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236 Corporate Finance BRILLIANT’S

of various parties like the directors, employees, EH$ {ddmXmñnX _wÔm ~Z gH$Vm h¡Ÿ& eo`ahmoëS>g© Ho$ _Ü`
shareholders, debenture holders, lending ^r _V^oX hmo gH$Vm h¡ Š`m|{H$ do ^r {d{^Þ BÝH$_ J«wßg
institutions etc. Even among the shareholders,
there may be conflict as they may belong to go gå~ÝY aIVo h¢Ÿ& Ohm± Hw$N> ao½`yca BZH$_ _| é{M
different income groups. While some may be aIVo h¢ VWm AÝ` H¡${nQ>c E{à{gEeZ Ed§ H¡${nQ>c
interested in regular income, others may be JoÝg _| ê${M aIVo h¢Ÿ& `Ú{n, {S>{dS>oÝS> nm°{bgr H$m
interested in capital appreciation and capital
gains. Hence, formulation of dividend policy is à{VnmXZ EH$ O{Q>c {ZU©` h¡Ÿ& BgHo$ {cE {d{^Þ VËdm|
a complex decision. It needs careful conside- na Ü`mZnyd©H$ {dMma H$aZm Amdí`H$ h¡Ÿ& hmcm§{H$, `h
ration of various factors. One thing, however, {ZpíMV h¡ {H$ EH$ AënH$m{cH$ AàmoM Ho$ ~Om` {S>{dS>oÝS>
is certain that instead of an adhoc approach, it
is more desirable to follow a reasonably long- go g§~§{YV EH$ C{MV bm±J-Q>_© nm°{bgr H$m nmcZ H$aZm
term policy regarding dividends. Á`mXm dm§N>Zr` h¡Ÿ&
Why do Companies Pay Dividends? H$ånZrO {S>{dS>oÝS> H$m ^wJVmZ Š`m| H$aVr h¡?
Since the principal objective of corporate My§{H$ H$m°nm}aoQ> \$m`ZopÝe`c _¡ZoO_oÝQ> H$m _w»` CÔoí`
financial management is to maximize the B{ŠdQ>r eo`g© H$s _mH}$Q> d¡ë`y H$mo CÀMV_ H$aZm h¡Ÿ&
market value of equity shares, the key question
of interest to us is: Why do companies pay naÝVw, àíZ `h CR>Vm h¡ {H$ H$ånZrO {S>{dS>oÝS> H$m
dividends? ^wJVmZ Š`m| H$aVr h¡?
Following are the obvious reasons of {S>{dS>oÝS> ^wJVmZ Ho$ gwñnï> H$maU {ZåZ{c{IV h¡:
paying dividends:
1. Investor’s Preference for Dividends: 1. {S>{dS>oÝS> Ho$ {cE BZdoñQ>g© H$s àmW{_H$Vm:
Investors have preference for dividends due to Hw$N> ì`mdhm[aH$ H$maUm| Ho$ H$maU BZdoñQ>g© H$s {S>{dS>oÝS
behavioural reasons. Individuals often lack Ho$ {cE àmW{_H$Vm hmoVr h¡Ÿ& ì`{º$-{deof _| AŠga ñd-
self-control. So they rely on rules and {Z`§ÌU H$m A^md hmoVm h¡Ÿ& Bg{cE do ê$ëg Ed§ àmoJ«måg
programmes which control their temptations. na ^amogm H$aVo h¢ Omo BZHo$ narjU H$mo {Z`§{ÌV H$aVo h¢Ÿ&
In case of personal financial management also, ng©Zc \$m`ZopÝe`c _¡ZoO_oÝQ> Ho$ Ho$g _| ^r ì`{º$ AnZo
individuals like to protect their principal. qà{gnc H$mo gwa[jV aIZm ng§X H$aVo h¢Ÿ& `Ú{n, `o
Hence, they prefer to receive dividend so that {S>{dS>oÝS àmá H$aZm ng§X H$aVo h¢ Vm{H$ H¡${nQ>c gånyU©
the capital maintained is intact. ê$n go _oZQ>oZ ahoŸ&
2. Information about Company Perform- 2. H$ånZr Ho$ {ZînmXZ Ed§ {ddaU-nÌ H$s
ance and Prospectus: Management often has OmZH$mar: _¡ZoO_o§Q> Ho$ nmg AŠga H$ånZr Ho$ {ddaU-
significant information about the prospectus nÌ H$s _hËdnyU© OmZH$mar hmoVr h¡ naÝVw do Bgo BZdoñQ>g©
of company but they cannot (or prefer not to) H$mo àH$Q> Zht H$a gH$Vo (`m ng§X Zht H$aVo)Ÿ& Bg Ho$g
disclose to investors. In such a case, dividend _|, {S>{dS>oÝS>, H$ånZr Ho$ {ZînmXZ Ed§ {ddaU-nÌ H$m EH$
is a signal about performance and prospectus
of company. If the company increases g§Ho$VH$ h¡Ÿ& `{X H$ånZr {S>{dS>oÝS H$mo ~‹T>mVr h¡ Vmo `h
dividends, it suggests to the market that the _mH}$Q> H$mo `h g§Ho$V XoVm h¡ {H$ H$ånZr H$s AnZr CnmO©Z-
company is confident about the earning j_Vm na ^amogm h¡ Ed§ dh ^{dî` _| ^r CÀMV_ {S>{dS>oÝS
capacity and it will be able to maintain higher XoZo _| g_W© hmoJrŸ& `h _mH}$Q> Ho$ {cE EH$ gH$mamË_H$