Dividend Policy

LITERATURE REVIEW
Dividend remains one of the greatest enigmas of modern finance. Corporate dividend policy is an important decision area in the field of financial management hence there is an extensive literature devoted to the subject. Dividends are defined as the distribution of earnings (present or past) in real assets among the shareholders of the firm in proportion to their ownership. Dividend policy refers to management's long-term decision on how to utilize cash flows from business activities-that is, how much to plow back into the business, and how much to return to shareholders (Khan and Jain, 2005). FIRM PROFITABILTY
The study by Adaoglu (2000), Amidu and Abor (2006) and Belans et al (2007) stated that net income shows positive

For a long time, the subject of corporate dividend policy has captivated the interests of many academicians and researchers, resulting in the emergence of a number of theoretical explanations for dividend policyJensen and Meckling (1976) stressed on the management ownership to reduce agency costs as the goals of the management and the shareholders would be in line. Dividend payments reduces he discretionary funds available with the management and hence would also reduce the agency problem between the managers and the shareholders. Also, there is another kind of conflict existing between the shareholders and the bondholders. This exists because shareholders can pay themselves dividends and hence extracting the wealth from the bondholders. So bondholders may try to put restrictions on the dividend payouts through bond indenture Furthermore, Alli et al. (1993) explained that as the number of stockholders would increase, the agency problem would also increase and the need for monitoring the actions of the management would also increase. If dividends can mitigate this problem, we can expect a positive relationship between number of common stockholders and dividend payout ratio. Large sized firms with stable earnings and profitability record will have easy access to outside capital. Dickens, Casey, and Newman (2002) studied the impact of ownership in the banking industry and concluded that management's ownership was negatively correlated with the payout ratio. This suggested that agency costs reduced in the management owned firms. . Gorge, Dab Silva and Renneboog (2002) showed that, firms with the banks as their shareholders would omit their dividends. On the other hand Holfer et al (2004) suggested that neither the institutional holdings nor the bank control is statistically significant determinant of dividend