The Impact of Dividend Policy on Shareholders’ Wealth-A Study of Colombo Stock Exchange (CSE) in Sri Lanka

The impact of firm's dividend policy on shareholders' wealth is an unresolved issue and has been subjected to many empirical discussions within the finance literatures. The objective of the firm is to increase the wealth of its stockholders. The best dividend policy is the one that increases shareholders wealth by the greatest amount. It is therefore necessary, to understand the nature of the relationship between dividend and value of the firm. To the knowledge of the researchers very few studies have attempted to observe the impact of dividend policy on shareholders' wealth in Sri Lanka. In attempt to fill this research gap the present study was initiated to find out the impact of dividend policy on shareholders' wealth from listed companies in the CSE in Sri Lanka during the period from 2005/2006 to 2010/2011. Primary information and secondary data were collected from Colombo Stock Exchange (CSE). The present study used the Person's Product Movement Correlation and descriptive statistics to evaluate the data collected from the twenty companies listed in the CSE. In addition the dividend policy has insignificant impact on share price of the CSE. Outcomes of the study will be useful to the academicians, practitioners, policy makers and investors for making suitable policy formulations for the companies. Further the companies are able to decide a suitable polices in executing their financial decision without harming to the market value of the shares