Empirical study on dividend policy and shareholders' wealth: evident from Colombo stock exchange

Abstract

This research attempts to study the relations between dividend policy and shareholders' wealth for manufacturing companies listed on in Sri Lanka. The data of the selected companies during the period of five years form 2007 - 20il extracted from the annual reports were used for the study. Regression models were used to estimate the relationship between dividend policy and shareholders' wealth. The study also employed two sub-samples in order to arrive at a profound conclusion with regard to the impact of dividend policy on shareholders' wealth. The results of the study revealed that there is no relationship between dividend policy and shareholders' wealth for the manufacturing companies listed on Colombo Stock Exchange. A positive insignificant relation is found between dividend policy and shareholders' wealth for the whole sample while a positive insignificant relation is found for dividend paying companies. The impact of dividend payout on the shareholders’ wealth found to be positive and significant as far as the dividend non-paying companies are concerned and is consistent with the bird-in-hand hypothesis.