while controlling the variables like size and long-term debt-equity ratio of the firm. The sample is taken for steel industry sector in order to get homogeneous results. Although the results are not robust enough as in the case of developed markets but shades some more interesting facets to the existing corporate finance literature on dividend policy in India.

2. INTRODUCTION:
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 aspect of dividend policy is to determine the amount of earning to be distributed to the shareholder and the amount to be retained in the firm. Divined policy involves the decision to pay out earning versus retaining them for reinvestment in the firm.The financial manager must understand the various conflicting factors which influence the dividend policy before deciding the allocation of its companys earnings into dividends and retain earnings. Pandy (1979) defines dividend as that portion of a companys net earnings which the directors recommend to be distributed to shareholders in proportion to their share holdings in the company. It is usually expressed as a percentage of nominal value of the companys ordinary share capital or as a fixed amount per share. Dividends are usually paid out of the current years profit and sometimes out of general reserves. They are normally paid in cash, and this form of dividend payment is known as cash dividend. Another option available to a company for the distribution of earnings is by stock dividend (bonus issue) which is supplementary to cash dividend. When cash dividend is paid to shareholders, it has an adverse effect on the liquidity position and the reserves of the firm as it tends to reduce both of them (cash and reserves). Unlike cash lend, stock dividend does not affect the total net worth of the firm, as it is a capitalization of owners equity portion.

A company may in the annual general meeting, declare dividend only on the recommendation of the Directors. The Company may from time to time pay to the members such interim dividends as appear to the directors to be justified by the profits of the company. The general meetings shall have power to decrease the amount of dividend recommended by the directors, but shall have no power to increase the amount recommended According to Van Home (1971) dividend policy entails the division of earnings between shareholders and reinvestment in the firm. Retained earnings are a significant source of funds for financing corporate growth, but dividend constitutes the cash flows that accrue to shareholders. There exist two divergent schools of thought with regards to these, the dividend policy and the retained earning policy. Dividend policy suggests a positive attitude for, it is a deliberate policy to maintain or increase dividend at a certain level with the ultimate aim of sustaining the price of the ordinary shares on the stock exchange. This is because capital markets are not perfect, although shareholders are indifferent between dividend and retained earnings due to market imperfections and uncertainty, but they give a higher value to the current year dividend than the future dividend and capital gains. Thus the payment of dividend has a strong influence on the market price of the shares. Management might maintain a dividend level even at the expense of liquidity or forced into borrowing to do so. With this approach it holds that dividends, on the other hand, are desirable from the shareholders point of view, as increasing their current wealth and consequently dividend level determines share price as well as indicates the prospect of profitability of the firm. On the other hand, profit retention policy tends to suggest a more passive residual attitude towards dividend, that is, a passive attitude towards retention. Dividend payout reduces the amount of earnings to be retained in the firm and affect the total amount of internal financing. When dividends are treated as a financing decision, the net earnings of the firm may be viewed as a significant source of financing the growth of the firm. Dividends paid to shareholders represent a distribution of earnings that cannot be profitably reinvested by the firm. The approach to dividend is viewed merely as a residual decision. This theory is known as the residual theory of dividend and was first proposed by Miller and Modigliani in 1961. Investor prefer to have the firm retain and reinvest earnings rather than pay them out in dividend if the return on the investment earnings exceeds the rate of return the investors could themselves obtain on other comparative investment. Otherwise, the investors prefer dividend.

3. THEORIES OF DIVIDEND PAY-OUTS:

Lintner (1956) was the first to systematically assess the dividend policies of corporations. His interviews with senior managers at 28 firms document that most managers believestockholdersprefer a stable rate of dividends, and will place a premium on companies that candeliver stable dividends. He finds behaviour of dividend-smoothing by managers (Lintner (1956, p. 99)): most management sought to avoid making changes in their dividend ratesthat might have to be reversed within a year or so. In contrast to the theories that have been developed in an academic setting, there arevarious rules of thumb developed in the popular financial press. Graham (1985) in TheIntelligent Investor advises: stockholders should demand of their managements a normalpay-out ofearnings on the order, say, of two-thirds or else a clear-cut demonstration thatthe reinvested profits have produced a satisfactory increase in per-share earnings. Wayman (2003) believes that a firms dividend policy is most definitely not neutral: there is adividend hierarchy. A company that has a history of paying a consistently growing dividend is better than one that pays a consistent, but steady dividend. And the consistent but flatdividend is better than a company who has had to cut its dividend. The information signalling models of Bhattacharya (1979), Miller and Rock (1985), and John and Williams (1985) suggest that firms will use dividend changes to signal the futureprospects of the firm. An unanticipated rise in dividends is good news for the shareholders, and should be accompanied by a rise in the share price, whereas a fall in the dividend conveysbad news to shareholders. For these signalling models to hold in equilibrium, dividendchanges should be followed by earnings changes in the same direction. The quality of informationpresent in published accounts, and public statements of company officials during thistime in the India is arguably limited when compared to present day standards. Agency models recognize that a firm is comprised of at least three different stakeholders: Management, shareholders, and bondholders, and the three groups interests may diverge. Shareholders in a struggling company may like to pay themselves such large dividends thatbondholders will miss out on their scheduled payments. Management may be tempted to usethe firms resources in a way that is not in the best interests of the shareholders. In thewords of Allen and Michael (2001 p. 62): these activities can range from lavish expenseson corporate jets to unjustifiable acquisitions and expansions. Solutions to the conflict ofinterest problem that management face have been suggested by Grossman and Hart (1980), Easterbrook (1984) and Jensen (1986). Management should be constrained in how much readily accessible cash they have access to. The less cash available to management, the harderit is for them to spend it in wasteful pursuits. By paying out cash as dividends it reduces thecash at the disposal of management, and can increase the value of the firm. An extensionof the agency model by Lang and Litzenberger (1989) is that wasteful uses of cash is likelyto be more pronounced in stable, cash-rich companies in mature industries without manygrowth opportunities. Therefore, an increase in dividends should have a greater (positive) price impact for firms that have few investment opportunities than for firms that
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have many investment opportunities. Taken to the extreme, if a firmhas many positive net present valueprojects, then increasing the cash distributed to shareholders as dividends may decrease thevalue of the firm. Baker and Wurgler (2004) develop a catering theory to explain thepayment of dividends. Investors may have an uninformed, perhaps time-varying, demandfor dividend paying equities. Risk aversion by arbitrageurs prevents the prices of dividendpayingand non-paying stocks from converging; therefore managers cater to the demand fordividend-paying equities. A test of catering theories of dividends is not possible with ourdata set, due to the relatively short time series. Graham and Kumar (2006) empirically demonstrate that dividend clientele theories exist. They find that older investors and lowerincomeinvestors prefer equities with a high dividend yield. Aside from tax issues, the remaining Miller and Modigliani (1961) assumptions, complete contracting, no transaction costs, and complete markets were clearly not satisfied in India. Securities markets in the early twentieth century. However, it is arguable that violations of these assumptions were no worse than they are today. Managers were forced to hold stock in their own companies, and their salary was voted on at the AGM. Although managers could be voted out of office, complete contracts could not be written that would have preventedthe scandals that did occur from time to time.

4. REVIEW OF LITERATURE:
1.Title of Paper Name of Researcher Dividend Policy and Stock Price Behavior in Indian Corporate Sector: Upananda Pani Research Scholar, Department of Humanities and Social Sciences, IIT , Kharagpur-721302. Data Sources and Sample Design The study mainly relies on the Prowess database of the CMIE (centre for monitoring on Indian economy) in India in order to mitigate the above noted objectives. Stock return estimation by calculation of a number of ratios was done on the collected data. The exclusive tests of different model allow us to go for the use of panel-data modeling. As we have given six different industry classifications for the study, we have tested the proposed model for each industry separately with different combination of variables. The results display statistical significance and linearity when the industry classifications are given. The regression on aggregate data remains in significant. .However, the direction of relationship between the dependent variable is as per prior expectation. In other words dividend retention ratio is positively related with the stock-returns. In case of aggregate data which consists of all firms above from industry classifications, the regression lacks statistical significance, the null hypothesis that there is no relationship between the dependent variable and independent variable cannot be rejected. Impact Of Dividend Policy On Shareholders Value: A Study Of Indian Firms Sujata Kapoor Jaypee Institute of Information Technology, Noida THE DATA AND SAMPLE The study is focused on three sectors IT, FMCG and Service sector. THE DATA The research is analytical and empirical in nature and makes use of secondary data. The data has been sourced from Prowess database of Centre for Monitoring Indian Economy (CMIE). MODELS AND TECHNIQUES Lintner Model, Factor Analysis, Quadratic Polynomial Regression Analysis Using Panel Data, Event Study Out of the chosen sectors Lintner model fits well in the FMCG sector signifying dividend signaling and smoothing effects are present in this sector. Thus these firms follow stable dividend payments year on year basis, even though earnings might change dramatically. The findings in the FMCG sector are in alignment with Brave et.al
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that mangers are very reluctant to cut dividends once they are initiated. This reluctance leads to dividends that are sticky, smoothed from year to year and tied to long run profitability of the firm However IT sector and service sector demonstrate a pattern, which is seen in emerging economies like Tunisia, Zimbabwe and Turkey. Payout Policy Franklin Allen Roni Michaely The Wharton Financial Institutions Center A Literature Review 1. Following the example of the last decade, repurchases should be used much more frequently than they have been. Investment and repurchase policies should be coordinated to avoid the transaction costs of financing. When there are positive NPV investments, repurchases should be avoided. In years where NPV investment opportunities are low, unneeded cash should be paid out by repurchasing shares. 2. To the greatest extent possible, firms that have a high degree of information asymmetry and large growth opportunities should avoid paying dividends. The significant costs associated with raising equity capital for these firms makes payment of dividends even more costly. Stated differently, in periods when a firm faces many good investment opportunities, a dividend reduction might not be such a bad idea. The Effect of Dividend Policy on Market Value UK Empirical Study SALIH, ALAA,A, Durham University This research investigates three main issues in the UK context: 1) the impact of dividends policy on market value; 2) the extent to which companies follow a Residual Dividends Policy; and 3) the main factors that have to be taken into account when financial managers/directors set a companys dividends policy. The results of the study can be summarized as follows: 1. There is a relationship between dividends policy (cash and repurchase), the earnings and investment policy (retained earnings) and the market value of companies in the UK. In addition, the result suggests that dividends policy, earnings and investment policy act jointly and simultaneously in influencing the market value of a company.

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2. The results indicate that there is no effect of a shares dividend policy on the market value of a company in UK. 3. The study found that UK companies in general do not follow a residual dividends policyfurther the companies in UK do not prefer investment policy to dividends policy. 5Title of Paper Name of Researcher Corporate Dividend Policy And Behavior: The Malaysian Evidence I. M. Pandey Indian Institute of Management Ahmedabad, India We used the financial data of 248 companies listed on the KLSE Main Board as at 31 December 2000. The criteria for sample selection are as follows: First, financial, trusts and closed-end funds companies are excluded. These companies have very high leverage and they are generally governed by different rules and practices with regard to earnings management. Second, we used a balanced sample of companies for eight years, i.e., from 1993 to 2000. In the first stage of our analysis, we examined if dividend payout ratios of the KLSE companies differ across sectors. We next examined how firms' decisions to change dividend payments are affected by changes in earnings. In the third stage of our analysis, we used Lintner's model to study the stability of dividend. Following Fama and Babiak (1968), we used earnings per share (EPS) and dividends per share (DPS) rather than total earnings and dividends for testing the dividend stability of the KLSE firms. Our results show that a large number of Malaysian firms increase payment of dividends when their earnings increase. They are reluctant to skip dividends when earnings fall. But Malaysian firms tend to omit dividends when they suffer losses. A formal analysis employing the multinomial logit technique reveals that the dividend actions of the Corporate dividend policy and behaviour. Malaysian firms are very sensitive to earnings changes. There is a high probability of dividend increase when earnings increase. Similarly, the chances are high that dividends will be reduced if earnings fall. There is a very high probability of dividend omission when the Malaysian firms face negative earning Dividends and Dividend Policy: History, Trends, and Determinants H. KENT BAKER University Professor of Finance, American University

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A Literature Review The work represents a radical departure from previous views of dividend policy and is one of the first to use analytically rigorous techniques to address a finance issue. In addition, the influence of dividend irrelevance theory on finance research has been profound. Dividend Behavior of Indian Companies Under Monetary Policy Restrictions I. M. Pandey Professor Indian Institute of Management Ahmedabad We shall draw from Oliner and Rudebusch (1996) to show the implications of the monetary policy restrictions on the dividend payout policy. The source of the data used in the study is the CMIE (Centre for the Monitoring of the Indian Economy) Prowess database. The sample includes all firms in the manufacturing sector for which the annualized data for all the years starting from 1989 to 1997 were available. Our results establish the validity of the Lintner model in the emerging Indian market, and prove the underlying dynamic relationship between current dividends as dependent variable and current earnings and past dividends as independent variables. Further, our results also show that the Indian firms have lower target ratios and higher adjustment factors. This points the low smoothing and instability of dividend policies in India. Dividend Policy and Stock Price Volatility In Pakistan Dr. Mohammed Nishat Professor and Chairman Department of Economics and Finance Institute of Business Administration THE DATA AND SAMPLE All the firms that are continuously listed on the Karachi Stock Exchange from 1981 to 2000 have been taken for the purpose. MODELS AND TECHNIQUES Price volatility (PV), Dividend yield (DY), Earning volatility (EV), Payout Ratio (POR), Size (SZ), Long-term Debt (DA), Growth in Assets. The analysis utilized cross-sectional generalized least squares regression. The most basic test involved regressing the dependent variable PV against the two independent variables DY and POR. This provided a crude test of the relationship between common stock volatility and dividend policy. The study suggests that dividend policy affects stock price volatility
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and it provides evidence supporting the arbitrage realization effect, duration effect and information effect in Pakistan. The responsiveness of the dividend yield to stock price volatility increased during reform period (1991-2000). Whereas payout ratio measure is having significant impact only at lower level of significance. In overall period the size and leverage have positive and significant impact on stock price volatility. The size effect is negative during pre reform period (1981-1990) but positive during reform period. The earnings volatility impact is negative and significant only during reform period An Empirical Analysis Of Reactions To Dividend Policy Changes For Nasdaq Firms Patricia A. Ryan, Scott Besley and Hei Wai Lee Cross Sectional Regression, Computation of Tobins Q, and Event Study Methodology. All NASDAQ dividend initiations and omissions were pulled from the CRSP NASDAQ daily files between 1976 and 1991. From there, we eliminate those dividend initiating companies that paid a dividend in the past five years. While there is very strong support for signaling arguments in the explanation of dividend changes for NASDAQ firms, one cannot rule out free cash flow arguments as a partial complement to the general signaling hypothesis. Cross-sectional weighted least squares regression analysis found strong support for the dividend signaling hypothesis, and limited support for the free cash flow argument Dividend Clientele, New Insights, And New Questions: The Brazilian Case Laser Procianoy, Jairo; Verdi, Rodrigo S. DATA AND METHODOLOGY: We collect stock prices and financial data from the ECONOMATICA database. We include companies whose stocks were traded on the So Paulo Stock Exchange between January 1, 1996 and December 31, 2000, and that paid at least one dividend in the period We follow Procianoy and Verdi (2003) to estimate the ex-dividend stock price. P1 = P0 D * (1 - Idiv) / (1 - Icapg) Where P1 is the first ex-dividend stock price; P0 is the last cumdividend stock price; D is the dividend paid on each stock; Idiv is the dividend tax; and Icapg is the capital gains tax. Then Multiple Regressions where used to determine the results. Event study was also done. Using a sample of 394 dividend distributions from 119 companies during 1996 to 2000 we find, like Procianoy and Verdi (2003), that on the first ex-dividend day the actual stock price is on average 1.8% higher than the price expected by the dividend clientele model and results in an abnormal return of 1.5%, which is significant at the 1%
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level. Dividends announced via a BDM are priced 0.9% higher than dividends announced via the SGM (significant at the 5% level). However, even with dividends that are previously announced via the SGM the stock prices are higher than expected. This suggests that the findings in Procianoy and Verdi (2003) are not purely driven by the information content of the dividends announced via a BDM. Finally, we find evidence of a positive abnormal volume around the dividend payments via a BDM, which is consistent with the signalling hypothesis, but we do not find abnormal trading volumes around the ex-dividend date for dividends previously announced via the SGM. Signaling Power of Dividend on Firms Future Profits PURMESSUR Rajshree Deeptee The University of Nottingham Nottingham University Business School (NUBS) A Literature Review The signaling effect and share repurchasing gives an Indication on the future strategies of the company. If an investor is able to understand the signals, he will eventually be able to maximize his returns. Dividend payout, for several reasons, is very important to investors as well as shareholders to assist them in making their investment decisions. The Effect Of Dividend Policy On The Market Price Of Shares In Nigeria: Case Study Of Fifteen Quoted Companies Dr. J. J. Adefila Department of Accountancy, University of Maiduguri, Dr. J. A. Oladipo and J.O Adeoti, This study fundamentally falls under the ex post factor design type because there is no experiment involved, but rather is designed to test an event that has already taken place. Therefore it deals with historical facts about dividend policy and its effects on the value of Nigerian firms. The primary data were collected through personal interviews with a stockbroker, bankers and the members of staff of the Nigerian stock exchange, Kaduna branch. This was to enable a thorough complementary presentation with the secondary data since; the data used in this study is mainly secondary data being document analysis and reappraisal. For the analysis, Persons Product Moment Correlation was used. The study revealed that dividends affect the demand for share price and subsequently the value of the firms. However, the dividend policy per se do not affect the value of firms currently as share price fixing in regulated by the Security and Exchange Commission
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(S.E.C) in respect of the quoted companies. 12.Title of Paper Name of Researcher Research Methodology Dividend Policy And Its Impact On Share Price (Analysis Of Selected A Class Listed Companies) Bijendra Bahadur Malla, Apex College, Pokhara University For the analysis of the cash dividends payments of the A class financial institutions of Nepal as categorized by NEPSE, analytical as well as descriptive designs are applied to achieve the objective of the research. Our sample is selected from firms listed on the NEPSE. This study focuses on the A class financial institutions of Nepal. At present, there are 157 companies are listed at NEPSE out of which 78 are categorized as A class financial institutions. This research is based on secondary data. Required data is collected from NEPSE, SEBON, previous thesis and various articles published by various people and organizations. METHODS AND TOOLS USED:

Arithmetic Mean (A.M), Coefficient of Variation (CV), Fstatistics, T-statistics.

Findings 1. The no. of cash dividend paying companies listed at NEPSE is seen almost the same in context of total listed companies since last five fiscal year except 2004/05 in which it comprise of 20.80 % of total listed companies. 2. There is the low degree of positive correlation between the total number of listed companies and the number of cash dividend paying listed companies. 3. Large amount of cash dividend paying A class commercial bank of the sample is seen SCBNL. The average payment of cash dividend by SCBNL was Rs.110 per share. Being an A class financial institution SBI has not been able to declare cash dividend to its shareholders.

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5. THEORETICAL FRAMEWORK:
1) CONTROLLED VARIABLES: Share price volatility should be related to the basic risks encountered in the firm's product markets. Market risk may also have impact on the firm's dividend policy. We therefore include a control variable to account for the variability in the firm's earnings stream. Given operating risk, there should be a direct link between stock price volatility and leverage. To make our study a correct one we assume that certain market forces which are there in the market remain constant, e.g. size of firm, market risk, socio-political environment, economic environment, growth opportunities etc. These variables have been taken constant (controlled) in order to give better insights of the study and to give robust results.

2) DATA & DATA SOURCE A sample of 10 Indian steel and steel related companies has been taken. Focus was on only one industry i.e. steel industry in order to obtain homogeneous and robust results. A drill down study of previous seven years data was done and regress studies were conducted. We know a sample of just 10 companies is too small for study of dividend behavior but we gave it our best shot. Most of the data has been taken from www.moneycontrol.com, and www.indiantimes.economictimes.com.

6. INDUSTRY PROFILE:
Indian steel industry plays a significant role in the countrys economic growth. The major contribution directs the attention that steel is having a stronghold in the traditional sectors, such as infrastructure & constructions, automobile, transportation, industrial applications etc. Moreover, steel variant stainless steel is finding innovative applications due to its corrosion resistive property. India is the fifth largest steel producer at the global front and struggling to become the second largest producer in the coming years. The country has acquired a central position on the global steel map with its giant steel mills, acquisition of global scale capacities by players, continuous modernization & up gradation of old plants, improving energy efficiency, and backward integration into global raw material sources. Global steel giants from across the world have shown interest in the industry due to its phenomenal performance. For instance - the crude steel production in India registered a year-on-year growth of 6.4% in 2010 and reached 66.8 Million Metric Tons. India is currently the fifth largest steel-producing nation in the world with production of over 54 million tonnes (MT). However, it has a very low per capita consumption of steel of around 46 kgs as against an average of 198 kgs of the world. This wide gap in relative steel consumption indicates that the potential ahead for India to raise its steel consumption is high.
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Being a core sector, steel industry tracks the overall economic growth in the long term. Also, steel demand, being derived from other sectors like automobiles, consumer durables and infrastructure, its fortune is dependent on the growth of these user industries. The Indian steel sector enjoys advantages of domestic availability of raw materials and cheap labour. Iron ore is also available in abundant quantities. This provides major cost advantage to the domestic steel industry, with companies like Tata Steel being one of the lowest cost producers in the world However, Indian steel companies have to bear additional costs pertaining to capital equipment, power and inefficiencies (low per employee productivity). This has resulted in the erosion of the edge they would have otherwise enjoyed due to availability of cheap labour and raw materials. The government has reinstated basic customs duty on steel imports in order to protect India from dumping of cheap steel products. It has also provided series of benefits to auto, housing and real estate sector in order to counter the slowdown in the economy.

7. COMPANIES PROFILE:
STEEL AUTHORITY OF INDIA LIMITED- A MAHARATNA
Steel Authority of India Limited (SAIL) is the leading steel-making company in India. It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defence industries and for sale in export markets. SAIL is also among the five Maharatnas of the country's Central Public Sector Enterprises. SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanised sheets, electrical sheets, structural, railway products, plates, bars and rods, stainless steel and other alloy steels. SAIL produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated close to domestic sources of raw materials, including the Company's iron ore, limestone and dolomite mines. The company has the distinction of being Indias second largest producer of iron ore and of having the countrys second largest mines network. This gives SAIL a competitive edge in terms of captive availability of iron ore, limestone, and dolomite which are inputs for steel making. Ownership and Management The Government of India owns about 86% of SAIL's equity and retains voting control of the Company. However, SAIL, by virtue of its Maharatna status, enjoys significant operational and financial autonomy

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TATA STEEL:
Tata Steel has always believed that the principle of mutual benefit - between countries, corporations, customers, employees and communities - is the most effective route to profitable and sustainable growth. Established in 1907, Tata Steel is among the top ten global steel companies with an annual crude steel capacity of over 28 million tonnes per annum (mtpa). It is now one of the world's most geographically-diversified steel producers, with operations in 26 countries and a commercial presence in over 50 countries. The Tata Steel Group, with a turnover of US$ 22.8 billion in FY '10, has over 80,000 employees across five continents and is a Fortune 500 company. Tata Steels vision is to be the worlds steel industry benchmark through the excellence of its people, its innovative approach and overall conduct. Underpinning this vision is a performance culture committed to aspiration targets, safety and social responsibility, continuous improvement, openness and transparency. Tata Steels larger production facilities include those in India, the UK, the Netherlands, Thailand, Singapore, China and Australia. Operating companies within the Group include Tata Steel Limited (India), Tata Steel Europe Limited (formerly Corus), NatSteel, and Tata Steel Thailand (formerly Millennium Steel).

BHUSHAN STEEL:
Bhushan Steel Ltd formerly known as Bhushan Steel & Strips Ltd. is a globally renowned one of the leading prominent player in Steel Industry. Backed by more than two decades, of experience in Steel making, Bhushan Steel is now Indias 3rd largest Secondary Steel Producer Company with an existing steel production capacity of 2 million tons per annums (approx.). It was the vision of the founder; Brij Bhushan Singal, that the first stake was driven into the soil of Sahibabad (Uttar Pradesh) in 1987. His vision helped BSL overcome several periods of adversity and strive to improve against all odds. The company has three manufacturing units in the state of Uttar Pradesh (Sahibabad Unit), Maharashtra (Khopoli unit), and Orissa Plant (Meramandali unit) in India and sales network is across many countries. The company is a source for vivid variety of products such as Cold Rolled Closed Annealed, Galvanized Coil and Sheet, High Tensile Steel Strapping, Colour Coated Coils , Galume Sheets and Coils, Hardened & Tempered Steel Strips , Billets, Sponge Iron, Precision Tubes and Wire Rod. As one of the prime movers of the technological revolutions in Indian Cold Rolled Steel Industry, BSL has emerged as the countrys largest and the only Cold Rolled Steel Plant with an independent line for manufacturing Cold Rolled Coil and Sheet up to a width of 1700mm, as well as Galvanized Coil and Sheet up to a width of 1350 mm.

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JINDAL STEEL:
Jindal Steel and Power Limited (JSPL) is one of Indias major steel producers with a significant presence in sectors like Mining, Power Generation and Infrastructure. With an annual turnover of over US $2.9 billion, JSPL is a part of the about US $ 15 billion diversified O. P. Jindal Group and is consistently tapping new opportunities by increasing production capacity, diversifying investments, and leveraging its core capabilities to venture into new businesses. The company has committed investments exceeding US$ 30 billion in the future and has several business initiatives running simultaneously across continents. From the widest flat products to a whole range of long products, JSPL today sports a product portfolio that caters to varied needs in the steel market. The company also has the distinction of producing the worlds longest 121 metre rails and introducing large size parallel flange And the recognition it has received only further lends credence to this. JSPL has recently been rated as the second highest value creator in the world by Boston Consulting Group; 11th fastest growing company in India by Business World; included in one of the Fab 50 Companies by Forbes Asia, 2009 and 2010; one of the Best Blue Chip companies as well as the Highest Wealth Creator by the Dalal Street Journal. It has also been ranked fourth as per Total Income in the Iron and Steel sector by Dun & Bradstreet.

MAHINDRA UGINE STEEL:

Mahindra Ugine Steel Co. Ltd. (MUSCO), under SYSTECH sector, belonging to the Mahindra Group is the pioneer & well known manufacturers of alloy steel in the country. MUSCO is the most trusted brand when alloy steel is referred to. The company also has three stampings division to manufacture pressed sheet metal components and assemblies, one at Kanhe about 1.5Km off Mumbai-Pune Highway, a major automobile manufacturing center in the country, second at Nasik catering to all auto products of M & M & RENAULT of France,& the third unit has successfully started commercial production from October 2007 , from the modern state-of-art new plant along with paint shop in Rudrapur(Uttarakhand State) for many new products of customers in North India.. Mr.Keshub Mahindra is the Chairman &Mr.Anand Mahindra is the Vice-Chairman of MUSCO.

JSW STEEL LTD

JSW is part of US $10 billion O.P.Jindal Group. It has grown to US$ 5 billion in little over a decade and has presence across various sectors Steel, Energy, Minerals, Port & Infrastructure, Cement, Aluminium and IT.

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JSW Steel, the flagship company of the JSW Group, is today an integrated steel manufacturer. JSW Steel is the largest private sector steel manufacturer in terms of installed capacity. The Group set up its first steel plant in 1982 at Vasind near Mumbai. Soon after, it acquired Piramal Steel Ltd., which operated a mini steel mill at Tarapur in Maharashtra. The Jindals, who had wide experience in the steel industry, renamed it as Jindal Iron and Steel Co. Ltd. (JISCO). JSW Steel is one of the lowest cost steel producers in the world. By 2020, the Company aims to produce 34 million tons of steel annually with Greenfield integrated steel plants coming up in West Bengal and Jharkhand.

JSL STAINLESS
A part of the O P Jindal group, JSL Stainless Ltd. (Formerly JSL LIMITED) is India's largest and the only fully integrated Stainless Steel manufacturer. JSL Stainless Ltd. has grown from an indigenous single-unit Stainless Steel plant in Hisar, Haryana, to the present multilocation and multi-product conglomerate. JSL Stainless Ltd. is a globally recognized producer of stainless steel flat products in Austenitic, Ferritic, Martensitic and Duplex grades. The product range includes Ferro Alloys, Stainless Steel Slabs & Blooms, Hot Rolled Coils, Plates, Cold Rolled Coils and specialty products such as razor blade steel, precision strips and coin blanks. JSL Stainless Ltd. has initiated strategic growth plans in both domestic and international markets and has made investments towards capacity expansions through forward and backward integration.

KALYANI STEELS LTD

Kalyani Steels Ltd, is a part of the over $2.1 billion Kalyani Group. Established in 1973, Kalyani Steels Ltd is a leading manufacturer of forging and engineering quality carbon & alloy steels using the Blast Furnace route. With its corporate headquarters in Pune, Kalyani Steels Ltd. was set up to fulfil the in-house requirements of forging quality steel of the Kalyani Group. In 1997, the Kalyani Group set up a new plant to manufacture steel using the less power intensive mini-blast furnace route. The new facility is at Ginigera in the Hospet-Bellary region of Karnataka state, where iron ore is abundantly available. This integrated steel complex has capacity of 400,000 tpa of carbon and alloy steels, which is being expanded to 650,000 tpa. Over the years, Kalyani Steels has been continuously upgrading its technology and infrastructure. The facilities at KSL are at par with any sophisticated steel manufacturers in the world. KSL has earned the status of preferred steel supplier for engineering, automotive, seamless tube and primary aluminium industry.

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STEEL STRIPS WHEELS

We manufacture automotive steel wheels since 1991. Our product range comprises wheels for Passenger cars, Multi utility vehicles, Tractors, Trucks, OTR Vehicles as well as Two and Three Wheelers. We currently have three production facilities: we produce mainly passenger car wheels in Dappar (near Chandigarh) and Oragadam (near Chennai) and truck wheels in Jamshedpur. Our total capacity amounts to 9 million wheels in Dappar, 6 million wheels in Oragadam and 1 million truck wheels in Jamshedpur. Our total capacity is 16 million wheels.

STEEL EXCHANGE INDIA LTD.

Steelexchangeindia.com is Indias first online steel ecommerce portal established in 1999 and is dedicated to INDIAN STEEL INDUSTRY specifically and to STEEL as a whole OUR MISSION - Steel Exchange India aims to be a global gateway to Indian Steel Community and to Steel. We shall persevere to innovate through information technology to provide steel customers an efficient and transparent market place and to take the Indian Steel Industry to a new threshold of Glory This platform is conceptualized and developed by PYXIS TECHNOLOGY SOLUTIONS LTD and VIZAG PROFILES GROUP. It is associated to Visakhapatnam Steel Plant under a MOU for maintaining its site www.vizagsteel.com and the two sites are linked and exchange data. Steelexchangeindia.com has also signed an MOU with STEELNEXT an Associate company of RELIANCE INFOCOMM for furthering online steel trade in INDIA

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8. METHODOLOGY
A sample of 7 years dividend data of 10 steel related companies was taken. Then every time whenever the company had either announced or paid-out the dividend, calculations were done as: The percentage of dividend to stock price was made based on the face value of the stock. The price-change percentages were calculated using the key dates closing price divided by the prior days closing price. All percentages were rounded to two decimal places. Then it was estimated whether the stock (share) price has increased or decreased on the day of announcement and pay-out of dividends. (Note: Only final dividend announcement dates and pay-out dates have been taken into consideration except in case JSL Stainless wherein interim dividends were also considered.) After these studies we moved a bit forward by taking into consideration the market value trend line of the firms whenever there was a dividend pay-out. Only data of one prior and post quarter was taken into consideration including the month of payout. Then the data was carefully studied to arrive at the results.

TATA STEEL
Announcement Date 26/05/2011 27/05/2010 25/06/2009 26/06/2008 17/05/2007 15/05/2006 19/05/2005 Change in price %age 101.9 101.7 97.8 101.9 101.51 90.93 99.9 Increase or decrease I I D I I D D Effective Date 04/07/2011 12/07/2010 06/07/2009 18/07/2008 08/06/2007 26/05/2006 07/06/2005 Change in price %age 99.14 10.28 90.45 97.57 95.2 104.87 97.0 Increase or decrease D I D D D I D Dividend (%) 120% 80% 160% 160% 155% 130% 130%

SAIL
Announcement Date 24/06/2011 28/05/2010 28/05/2009 16/05/2008 21/05/2007 25/05/2006 26/05/2005 Change in price %age 108.4 101.0 106.5 107.3 104.2 103.4 99.0 Increase or decrease I I I I I I D Effective Date 10/08/2011 29/07/2010 30/07/2009 31/07/2008 08/08/2007 10/08/2006 11/08/2005 Change in price %age 98 103.2 103.4 102.6 101.6 99.3 Increase or decrease D I I I I D Dividend (%) 12% 17% 13% 18% 15% 7.5% 18%

BHUSHAN STEEL
Announcement Date 27/7/11 2/8/10 30/7/09 29/07/08 4/5/07 2/5/06 2/5/05 Change in price %age

101.0 100.2 104.0 100.1 99.0 102.0 101.0

Increase or decrease I I I I D I I

Effective Date 21/9/10 17/9/09 17/9/08 11/9.07 14/9/06 8/9/05

Change in price %age

97.0 98.0 99.0 100.2 101.0 99.0

Increase or decrease D D D I I D

Dividend (%) 25% 25% 25% 25% 25% 25% 25%

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JINDAL POWER AND STEEL

Announcement Date 21/04/2011 05-04-2010 27/05/2009 27/05/2008 21/05/2007 06/07/2006 05/12/2005 Change in price %age 102.0 98.0 102.0 95.0 98.0 88.00 100.2 Increase or decrease I D I D D D I Effective Date 13/9/10 14/09/2009 09-12-2008 09-06-2007 14/09/2006 07/07/2005 Change in price %age 100.3 102.3 95.00 98.00 102.0 99.00 Increase or decrease I I D D I D Dividend (%) 150% 125% 550% 250% 240% 200% 200%

MAHINDRA UGINE STEEL

Announcement Date 29/4/10 29/4/08 30/4/07 25/4/06 22/4/05 2/8/02 Change in price %age 105.8 99.00 96.00 109.0 102.0 102.0 Increase or decrease I D D I I I Effective Date 12/7/10 9/7/08 11/7/07 12/7/06 14/7/05 7/8/02 Change in price %age 100.3 96.00 99.00 96.00 96.00 100.5 Increase or decrease I I D D I Dividend (%) 10% 30% 25% 45 30 NA

KALYANI STEEL
Announcement Date 25/05/2011 24/05/2010 10/06/2008 29/05/2007 06/07/2006 30/06/2005 24/07/2004 Change in price %age 104.7 103.7 104.6 97.7 95.9 102.9 88.8 Increase or decrease I I I D D I D Effective Date 04/08/2011 12/08/2010 13/08/2008 02/08/2007 17/08/2006 10/08/2005 05/08/2004 Change in price %age 100.8 101.9 99.6 100.5 100.7 100.9 Increase or decrease I I D I I I Dividend (%) 40% 25% 40% 40% 30% 15% 5%

STEEL EXCHANGE INDIA LTD.

Announcement Date 01/07/2009 03/07/2008 03/07/2007 05/07/2006 05/09/2005 Change in price %ge 95.04 112.3 95 101.5 102.04 Increase or decrease D I D I I Effective Date 24/09/2009 18/09/2008 06/12/2007 21/09/2006 23/09/2005 Change in price %age 97 97 101.8 94.2 118.6 Increase or decrease D D I D I Dividend (%) 10% 10% 10% 10% 10%

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STEEL STRIPS WHEELS

Announcement Date 22/06/2010 18/07/2008 20/06/2007 29/06/2006 18/05/2005 20/04/2004 30/06/2003 Change in price %age 99.8 96.4 98.5 97.3 96.08 96.3 109.4 Increase or decrease D D D D D D I Effective Date 17/09/2010 18/09/2008 13/09/2007 14/09/2006 12/08/2005 15/06/2004 17/09/2003 Change in price %age 99.8 114.6 98.6 100.7 97.45 100.4 100.6 Increase or decrease D I D I D I I Dividend (%) 10% 16% 16% 16% 16% 10% 10%

JSL STAINLESS
Announcement Date 24/07/2008 28/05/2007 21/08/2006 15/04/2005 27/12/2004 08/04/2004 29/11/2003 Change in price %age 99.1 98.4 96.9 97.7 101.2 100.1 102.6 Increase or decrease D D D D I I I Effective Date 13/08/2008 02/08/2007 07/09/2006 28/04/2005 19/01/2005 22/04/2004 12/12/2003 Change in price %age 98.2 98.5 99.5 97.0 99.5 99.9 100.6 Increase or decrease D D D D D D I Dividend (%) 100% 20% 80% 60% 60% 40% 60%

JSW STEEL LTD.

Announcement Date 16/05/2011 03/05/2010 07/05/2009 05/05/2008 19/04/2006 18/04/2005 12/05/2003 Change in price %age 98.4 99.4 112.7 98.1 96.6 100.9 100.7 Increase or decrease D D I D D I I Effective Date 11/07/2011 14/06/2010 29/06/2009 21/05/2008 15/06/2006 29/04/2005 13/06/2003 Change in price %age 96.03 100.48 101.4 99.00 109.4 101.6 102.4 Increase or decrease D I I D I I I Dividend (%) 122.5% 95% 10% 140% 80% 50% N.A.%

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TATA STEEL MARKET LINE OVER A PERIOD OF 7 YEARS AT DIVIDEND PAYOUTS

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SAIL MARKET LINE OVER A PERIOD OF 6 YEARS AT DIVIDEND PAYOUTS

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BHUSHAN STEEL MARKET LINE OVER A PERIOD OF 7 YEARS AT DIVIDEND PAYOUT

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JINDAL STEEL MARKET LINE OVER A PERIOD OF 7 YEARS AT DIVIDEND PAYOUT

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MAHINDRA UGINE MARKET LINE OVER A PERIOD OF 6 YEARS AT DIVIDEND PAYOUT

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KALYANI STEEL MARKET LINE OVER A PERIOD OF 6 YEARS AT DIVIDEND PAYOUT

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STEEL EXCHANGE MARKET LINE OVER A PERIOD OF 5 YEARS AT DIVIDEND PAYOUT

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STEEL STRIP MARKET LINE OVER A PERIOD OF 7 YEARS AT DIVIDEND PAYOUT

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JSL STAINLESS MARKET LINE OVER A PERIOD OF 7 YEARS AT DIVIDEND PAYOUT

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JSW STEEL MARKET LINE OVER A PERIOD OF 7 YEARS AT DIVIDEND PAYOUT

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9. FINDINGS:
As you can see from the table and charts, stock prices do not adjust by the amount of the dividend when the dividend is paid out. This limited sample of 10 companies suggests that sometimes the price goes up, sometimes it goes down. What is happening is that the myriad factors that go into determining the price of every stock are operating. The dividend pay-out is just one of those factors, and apparently not a very important one at that. Some important findings of the can be summed up as: 1. Out of 68 cases, the market price increased in 37 cases only when dividend was declared (54.4%) 2. Out of 64 cases, the market price increased in 29 cases only when dividend became effective (45.3%) 3. Whenever dividend rate was higher than 100%, i.e. in 19 cases of dividend declaration 14 times market share price went increasing (73%) 4. Whenever dividend rate was higher than 100%, i.e. in 17 cases when dividend became effective only 6 times market share price went up (35%) 5. Whenever dividend rate was below than 100%, i.e. in 43 cases of dividend declaration 23 times market share price went increasing (53.4%) 6. Whenever dividend rate was lower than 100%, i.e. in 41 cases when dividend became effective 25 times market share price went increasing (60.09%) 7. From the charts it is clear that dividend behaviour of a firm doesnt show any common pattern, may be momentarily there might be a drop in market value of the firm but it cant be determined or explained with the graphs studied.

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10.

CONCLUSION:

From time to time, one runs across a statement such as the following: And don't be fooled into thinking that relying on the dividend rather than selling [shares] leaves you with the original investment intact. It doesn't. When stocks pay out their dividends, the share price adjusts downward to compensate for the pay-out. This quote was taken from a recent Market Watch article written by a Wall Street Journal writer who should know better. Share prices do not adjust downward to reflect the dividend being paid out. To believe that is to make the fundamental error of confusing book value with stock price. If companies recomputed book value minute-by-minute, it is true that the book value would drop by the amount of cash paid out in dividends at the moment the cash went out the door. It is also true that the companys book value would rise by some amount every time it sold a product. Book value is constantly changing by miniscule amounts every minute of every day. Companies report it once per quarter. The share price, on the other hand, is not determined by book value, it is determined by the market. Over long periods of time, it is true that share prices roughly correlate with book value per share. But the correlation is inconsistent and subject to thousands of other factors that go into the price discovery that takes place every day that the markets are open. As you can see from the tables and charts, stock prices do not adjust by the amount of the dividend when the dividend is paid out, sometimes the price goes up, and sometimes it goes down. What is happening is that the uncountable factors that go into determining the price of every stock are operating. The dividend pay-out is just one of those factors, and apparently not a very important one at that. One other interesting note from the table is that the stock prices usually went up on the day of the dividend announcement. While we would not draw any general conclusions from this limited sample, that price rise makes sense to us: A dividend announcement is usually good news.

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11.

REFRENCES

Financial Management, by I.M Panday Management Accounting by Gupta and Sharma Securities Analysis and Portfolio Management by Dr. Rana Singh Security Analysis and Portfolio Management by Donald E. Fischer, Ronald J. Jordan Basic Financial Management By Khan, M.Y. Jain www.google.com www.yahoofinance.com www.moneycontrol.com www.indiantimes.economictimes.com www.wikipedia.com www.investopedia.com http://www.onemint.com www.money.rediff.com Class room notes and lectures.

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