The Impact Of Dividend Policy On Shareholder Wealth: UK Evidence

The impact that dividend policy has upon shareholder wealth (share price) has been a widely disputed financial topic throughout the previous half-century. Despite numerous theoretical and empirical studies, a definitive relationship is still yet to be unanimously agreed upon – which emphasises the need for this dissertation to provide a valid contribution to the field. In order to achieve this aim, a systematic review of the available financial literature was performed, as well as the implementation of original empirical research. The empirical research consisted of multiple (panel) regression analysis on a sample of 118 UK companies listed on the FTSE All-Share Index. The P/E Ratio was used as a proxy for shareholder wealth, in addition to Dividend Yield and the Dividend Payout Ratio being utilised as measures of dividend policy. The main model also included four control variables, which were: Market Value, Earnings Per Share, Debt-To-Equity ratio and Capital Expenditure. The findings of the regression analysis presented an insignificant relationship between the Dividend Payout Ratio and the P/E Ratio, and a significant and negative relationship between Dividend Yield and the P/E Ratio (coefficient of -2.2688). This paper suggested that there was enough evidence from the statistical models to conclude that an overall negative relationship occurs between dividend policy and share value. These results were inconsistent with the hypothesised impact between the variables, and consequently possible explanations were rationalised and recommendations for future research were proposed