Abstract:
This paper divulges the long term relationship among earning, investment and dividends from 2000 to 2011.Empirical evidence was collected to explore the Modigliani and miller theory of dividend irrelevance. Data was collected from all the sectors but it was ensured that firms did not have negative data of earnings as it is earnings which are either transformed into investment or dividends. Multivariate and bivariate cointegration is used to examine the data. Johansen and Juselius multivariate cointegration disclosed the presence of long term relationship among earning, investment and dividends. The traditional view regarding the dividend irrelevance theorem is rejected by this research and results show that dividend and investment are dependent on each other
Machine summary:
Hanif Department of Management Sciences, Jinnah Institute of Informatics and Commerce, Islamabad, Pakistan Received 3 November 2013, Accepted 7 December 2013 ABSTRACT: This paper divulges the long term relationship among earning, investment and dividends from 2000 to 2011.
The first view, regarding the traditional "dividend irrelevance" theory presented by Modigliani and miller (1961), is that firm’s value is determined by the investment choices available to it instead of the payout decisions.
Most notably, if the firm’s dividend and investment decisions are made jointly, then dividend policy would likely have a direct impact on firm value, a result that contradicts the separation principle.
The author also explained that increase in total payout is linked with long-term increase in earnings Wang (2010) examined the casual relationship among financing, investing, dividend policy and corporate performance analyzing the data of Taiwan and Chinese High-tech firms during the period of 2000 – 2007.
22983 Multivariate Unrestricted Cointegration Tests Table 4 and 5 show the results for both Trace statistic and Maximal Eigen statistic and it divulges cointegration among dividends, earnings and investment for the period 1999 to 2011.
Therefore, the result provides evidence of a long-term relationship among dividends, earnings and investment.
Johansen and Juselius multivariate cointegration disclosed the presence of long term relationship among earning, investment and dividends.
Johansen and Juselius multivariate cointegration disclosed the presence of long term relationship among earning, investment and dividends.
Investment Opportunities, Corporate Finance and Dividend Payout Policy.