“Testing Relevance Theory on 10 Equity Stocks”
Journal Title: International Journal of Business and Management Invention - Year 2019, Vol 8, Issue 1
Abstract
This study examines the relevance theory by using the Gordon’s and Walter’s models. The Gordon model (also known as the dividend discount model) and Walter's model is used to establish the relationship between dividend payout and share prices of the company by equating the present dividend payout to the future stock prices. Pattern study technique is used to study the price movement of the stock and the impact of dividend payout on the share prices by analyzing the prices prior and post dividend pay- out. The stock prices grows and falls in the same rate as the dividend. The relevance theory states that if the firm is in growth state i.e., if share is on rise, it must not pay dividend and rather retain earnings to further grow. Similarly, if it is on decline state i.e., if share price is falling, it must distribute dividends to the investors. This relevance theory holds well on all the 10 above companies whose stock prices before and after dividend payout were tested and analyzed.
Authors and Affiliations
Kirthi Prem Kumar, Kousalya S S, Sunitha S
Keywords
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