Dividend Payout Ratio Analysis
2.2.3 Retained earnings
Anil and Kapoor (2008) conducted a study among Indian IT-companies and the data was collected during the period 2000-2006. The authors used five company factors in order to test the relationship with the company’s dividend payout ratio. The researchers found out that there is a positive but insignificant relationship between the dividend payout ratios and the companies’ profit (EBIT/total assets) and taxes. The results indicate that profit is not of major importance when an IT-company decides to pay dividends. However the results indicate that there is a strong relationship between cash flow and dividend payments. Anil and Kapoor states that a good liquidity position is an important factor which influences companies’
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Different researchers measure the size of the company differently. Steve and Chris (2011) used natural logarithm of sales to measure its size. Other researchers have used the book value as the measure of the size of the firm. Gustav (2012) used the market capitalization as the measure of the size of the firm. Market capitalization takes into account the market value of the firm which includes both the external and internal factors as among the measurement of the company dividend policy. Just like any other methods, it has some limitations because it depends on the market value of the company stock. The market value of the company stock will not give the correct picture of the organization if it is …show more content…
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