THE RELATIONSHIP BETWEEN DIVIDEND POLICY AND SHAREHOLDERS’ WEALTH: EVIDENCE FROM FMCG SECTOR IN INDIA

Dividend policy (DP) of corporate sector is widely researched topic in finance however; it remains a debatable issue to study what factors determine the DP. The objective of the paper is to analyze the relationship between dividend policy (DP) and shareholders' wealth (SW) of Fast Moving Consumer Goods (FMCG) sector in India. Out of 16 firms listed on National Stock Exchange (NSE) 13 firms that have been paying dividend consecutively for the recent past ten years are considered for analysis. In the light of the prior literature, key predictor variables such as earnings per share (EPS), dividends per share (DPS), and retained earnings per share (RPS) are considered for analyzing the relationship between DP and SW. The descriptive statistics reveals that the data form in to normal. The data are found to be homoskedastic and are free of autocorrelation. Augmented Dickey Fuller Test (ADF), White - Heteroskedasticity Test, Auto Correlation, Breuch-Godfrey Serial correlation LM test, Lagrange Multiplier (LM) for Autoregressive conditional heteroskedasticity (ARCH-LM), Johansen Cointegration and VAR Granger causality test / Block Exogeneity Wald Test are applied using Eviews 7 Econometrics software package for analysis. The Johansen Co-Integration test sets out that there exists a stationary; there is a long – run relationship between dividend per share (DPS) as well as retained earnings per share (RPS) and earnings per share (EPS). The VAR Granger causality test / Block Exogeneity Wald test shows a significant causality between dividend per share (DPS) and earnings per share (EPS); retained earnings per share (RPS) and earnings per share (EPS); retained earnings per share (RPS) and dividend per share (DPS); and earnings per share (EPS) and retained earnings per share (RPS).