Estimation of Dividend Policy on Aggregate and Firm’s level: Are Dividends Important for the Resident Shareholder

Abstract

As part of the firm's general policy, dividend policy deals how the net-earnings after tax are distributed among the shareholders. This article explores the impact of dividend policy on the share price of the firm. Historically, two major academic streams prevailed in finance concerning the dividend policy: the proponents who advocated its importance; and the opponents who defied it. The basic methodological frame used is consisted of the Gordon's model for evaluation of stock prices elaborated in his work "Dividends, Earnings and Stock Prices". Two approaches were followed during the course of our research: macro-analysis with aggregate data; and micro-analysis with individual data. The application of the Gordon's model on aggregate data didn't reveal the true relationship between the policy of distribution of earnings and the movement of reference price index MBI-10. Further analysis of the macro approach detected a handful of possible reasons that led to the inconsistent outcome. Conversely, the regression with micro-data generated significant results proving that Gordon's idea for the relevance of dividend policy is still "alive" at least for the single resident company.