A Study on the Impact of Dividend Policy on Shareholders' Wealth: A Comparative Analysis

Abstract

Impact of dividend policy of State Bank of India (SBI) on shareholder wealth creation during the time frame FY2021-FY2025 is being analysed in this research. The correlation analysis of several variables like DPS (Dividend Per Share), EPS (Earnings Per Share), DPR (Dividend Payout Ratio), MPS (Market Price Per Share), ROE (Return on Equity), and Dividend Yield using statistical tools like Pearson correlation and regression analysis was carried out by employing secondary data from the annual report and stock exchange database (National Stock Exchange – NSE) through the use of SPSS. Through the regression analysis, an R² of 0.948 was achieved, meaning that 94.8% of the variation in the market price of SBI shares can be explained by DPS and that for each one unit increase in DPS, the share price will increase 37 times. This proves that the main cause for the wealth creation is because of the progressive and earnings-based dividend policy of the company, thus supporting the "Bird-in-Hand" theory, Signalling Theory and Walter Model of dividends. Hypothesis H1 (Alternative Hypothesis) showing the significance of the relation between DPS and MPS is accepted at 1% level of significance.