PRODUCTIVITY IMPACT OF DIVIDEND ON SHAREHOLDERS

CHAPTER ONE

INTRODUCTION

Background of the study

The dividend of shareholders and its impact on productivity has been severally been called into question. Most school of thoughts has it that dividend of shareholders does not have a significant impact on their productivity level while other school of thoughts are of the contrary opinion. Dividend overtime has had a leading role to play in corporate organizations and more especially in the well-being of shareholders. Dividend o course helps to is increase or improve the revenue base of shareholders, corporate monetary managers make different financial decisions and dividend policy decision is cardinal amongst them (Baker &Powell 1999) . Dividend decision has great impact on firm financial decision and stock price and most importantly on its shareholders; increase in dividends would improve the revenue base of its shareholders while a decrease in dividend would be on the contrary as their financial base would be negatively affected.

Simians (1995) argue that the productivity of shareholders is largely influenced by the organization’s dividend policy. It is an approach which is used to distribute the profit back to its shareholders. If a company is in a growing stage, it may decide it will be reinvested in company’s future projects rather than distributing the profit to shareholders .If a company decides to pay dividend, it must decide how much and at what rate dividend should be paid. Dividend policy plays a front-line role to play in terms of the commitment and corporate productivity of its shareholders. If a company pays handsome return to its shareholders it will help to improve the productivity of its shareholders thereby ensuring corporate growth of the company and vice versa. So we can say dividend policy have a strong impact on growth and productivity. Dividend policy is guidelines for financial managers, how to pay dividend to the shareholders either through cash dividend or through fixed percentage dividend. The primary objective of any organization is to maximize the wealth of shareholders. Financial manager’s aim is to take a decision in such a way that shareholders receive the high contribution of dividend which leads to increase the price of share. Because market price is an indicator of profitability, progress and productivity of both the shareholders and company by extension, however, it is an unresolved issue whether the dividend policy has impact on its shareholders wealth