Gordon's Dividend Policy Analysis

Gordon’s (1959) argument is that the motive to pay dividends is to increase the share market prices of the companies. Gordon’s model obviously relates the market value of the company to its dividend policy. The major determinants of the market value of the share are the perpetual stream of future dividends to be paid, the cost of capital and the expected annual growth rate of the firm. However, the Gordon’s theory on dividend policy states that the company’s dividend payout policy and the relationship between the firm rate of return and the cost of capital influence the market price per share of the company. Gordon shares almost the same assumptions with Walter.
Gordon later argued that if the underlying assumptions are modified to include

The study concluded that the signaling effect, bird in the hand effect, and catering effect dominated the major changes in stock prices and that investors are interested in firms who are paying dividend continuously. Jatmiko (2016) aimed at finding the effect of tax rate and dividend policy on the stock price, and the effect of tax rate on the dividend policy in Indonesia. The results indicated that the tax rate and dividend policy had positive and significant effect on the stock price. In addition the tax rate was also found to have a positive and significant effect on dividend policy; thus concluded that a positive relationship exists between tax rate, dividend policy and stock price.
Pani (2008) provides evidence from India to support the clientele effect of dividend policy on stock prices. The findings show the presence of fixed level effect in explaining the possible links between dividend policy and stock price variation of the firms. Joshi (2011) examined the impact of dividends on stock price in Nepal and found that dividend has significant effect on stock prices of banking and non-banking

Clientele effect, free cash flow, and tax incentives have positive and significant effect on stock price. Yensuand Adusei(2016) examined the trend in dividend policy and the predictions regarding the amount of dividends payout by listed non-financial firms in 13 African countries from 1994-2011.They found that dividend payout, financial leverage, corruption has a significant negative relationship on gross domestic product per capita. The study further found that the dividend trends were very low and