Description
Project Report on Dividend, Report on Dividend
PROJECT REPORT
ON
DIVIDEND
SUBMITTED IN PARTIAL FULFILLMENT OF THE
REQUIREMENT FOR THE AWARD OF THE
MASTER’S DEGREE IN BUSINESS
ADMINISTRATION
(2010-2011)
Department of Business Administration
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
(Affiliate t! Uni"ersit#$
!!!!!!!!!!!!!!!!!!!!!!!!!%
DEC&ARATION
I" t#e $%e&'i(%e" #e&e)* e+la&e t#at t#e ,&!-e+t &e,!&t e%title
.'Topi( Name$/ +a&&ie !$t at (Compan# Name)0 I' 1* !&i(i%al 2!&3
2&itte% a% '$)1itte )* 1e i% ,a&tial f$lfill1e%t !f Ma'te&4' De(&ee i%
B$'i%e'' A1i%i't&ati!% !f '!!!!!!!!!!!!!!!!!!!!! Uni"ersit#$0 I al'!
e+la&e t#at t#i' ,&!-e+t #a' %!t )ee% '$)1itte ea&lie& i% a%* !t#e&
$%i5e&'it* !& i%'tit$ti!%0
Date6 (7a%iate Na1e)
- 1 -
AC)NO*&EDGEMENT
I ta3e t#i' !,,!&t$%it* t! e8te% 1* ,&!f!$% t#a%3' a% ee, 'e%'e
!f (&atit$e t! t#e a$t#!&itie' !f 'Compan# Name$0 F!& (i5i%( 1e t#e
!,,!&t$%it* t! $%e& ta3e t#i' ,&!-e+t 2!&3 i% t#ei& e'tee1e !&(a%i9ati!%0 I
,&!f$'el* t#a%3 M&0 7!1,a%* :$ie Na1e (De'i(%ati!%)
M* 'i%+e&e t#a%3' t! H!%!&a)le 'e+&eta&* S&i 888888888888"
(7!lle(e Na1e) ,&i%+i,al M&0 88888888888" HOD M&0 88888888888" a%
1* ,&!-e+t ($ie M&0 88888888888880 F!& t#e 3i% e%+!$&a(e1e%t a%
+!%'ta%t '$,,!&t e8te%e i% +!1,leti!% !f t#i' ,&!-e+t 2!&30 F&!1 t#e
)!tt!1 !f 1* #ea&t
I a1 al'! t#a%3f$l t! all t#!'e 2#! #a5e i%+ie%tall* #el,e 1e"
t#&!$(# t#ei& 5al$e ($ia%+e" +!-!,e&ati!% a% $%'ti%te '$,,!&t $&i%( t#e
+!$&'e !f 1* ,&!-e+t0
!!!!!!!!!!!!!!!!!!!!!!!!!!
- 2 -
A+stra(t
T,e Di"idend De(ision" i% +!&,!&ate fi%a%+e" i' a e+i'i!% 1ae )* t#e i&e+t!&' !f a
+!1,a%*0 It &elate' t! t#e a1!$%t a% ti1i%( !f a%* +a'# ,a*1e%t' 1ae t! t#e
+!1,a%*;' 't!+3#!le&'0 T#e e+i'i!% i' a% i1,!&ta%t !%e f!& t#e fi&1 a' it 1a* i%fl$e%+e
it' +a,ital 't&$+t$&e a% 't!+3 ,&i+e0 I% aiti!%" t#e e+i'i!% 1a* ete&1i%e t#e a1!$%t
!f ta8ati!% t#at 't!+3#!le&' ,a*0
T#e&e a&e t#&ee 1ai% fa+t!&' t#at 1a* i%fl$e%+e a fi&1;' i5ie% e+i'i!%6
• F&ee-+a'# fl!2
• Di5ie% +lie%tele'
• I%f!&1ati!% 'i(%ali%(
T,e free (as, f-o. t,eor# of di"idends
U%e& t#i' t#e!&*" t#e i5ie% e+i'i!% i' 5e&* 'i1,le0 T#e fi&1 'i1,l* ,a*' !$t" a'
i5ie%'" a%* +a'# t#at i' '$&,l$' afte& it i%5e't' i% all a5aila)le ,!'iti5e %et ,&e'e%t
5al$e ,&!-e+t'0
A 3e* +&iti+i'1 !f t#i' t#e!&* i' t#at it !e' %!t e8,lai% t#e !)'e&5e i5ie% ,!li+ie' !f
&eal-2!&l +!1,a%ie'0 M!'t +!1,a%ie' ,a* &elati5el* +!%'i'te%t i5ie%' f&!1 !%e *ea&
t! t#e %e8t a% 1a%a(e&' te% t! ,&efe& t! ,a* a 'teail* i%+&ea'i%( i5ie% &at#e& t#a%
,a*i%( a i5ie% t#at fl$+t$ate' &a1ati+all* f&!1 !%e *ea& t! t#e %e8t0 T#e'e +&iti+i'1'
#a5e le t! t#e e5el!,1e%t !f !t#e& 1!el' t#at 'ee3 t! e8,lai% t#e i5ie% e+i'i!%0
Di"idend (-iente-es
A ,a&ti+$la& ,atte&% !f i5ie% ,a*1e%t' 1a* '$it !%e t*,e !f 't!+3 #!le& 1!&e t#a%
a%!t#e&0 A &eti&ee 1a* ,&efe& t! i%5e't i% a fi&1 t#at ,&!5ie' a +!%'i'te%tl* #i(# i5ie%
*iel" 2#e&ea' a ,e&'!% 2it# a #i(# i%+!1e f&!1 e1,l!*1e%t 1a* ,&efe& t! a5!i
i5ie%' $e t! t#ei& #i(# 1a&(i%al ta8 &ate !% i%+!1e0 If +lie%tele' e8i't f!& ,a&ti+$la&
- < -
,atte&%' !f i5ie% ,a*1e%t'" a fi&1 1a* )e a)le t! 1a8i1i9e it' 't!+3 ,&i+e a%
1i%i1i9e it' +!'t !f +a,ital )* +ate&i%( t! a ,a&ti+$la& +lie%tele0 T#i' 1!el 1a* #el, t!
e8,lai% t#e &elati5el* +!%'i'te%t i5ie% ,!li+ie' f!ll!2e )* 1!'t li'te +!1,a%ie'0
A 3e* +&iti+i'1 !f t#e iea !f i5ie% +lie%tele' i' t#at i%5e't!&' ! %!t %ee t! &el* $,!%
t#e fi&1 t! ,&!5ie t#e ,atte&% !f +a'# fl!2' t#at t#e* e'i&e0 A% i%5e't!& 2#! 2!$l li3e
t! &e+ei5e '!1e +a'# f&!1 t#ei& i%5e't1e%t al2a*' #a' t#e !,ti!% !f 'elli%( a ,!&ti!% !f
t#ei& #!li%(0 T#i' a&($1e%t i' e5e% 1!&e +!(e%t i% &e+e%t ti1e'" 2it# t#e a5e%t !f 5e&*
l!2-+!'t i'+!$%t 't!+3)&!3e&'0 It &e1ai%' ,!''i)le t#at t#e&e a&e ta8ati!%-)a'e
+lie%tele' f!& +e&tai% t*,e' !f i5ie% ,!li+ie'0
Information si/na-in/
A 1!el e5el!,e )* Me&t!% Mille& a% =e5i% R!+3 i% 1>?@ '$((e't' t#at i5ie%
a%%!$%+e1e%t' +!%5e* i%f!&1ati!% t! i%5e't!&' &e(a&i%( t#e fi&1;' f$t$&e ,&!',e+t'0
Ma%* ea&lie& 't$ie' #a '#!2% t#at 't!+3 ,&i+e' te% t! i%+&ea'e 2#e% a% i%+&ea'e i%
i5ie%' i' a%%!$%+e a% te% t! e+&ea'e 2#e% a e+&ea'e !& !1i''i!% i' a%%!$%+e0
Mille& a% R!+3 ,!i%te !$t t#at t#i' i' li3el* $e t! t#e i%f!&1ati!% +!%te%t !f
i5ie%'0
W#e% i%5e't!&' #a5e i%+!1,lete i%f!&1ati!% a)!$t t#e fi&1 (,e&#a,' $e t! !,aA$e
a++!$%ti%( ,&a+ti+e') t#e* 2ill l!!3 f!& !t#e& i%f!&1ati!% t#at 1a* ,&!5ie a +l$e a' t!
t#e fi&1;' f$t$&e ,&!',e+t'0 Ma%a(e&' #a5e 1!&e i%f!&1ati!% t#a% i%5e't!&' a)!$t t#e
fi&1" a% '$+# i%f!&1ati!% 1a* i%f!&1 t#ei& i5ie% e+i'i!%'0 W#e% 1a%a(e&' la+3
+!%fie%+e i% t#e fi&1;' a)ilit* t! (e%e&ate +a'# fl!2' i% t#e f$t$&e t#e* 1a* 3ee,
i5ie%' +!%'ta%t" !& ,!''i)l* e5e% &e$+e t#e a1!$%t !f i5ie%' ,ai !$t0
7!%5e&'el*" 1a%a(e&' t#at #a5e a++e'' t! i%f!&1ati!% t#at i%i+ate' 5e&* (!! f$t$&e
,&!',e+t' f!& t#e fi&1 (e(0 a f$ll !&e& )!!3) a&e 1!&e li3el* t! i%+&ea'e i5ie%'0
I%5e't!&' +a% $'e t#i' 3%!2le(e a)!$t 1a%a(e&'; )e#a5i!& t! i%f!&1 t#ei& e+i'i!% t!
)$* !& 'ell t#e fi&1;' 't!+3" )ii%( t#e ,&i+e $, i% t#e +a'e !f a ,!'iti5e i5ie%
'$&,&i'e" !& 'elli%( it !2% 2#e% i5ie%' ! %!t 1eet e8,e+tati!%'0 T#i'" i% t$&%" 1a*
i%fl$e%+e t#e i5ie% e+i'i!% a' 1a%a(e&' 3%!2 t#at 't!+3 #!le&' +l!'el* 2at+#
i5ie% a%%!$%+e1e%t' l!!3i%( f!& (!! !& )a %e2'0 A' 1a%a(e&' te% t! a5!i
'e%i%( a %e(ati5e 'i(%al t! t#e 1a&3et a)!$t t#e f$t$&e ,&!',e+t' !f t#ei& fi&1" t#i' al'!
te%' t! lea t! a i5ie% ,!li+* !f a 'tea*" (&a$all* i%+&ea'i%( ,a*1e%t0
- B -
INDEX
S0N!6 7ONTENTS PA:E NO0
C0APTER12 213
? INTRODU7TION
S+!,e !f t#e St$*
O)-e+ti5e' !f t#e St$*
Met#!!l!(* !f t#e St$*
Li1itati!%' !f t#e St$*
C0APTER14 5167
? RECIEW OF LITERATURE
C0APTER16 68188
? INDUSTRD PROFILE E
? 7OMPAND PROFILE
C0APTER17 89196
? DATA ANALDSIS AND INTERPRETATION
C0APTER18 97193
? FINDIN:S
? SU::ESTIONS
? BIBLO:RAPHD
- @ -
C0APTER1I
INTRODUCTION
- F -
INTRODUCTION
T#e te&1 Di5ie% &efe&' t! t#at ,a&t !f t#e ,&!fit' !f a +!1,a%* 2#i+# i' i't&i)$te
a1!%('t it' '#a&e#!le&'0 It 1a* t#e&ef!&e )e efi%e a' t#e &et$&% t#at a '#a&e#!le& (et'
f&!1 t#e +!1,a%*" !$t !f it' ,&!fit'" !% #i' '#a&e #!li%('0 .A++!&i%( t! t#e I%'tit$te !f
7#a&te A++!$%t' !f I%ia/ i5ie% i' a .Di't&i)$ti!% t! '#a&e#!le& !$t !f ,&!fit' !&
&e'e&5e' a5aila)le f!& t#i' ,$&,!'e/
T#e Di5ie% ,!li+* #a' t#e effe+t !f i5ii%( it' %et ea&%i%(' i%t! t2! Pa&t'6 Retai%e
ea&%i%(' a% i5ie%'0 T#e &etai%e ea&%i%(' ,&!5ie f$%' t2! fi%a%+e t#e l!%(-te&1
(&!2t#0 It i' t#e 1!'t 'i(%ifi+a%t '!$&+e !f fi%a%+i%( a fi&1G' i%5e't1e%t i% ,&a+ti+e0 A
fi&1" 2#i+# i%te%' t! ,a* i5ie%' a% al'! %ee' f$%' t! fi%a%+e it' i%5e't1e%t
!,,!&t$%itie'" 2ill #a5e t! $'e e8te&%al '!$&+e' !f fi%a%+e0 Di5ie% ,!li+* !f t#e fi&10
T#$' #a' it' effe+t !% )!t# t#e l!%(-te&1 fi%a%+i%( a% t#e 2ealt# !f '#a&e#!le&'0 T#e
1!e&ate 5ie2" 2#i+# a''e&t' t#at )e+a$'e !f t#e i%f!&1ati!% 5al$e !f i5ie%'" '!1e
i5ie%' '#!$l )e ,ai a' it 1a* #a5e fa5!&a)le affe+t !% t#e 5al$e !f t#e '#a&e0
T#e t#e!&* !f e1,i&i+al e5ie%+e a)!$t t#e i5ie% ,!li+* !e' %!t 1atte& if 2e
a''$1e a &eal 2!&l 2it# ,e&fe+t +a,ital 1a&3et' a% %! ta8e'0 T#e 'e+!% t#e!&* !f
i5ie% ,!li+* i' t#at t#e&e 2ill efi%itel* )e l!2 a% #i(# ,a*!$t +lie%t' )e+a$'e !f t#e
iffe&e%tial ,e&'!%al ta8e'0 T#e 1a-!&it* !f t#e #!le&' !f t#i' 5ie2 al'! '#!2 t#at
)ala%+e" t#e&e 2ill )e ,&e,!%e&!$' l!2 ,a*!$t +lie%t' )e+a$'e !f l!2 +a,ital (ai% ta8e'0
T#e t#i& 5ie2 a&($e' t#at t#e&e !e' e8i't a% !,ti1$1 i5ie% ,!li+*0 A% !,ti1$1
i5ie% ,!li+* i' -$'tifie i% te&1' !f t#e i%f!&1ati!% i% a(e%+* +!'t'0
- H -
NEED :OR T0E STUD;<
T#e ,&i%+i,al !)-e+ti5e !f +!&,!&ate fi%a%+ial 1a%a(e1e%t i' t! 1a8i1i9e t#e 1a&3et
5al$e !f t#e eA$it* '#a&e'0 He%+e t#e 3e* A$e'ti!% !f i%te&e't t! $' i% t#i' 't$* i'" .W#at
i' t#e &elati!%'#i, )et2ee% i5ie% ,!li+* a% 1a&3et ,&i+e !f eA$it* '#a&e'I/
M!'t !f t#e i'+$''i!% !% i5ie% !f i5ie% ,!li+* a% fi&1 5al$e a''$1e' t#at t#e
i%5e't1e%t e+i'i!% !f a fi&1 i' i%e,e%e%t !f it' i5ie% e+i'i!%0 T#e %ee f!& t#i'
't$* a&i'e f&!1 t#e a)!5e &ai'e A$e'ti!% a% t#e 1!'t +!%t&!5e&'ial a% $%&e'!l5e
!$)t' a)!$t t#e &ele5a%+e !f i&&ele5a%+e !f t#e i5ie% ,!li+*0
- ? -
SCOPE O: T0E STUD;<
I%5e't1e%t De+i'i!% I%5e't1e%t e+i'i!% &elate' t! 'ele+ti!%' !f a''et i% 2#i+# f$%' 2ill
)e i%5e'te )* a fi&10 T#e a''et t#at +a% )e a+A$i&e )* a fi&1 1a* )e l!%( te&1 a''et
a% '#!&t te&1 a''et0 I%5e't1e%t De+i'i!% 2it# &e(a& t! l!%( te&1 a''et' i' +alle +a,ital
)$(eti%(0 De+i'i!% 2it# &e(a& t! '#!&t te&1 !& +$&&e%t a''et' i' +alle 2!&3i%( +a,ital
1a%a(e1e%t0
Di5ie% De+i'i!% A fi&1 i't&i)$te' all ,&!fit' !& &etai% t#e1 !& i't&i)$te a ,!&ti!% a%
&etai% t#e )ala%+e 2it# it0 W#i+# +!$&'e '#!$l )e all!2eI T#e e+i'i!% e,e%' $,!%
t#e ,&efe&e%+e !f t#e '#a&e#!le&' a% i%5e't1e%t !,,!&t$%itie' a5aila)le t! t#e fi&10
Di5ie% De+i'i!% Di5ie% e+i'i!% #a' a 't&!%( i%fl$e%+e !% t#e 1a&3et ,&i9e !f t#e
'#a&e0 S! t#e i5ie% ,!li+* i' t! )e ete&1i%e i% te&1' !f it' i1,a+t !% '#a&e#!le&G'
5al$e0 T#e !,ti1$1 i5ie% ,!li+* i' !%e 2#i+# 1a8i1i9e' t#e 5al$e !f '#a&e' a%
2ealt# !f t#e '#a&e#!le&'0
Di5ie% De+i'i!% T#e fi%a%+ial 1a%a(e& '#!$l ete&1i%e t#e !,ti1$1 ,a* !$t &ati!
I0e0 t#e ,&!,!&ti!%' !f %et ,&!fit t! )e ,ai !$t t! t#e '#a&e#!le&'0 T#e a)!5e t#&ee
e+i'i!%' a&e i%te& &elate0 T! #a5e a% !,ti1$1 fi%a%+ial e+i'i!% t#e t#&ee '#!$l )e
ta3e% -!i%tl*0
- > -
OBJECTI=Es O: T0E STUD;
T#e )a'i+ !)-e+ti5e !f t#i' 't$* i' a' f!ll!2'6
10 T! $%e&'ta% t#e i1,!&ta%+e !f t#e i5ie% e+i'i!% a% t#ei& i1,a+t !% t#e
fi&1G' +a,ital )$(eti%( e+i'i!%0
20 T! 3%!2 t#e 5a&i!$' i5ie% ,!li+ie' f!ll!2e )* t#e fi&10
<0 T! $%e&'ta% t#e t#e!&eti+al )a+3&!, !f t#e 5a&i!$' i5ie t#e!&ie'0
B0 T! +!1,a&e t#e 5a&i!$' t#e!&ie' !f i5ie% 2it# &efe&e%+e t! t#ei& a''$1,ti!%'
a% +!%+l$'i!%'0
@0 T! 3%!2 2#et#e& t#e i5ie% e+i'i!%' #a5e a% i1,a+t !% t#e 1a&3et 5al$e !f
t#e fi&1G' eA$it*0
F0 T! 'ee t#e 5a&i!$' i5ie% ,!li+ie' !f t#e INDUSTRIAL 7REDIT AND
INCESTMENT 7ORPORATION OF INDIA (I7I7I)0
H0 T! e&i5e t#e e1,i&i+al e5ie%+e f!& t#e &ele5a%+e t#e!&ie' !f i5ie%'
WALTERGS MODEL AND :ORDONGS MODEL
- 10 -
IMPORTANCE O: T0E STUD;
T#e i5ie% ,!li+* !f a fi&1 ete&1i%e' 2#at ,&!,!&ti!% !f ea&%i%(' i' ,ai
t! '#a&e#!le&' )* t#e 2a* !f i5ie%' a% 2#at ,&!,!&ti!% i' ,l!$(#e )a+3 i% t#e fi&1
f!& &ei%5e't1e%t ,$&,!'e'0 If a fi&1J' +a,ital )$(eti%( e+i'i!% i' i%e,e%e%t !f it'
i5ie% !f it' i5ie% ,!li+*" a #i(#e& i5ie% ,a*1e%t 2ill e%tail a (&eate&
e,e%e%+e !% e8te&%al fi%a%+i%(0 O% t#e !t#e& #a%" if a fi&1G ' +a,ital )$(eti%(
e+i'i!% i' e,e%e%t !% it' i5ie% e+i'i!%" a #i(#e& ,a*1e%t 2ill +a$'e '#&i%3a(e !f
it' +a,ital )$(et a% 5i+e 5e&'a0 I% '$+# a +a'e t#e i5ie% ,!li+* #a' a )ea&i%( !% t#e
+a,ital )$(eti%( e+i'i!%0
A%* fi&1" 2#et#e& a ,&!fit 1a3i%( !& %!%-,&!fit !&(a%i9ati!% #a' t! ta3e +e&tai%
+a,ital )$(eti%( e+i'i!%0 T#e i1,!&ta%+e a% '$)'eA$e%t i%i',e%'a)ilit* !f t#e +a,ital
)$(eti%( e+i'i!% #a' le t! t#e i1,!&ta%+e !f t#e i5ie% e+i'i!%' f!& t#e fi&1'0
- 11 -
RESEARC0 MET0DO&OG;<
0;POT0ESIS :OR T0E STUD;<
A ,&!,!'iti!% i' a 'tate1e%t a)!$t +!%+e,t' t#at 1a* )e -$(e a' t&$e
O& fal'e if it &efe&' t! !)'e&5a)le ,#e%!1e%a0 W#e% a ,&!,!'iti!% i' f!&1$late f!&
e1,i&i+al te'ti%(" 2e +all it a #*,!t#e'i'0 H*,!t#e'e' #a5e al'! )ee% e'+&i)e a'
'tate1e%t' i% 2#i+# 2e a''i(% 5a&ia)le' t! +a'e'0 A +a'e i efi%e i% t#i' 'e%'e a' t#e
e%tit* !& t#e t#i%( t#e #*,!t#e'i'0 Tal3' a)!$t T#e 5a&ia)le a&e t#e +#a&a+te&i'ti+" t&ait"
!& att&i)$te t#at" i% t#e #*,!t#e'i'" a&e i1,$te t! t#e +a'e0 I% &e'ea&+#" a #*,!t#e'i'
'e&5e' 'e5e&al i1,!&ta%t f$%+ti!%'0 T#e 1!'t i1,!&ta%t i' t#at it ($ie' t#e i&e+ti!%'
!f t#e 't$*0 It efi%e' fa+t' t#at a&e &ele5a%t a% t#!'e t#at a&e %!t6 i% !i%( '!" it
'$((e't' 2#i+# f!&1 !f &e'ea&+# e'i(% i' li3el* t! )e 1!'t i1,!&ta%t0 A fi%al &!le !f
t#e #*,!t#e'i' i' t! ,&!5ie a f&a1e2!&3 f!& !&(a%i9i%( t#e +!%+l$'i!%' !f t#at &e'$lt0
I% +la''i+al te't' !f 'i(%ifi+a%+e t2! 3i%' !f #*,!t#e'e' a&e $'e0 T#e %$ll
#*,!t#e'i'" 2#i+# i' a 'tate1e%t t#at t#e*G&e %! iffe&e%+e" e8i't' )et2ee% t#e
,a&a1ete& a% t#e 'tati'ti+ )ei%( +!1,a&e t! it0 A 'e+!% !& alte&%ati5e #*,!t#e'i' i'
t#e l!(i+al !,,!'ite !f t#e %$ll #*,!t#e'i'0
T#e %$ll #*,!t#e'i' i% t#i' 't$* i' a' f!ll!2i%(6
JT#e i5ie% e+i'i!%' a&e &ele5a%t t! t#e +a,ital )$(eti%( e+i'i!%' !f
t#e fi&1G' )el!%(i%( t! t#e +e1e%t i%$'t&* a% t#e i% t$&% effe+t t#e 1a&3et 5al$e !f
t#e fi&1'G eA$it*0
T! ,&!5e t#i' #*,!t#e'i' 2e '#all t&* t! ,&!5e t#e t2! t#e!&ie' !f &ele5a%+e
!f i5ie%-Walte&G' 1!el a% :!&!%G' 1!el
T#e alte&%ate #*,!t#e'i' i% t#i' +a'e '#all )e a' fall!2'6
T#e i5ie% e+i'i!%' a&e i&&ele5a%t t! +a,ital )$(eti%( e+i'i!%' !f t#e fi&1
)el!%(i%( t! t#e INDUSTRIAL 7REDIT AND INCESTMENT 7ORPORATION OF
INDIA (I7I7I) a% t#e* i% t$&% #a5e %! effe+t !% t#e 1a&3et 5al$e !f t#e fi&1 eA$it*0
SAMP&E O: T0E STUD;<
- 12 -
A 'a1,le i' a ,a&t !f t#e ta&(et ,!,$lati!%" +a&ef$ll* 'ele+te t! &e,&e'e%t t#at
,!,$lati!%0 W#e% &e'ea&+#e&' $%e&ta3e 'a1,li%( 't$ie'" t#e* a&e i%te&e'te i%
e'ti1ati%( !%e !& 1!&e ,!,$lati!% 5al$e' a%K !& te'ti%( !%e !& 1!&e 'tati'ti+al
#*,!t#e'i'0
T#e 'a1,le !f !$& 't$* +!%'i't' !f t#e fi%a%+ial ata !f INDUSTRIAL 7REDIT
AND INCESTMENT 7ORPORATION OF INDIA (I7I7I) f!& t#e ,a't fi5e fi%a%+ial
*ea&'0
DESIGN AND MET0ODO&OG;
Data+ase for t,e Stud#<
T#e '!$&+e' !f i%f!&1ati!% a&e +la''ifie t! t2!-,&i1a&* ata a% 'e+!%a&* ata0
T#e ata +!lle+te )* t#e &e'ea&+#e& a% a(e%t 3%!2% t! t#e &e'ea&+#e&" e',e+iall* t!
a%'2e& t#e &e'ea&+# A$e'ti!%" i' 3%!2% a' t#e ,&i1a&* ata0 St$ie' 1ae )* !t#e&' f!&
t#ei& !2% ,$&,!'e' &e,&e'e%t 'e+!%a&* ata t! t#e &e'ea&+#e&0
Se+!%a&* '!$&+e' +a% $'$all* )e f!$% 1!&e A$i+3l* a% +#ea,l* t#a% ,&i1a&* ata
e',e+iall* 2#e% %ati!%al a% i%te&%ati!%al 'tati'ti+' a&e %eee0 Si1ila&l*" ata a)!$t
i'ta%t ,la+e' !fte% +a% )e +!lle+te 1!&e +#ea,l* t#&!$(# 'e+!%a&* '!$&+e'0
T#e ata $'e f!& t#i' 't$* i' 1!'tl* 'e+!%a&* ata0 T#e i%f!&1ati!% &e(a&i%( t#e
fi%a%+ial ata !f t#e ,a't fi5e *ea&' #a' )ee% +!lle+te f&!1 t#e 5a&i!$' 2e)'ite li3e t#e
i%iai%f!li%e0+!1" t#e 2e) ,!&tal' !f t#e &e',e+ti5e +!1,a%* a% !t#e& &elate 'ite'0
Period of t,e stud#
T#e ,e&i! !f a%* &e'ea&+# i' t#e ,e&i! 2#i+# t#e ata #a' )ee% +!lle+te a% a%al*9e0
T#e ,e&i! !f t#i' 't$* #a' )ee% li1ite t! fi5e fi%a%+ial *ea&' 'ta&ti%( f&!1 01-0B-200H
t! <1-0<-20110
- 1< -
Samp-in/ Desi/n<
A 5a&iet* !f 'a1,li%( te+#%iA$e' i' a5aila)le0 T#e !%e 'ele+te e,e%' !% t#e
&eA$i&e1e%t' !f t#e ,&!-e+t a% it' !)-e+ti5e'0 T#e 5a&i!$' 1et#!' !f 'a1,li%( #a5e
)ee% +la''ifie )a'i%( !% t#e &e,&e'e%tati!% L ,&!)a)ilit* !& %!% ,&!)a)ilit* a% !%
ele1e%t 'ele+ti!%-&e't&i+te0
T#e 'a1,li%( te+#%iA$e 'ele+te f!& +!%$+ti%( t#i' 't$* i' -$(1e%t 'a1,li%(0 T#i' i'
a &e't&i+te a% %!%- ,&!)a)ili'ti+ 1et#! !f 'a1,li%(M 2#e&e t#e 'a1,le +!%'i'ti%( !f
!%e +!1,a%* #a' )ee% 'ele+te !% )a'i' !f t#e ,a't i5ie% ,a*1e%t 1ae )* t#e
+!1,a%*0
Too-s of Co--e(tin/ Data <
T#e&e a&e 5a&i!$' 2a*' !f +!lle+ti%( t#e ata0 S!1e !f t#e 1!'t +!11!%l* $'e
!%e' a&e tele,#!%e i%te&5ie2" ,e&'!%al i%te&5ie2 a%" A$e'ti!%%ai&e a1i%i'te&i%(0 T#e'e
a&e )a'i+all* t#e 1et#!' f!& +!lle+ti%( t#e ,&i1a&* ata t#e ata &eA$i&e f!& +!%$+ti%(
t#i' 't$* it #a' )ee% +!lle+te f&!1 t#e 5a&i!$' 2e) ,!&tal' a' t#e ata i' )a'i+all*
'e+!%a&* i% %at$&e0
- 1B -
&IMITATIONS<
E5e&* &e'ea&+# +!%$+te #a' +e&tai% li1itati!%'0 T#e'e a&i'e $e t! t#e 1et#! !f
'a1,li%( $'e" t#e 1et#! !f ata +!llati!% $'e a% t#e '!$&+e !f t#e ata a,a&t f&!1
1a%* !t#e& t#i%('0 T#e li1itati!%' !f t#i' 't$* a&e a' f!ll!2'6
T#e ata +!lle+te i' !f 'e+!%a&* %at$&e a% #e%+e it i' iffi+$lt t! a'+e&tai% t#e
&elia)ilit* !f t#e ata0
a) T#e '+!,e !f t#e 't$* #a' )ee% li1ite t! t#e i1,a+t !f t#e i5ie% !%
t#e 1a&3et 5al$e !f t#e fi&1G' eA$it*0 Ot#e&' fa+t!&' affe+ti%( t#e fi&1G'
1a&3et 5al$e #a5e )ee% a''$1e t! #a5e &e1ai%e $%+#a%(e0
)) T#e ,e&i! !f t#e 't$* #a' )ee% li1ite t! !%l* fi5e *ea&'0
+) T#e 1et#! !f 'a1,li%( $'e i' J-$(1e%t 'a1,li%(G #e%+e t#e +#!i+e !f
t#e 'a1,le #a' )ee% left e%ti&el* t! t#e +#!i+e !f t#e &e'ea&+#e&0 T#i' #a'
le t! '!1e a1!$%t )ia' )ei%( i%t&!$+e i%t! t#e &e'ea&+# ,&!+e''0
- 1@ -
C0APTER1II
RE=IE* O: &ITERATURE
DI=IDEND DECISIONS1 T0EORITICA& :RAME *OR)S
DI=IDEND PRACTICES AND MODE&S A CONCEPTUA& :RAME
*OR)<
- 1F -
Di5ie% &efe&' t! t#at ,!&ti!% !f a fi&1G' %et ea&%i%('" 2#i+# a&e ,ai !$t t! t#e
'#a&e#!le&'0 O$& f!+$' #e&e i' !% i5ie%' ,ai t! t#e !&i%a&* '#a&e#!le&' )e+a$'e
#!le&' !f ,&efe&e%+e '#a&e' a&e e%title t! a 'ti,$late &ate !f i5ie%0 M!&e!5e&" t#e
i'+$''i!% i' &ele5a%t t! 2iel* #el ,$)li+ li1ite +!1,a%ie'" a' t#e i5ie% i''$e !e'
%!t ,!'e a 1a-!& ,&!)le1 f!& +l!'el* #el ,&i5ate li1ite +!1,a%ie'" 'i%+e i5ie%' a&e
e't&!*e !$t !f t#e ,&!fit'" t#e alte&%ati5e t! t#e ,a*1e%t !f i5ie%' i' t#e &ete%ti!% !f
ea&%i%( ,&!fit'0 T#e &etai%e ea&%i%( +!%'tit$te' a% a++e''i)le i1,!&ta%t '!$&+e a%
fi%a%+i%( t#e i%5e't1e%t &eA$i&e1e%t' !f fi&1'0 T#e&e i'" t#$' a t*,e !f i%5e&'e
&elati!%'#i, )et2ee% &etai%e ea&%i%(' a% +a'# i5ie%'6 la&(e& &ete%ti!%'" le''e&
i5ie%' '1alle& &ete%ti!%'" la&(e& i5ie%'0 T#$'" t#e alte&%ati5e $'e' !f t#e %!t
ea&%i%('-i5ie%' a% &etai%e ea&%i%(' a&e +!1,etiti5e a% +!%fli+ti%(0
A 1a-!& e+i'i!% !f fi%a%+ial 1a%a(e1e%t i' t#e i5ie% e+i'i!% i% t#e 'e%'e
t#at t#e fi&1 #a' t! +#!!'e )et2ee% i't&i)$ti%( t#e ,&!fit' t! t#e '#a&e#!le&' a%
,l$((i%( t#e1 )a+3 i%t! t#e )$'i%e''0 T#e +#!i+e 2!$l !)5i!$'l* #i%(e !% t#e effe+t !f
t#e e+i'i!% !% t#e 1a8i1i9ati!%' !f '#a&e#!le&' 2ealt#0 :i5e% t#e !)-e+ti5e !f
fi%a%+ial 1a%a(e1e%t !f 1a8i1i9i%( ,&e'e%t 5al$e'" t#e fi&1 '#!$l )e ($ie )* t#e
+!%'ie&ati!%' a' t! 2#i+# alte&%ati5e $'e i' +!%'i'te%t 2it# t#e (!al !f 2ealt#
1a8i1i9ati!%0 T#at i'" t#e fi&1 2!$l )e 2ell a5i'e t! $'e t#e %et ,&!fit' f!& ,a*i%(
i5ie%' t! t#e '#a&e#!le&' if t#at ,a*1e%t 2ill lea t! t#e 1a8i1i9ati!% !f 2ealt# !f
t#e !2%e&'0 If %!t" t#e fi&1 '#!$l &at#e& &etai% t#e1e t! fi%a%+e i%5e't1e%t
,&!(&a11e&'0 T#e &elati!%'#i, )et2ee% i5ie%' a% 5al$e !f t#e fi&1 '#!$l t#e&ef!&e"
)e t#e e+i'i!% +&ite&i!%0
T#e&e a&e #!2e5e&" +!%fli+ti%( !,i%i!%' &e(a&i%( t#e i1,a+t !f i5ie%' !% t#e
5al$ati!% !f a fi&10 A++!&i%( t! !%e '+#!!l !f t#!$(#t" i5ie%' a&e i&&ele5a%t '! t#at
t#e a1!$%t !f i5ie%' ,ai #a' %! effe+t !% t#e" 5al$ati!% !f a fi&10
O% t#e !t#e& #a%" +e&tai% t#e!&ie' +!%'ie& t#e i5ie% e+i'i!% a' &ele5a%t t!
t#e 5al$e !f t#e fi&1 1ea'$&e i% te&1' f t#e 1a&3et ,&i+e !f t#e '#a&e'0
T#e ,$&,!'e !f t#$' &e,!&t i'" t#e&ef!&e" t! ,&e'e%t a +&iti+al a%al*'i' !f '!1e
i1,!&ta%t t#e!&ie' &e,&e'e%ti%( t#e'e t2! '+#!!l' !f t#!$(#t 2it# a 5ie2 t! ill$'t&ati%(
- 1H -
t#e &elati!%'#i, )et2ee% i5ie% ,!li+* a% t#e 5al$ati!% !f a fi&10 T#e t#e!&ie'" 2#i+#
'$,,!&t t#e &ele5a%+e #*,!t#e'i'" a&e e8a1i%e i% t#e &e,!&t0
O"er"ie. of Di"idend De(ision
Di"idend de(ision &efe&' t! t#e ,!li+* t#at t#e 1a%a(e1e%t f!&1$late' i% &e(a& t!
ea&%i%(' f!& i't&i)$ti!% a' i5ie%' a1!%( '#a&e#!le&'0
Di"idend de(ision ete&1i%e' t#e i5i'i!% !f ea&%i%(' )et2ee% ,a*1e%t' t! '#a&e#!le&'
a% &etai%e ea&%i%('
T,e Di"idend De(ision" i% +!&,!&ate fi%a%+e" i' a e+i'i!% 1ae )* t#e i&e+t!&' !f a
+!1,a%* a)!$t t#e a1!$%t a% ti1i%( !f a%* +a'# ,a*1e%t' 1ae t! t#e +!1,a%*;'
't!+3#!le&'0 T,e Di"idend De(ision i' a% i1,!&ta%t ,a&t !f t#e ,&e'e%t a* +!&,!&ate
2!&l0 T#e Di"idend de(ision i' a% i1,!&ta%t !%e f!& t#e fi&1 a' it 1a* i%fl$e%+e it'
+a,ital 't&$+t$&e a% 't!+3 ,&i+e0 I% aiti!%" t#e Di"idend de(ision 1a* ete&1i%e t#e
a1!$%t !f ta8ati!% t#at 't!+3#!le&' ,a*0
:a(tors inf-uen(in/ Di"idend De(isions
T#e&e a&e +e&tai% i''$e' t#at a&e ta3e% i%t! a++!$%t )* t#e i&e+t!&' 2#ile 1a3i%( t#e
di"idend de(isions<
• F&ee 7a'# Fl!2
• Si(%ali%( !f I%f!&1ati!%
• 7lie%t' !f Di5ie%'
:ree Cas, :-o. T,eor#
T#e f&ee +a'# fl!2 t#e!&* i' !%e !f t#e ,&i1e fa+t!&' !f +!%'ie&ati!% 2#e% a di"idend
de(ision i' ta3e%0 A' ,e& t#i' t#e!&* t#e +!1,a%ie' ,&!5ie t#e '#a&e#!le&' 2it# t#e
1!%e* t#at i' left afte& i%5e'ti%( i% all t#e ,&!-e+t' t#at #a5e a ,!'iti5e %et ,&e'e%t 5al$e0
Si/na-in/ of Information
It #a' )ee% !)'e&5e t#at t#e i%+&ea'e !f t#e 2!&t# !f 't!+3' i% t#e '#a&e 1a&3et i'
i&e+tl* ,&!,!&ti!%al t! t#e i5ie% i%f!&1ati!% t#at i' a5aila)le i% t#e 1a&3et a)!$t t#e
+!1,a%*0 W#e%e5e& a +!1,a%* a%%!$%+e' t#at it 2!$l ,&!5ie 1!&e i5ie%' t! it'
'#a&e#!le&'" t#e ,&i+e !f t#e '#a&e' i%+&ea'e'0
- 1? -
C-ients of Di"idends
W#ile ta3i%( di"idend de(isions t#e i&e+t!&' #a5e t! )e a2a&e !f t#e %ee' !f t#e
5a&i!$' t*,e' !f '#a&e#!le&' a' a ,a&ti+$la& t*,e !f i't&i)$ti!% !f '#a&e' 1a* %!t )e
'$ita)le f!& a +e&tai% (&!$, !f '#a&e#!le&'0
It #a' )ee% 'ee% t#at t#e +!1,a%ie' #a5e )ee% 1a3i%( e+e%t ,&!fit' a% al'! &e$+e
t#ei& e8,e%it$&e )* ,&!5ii%( i5ie%' t! !%l* a ,a&ti+$la& (&!$, !f '#a&e#!le&'0
r
more information p-ease refer to t,e fo--o.in/ -in>s<
rms of Di"idend
• S(rip Di"idend- A% $%$'$al t*,e !f i5ie% i%5!l5i%( t#e i't&i)$ti!% !f
,&!1i''!&* %!te' t#at +all' f!& '!1e t*,e !f ,a*1e%t at a f$t$&e ate0
• Bond Di"idend- A t*,e !f lia)ilit* i5ie% ,ai i% t#e i5ie% ,a*e&;' )!%'0
• Propert# Di"idend- A 't!+3#!le& i5ie% ,ai i% a f!&1 !t#e& t#a% +a'#" '+&i,"
!& t#e fi&1;' !2% 't!+30
• Cas, Di"idend- A i5ie% ,ai i% +a'# t! a +!1,a%*;' '#a&e#!le&' " %!&1all*
!$t !f t#e it' +$&&e%t ea&%i%(' !& a++$1$late ,&!fit'
• De+enture Di"idend
• Optiona- Di"idend- Di5ie% 2#i+# t#e '#a&e#!le& +a% +#!!'e t! ta3e a' eit#e&
+a'# !& 't!+30
Si/nifi(an(e of di"idend de(ision
• T#e fi&1 #a' t! )ala%+e )et2ee% t#e (&!2t# !f t#e +!1,a%* a% t#e i't&i)$ti!%
t! t#e '#a&e#!le&'
• It #a' a +&iti+al i%fl$e%+e !% t#e 5al$e !f t#e fi&1
• It #a' t! al'! t! 't&i3e a )ala%+e )et2ee% t#e l!%( te&1 fi%a%+i%(
e+i'i!%( +!1,a%* i't&i)$ti%( i5ie% i% t#e a)'e%+e !f a%* i%5e't1e%t
!,,!&t$%it*) a% t#e 2ealt# 1a8i1i9ati!%
- 1> -
• T#e 1a&3et ,&i+e (et' affe+te if i5ie%' ,ai a&e le''0
• Retai%e ea&%i%(' #el,' t#e fi&1 t! +!%+e%t&ate !% t#e (&!2t#" e8,a%'i!% a%
1!e&%i9ati!% !f t#e fi&1
• T! '$1 $," it t! a la&(e e8te%t affe+t' t#e fi%a%+ial 't&$+t$&e" fl!2 !f f$%'"
+!&,!&ate liA$iit*" 't!+3 ,&i+e'" a% (&!2t# !f t#e +!1,a%* a% i%5e't!&;'
'ati'fa+ti!%0
:a(tors inf-uen(in/ t,e di"idend de(ision
• LiA$iit* !f f$%'
• Sta)ilit* !f ea&%i%('
• Fi%a%+i%( ,!li+* !f t#e fi&1
• Di5ie% ,!li+* !f +!1,etiti5e fi&1'
• Pa't i5ie% &ate'
• De)t !)li(ati!%
• A)ilit* t! )!&&!2
• :&!2t# %ee' !f t#e +!1,a%*
• P&!fit &ate'
• Le(al &eA$i&e1e%t'
• P!li+* !f +!%t&!l
• 7!&,!&ate ta8ati!% ,!li+*
• Ta8 ,!'iti!% !f '#a&e#!le&'
• Effe+t !f t&ae ,!li+*
• Attit$e !f t#e i%5e't!& (&!$,
- 20 -
Residua- di"idend po-i(#
i' $'e )* +!1,a%ie'" 2#i+# fi%a%+e %e2 ,&!-e+t' t#&!$(# eA$it* t#at i' i%te&%all*
(e%e&ate0 I% t#i' ,!li+*" t#e i5ie% ,a*1e%t' a&e 1ae f&!1 t#e eA$it* t#at &e1ai%'
afte& all t#e ,&!-e+t +a,ital %ee' a&e 1et0 T#i' eA$it* i' al'! 3%!2% a' &e'i$al eA$it*0 It
i' a5i'a)le t#at t#!'e +!1,a%ie'" 2#i+# f!ll!2 t#e po-i(# of residua- di"idend" '#!$l
1ai%tai% a )ala%+e e)tKeA$it* &ati!0 If a +e&tai% a1!$%t !f 1!%e* i' left afte& all f!&1'
!f )$'i%e'' e8,e%'e' t#e% t#e +!&,!&ate #!$'e' i't&i)$te t#at 1!%e* a1!%( it'
'#a&e#!le&' a' i5ie%'0
T#e +!1,a%ie' t#at f!ll!2 a &e'i$al i5ie% ,!li+* ,a* i5ie%' !%l* if !t#e&
'ati'fa+t!&* !,,!&t$%itie' a% '!$&+e' !f i%5e't1e%t !f f$%' a&e %!t a5aila)le0 T#e 1ai%
a5a%ta(e !f a residua- di"idend po-i(# i' t#at it &e$+e' t! t#e i''$e' !f %e2 't!+3' a%
fl!tati!% +!'t'0 T#e &a2)a+3 !f t#i' ,!li+* 1ai%l* lie' i% t#e fa+t' t#at '$+# a ,!li+*
!e' %!t #a5e a%* ',e+ifi+ ta&(et +lie%t'0 M!&e!5e&" it i%5!l5e' t#e &i'3 !f 5a&ia)le
i5ie%'0 T#i' ,!li+* #el,' t! 'et a ta&(et ,a*!$t0
Bef!&e !,ti%( f!& t#e po-i(# of residua- di"idend" t#e ea&%i%(' t#at %ee t! )e &etai%e t!
)a+3 $, t#e +a,ital )$(et #a5e t! )e +al+$late0 T#e%" t#e ea&%i%(' t#at a&e left +a% )e
,ai !$t i% t#e f!&1 !f i5ie%' t! t#e '#a&e#!le&'0 T#$'" t#e i''$e !f %e2 eA$itie' (et'
+!%'ie&a)l* &e$+e a% t#i' i% t$&% lea' t! &e$+ti!% i% 'i(%ali%( a% fl!tati!% +!'t'0
T#e a1!$%t ,a*a)le a' i5ie% fl$+t$ate' #ea5il* if t#i' ,!li+* i' ,&a+ti+e0 W#e% t#e
t!tal 5al$e !f ,&!$+ti5e i%5e't1e%t' i' i% e8+e'' !f t#e t!tal 5al$e !f &etai%e ea&%i%('
a% '$'tai%a)le e)t" t#e +!1,a%ie' feel t#e $&(e t! e8,l!it t#e !,,!&t$%itie' t#$' +&eate
t! ,!'t,!%e a fe2 i%5e't1e%t '+#e1e'0
Ca-(u-ation of Residua- di"idend po-i(#<
- 21 -
Let;' '$,,!'e t#at a +!1,a%* %a1e 7B7 #a' &e+e%tl* ea&%e N1"000 a% #a' a 't&i+t
,!li+* t! 1ai%tai% a e)tKeA$it* &ati! !f 00@ (!%e ,a&t e)t t! e5e&* t2! ,a&t' !f eA$it*)0
N!2" '$,,!'e t#i' +!1,a%* #a' a ,&!-e+t 2it# a +a,ital &eA$i&e1e%t !f N>000 I% !&e& t!
1ai%tai% t#e e)tKeA$it* &ati! !f 00@" 7B7 2!$l #a5e t! ,a* f!& !%e-t#i& !f t#i' ,&!-e+t
)* $'i%( e)t (N<00) a% t2!-t#i&' (NF00) )* $'i%( eA$it*0 I% !t#e& 2!&'" t#e +!1,a%*
2!$l #a5e t! )!&&!2 N<00 a% $'e NF00 !f it' eA$it* t! 1ai%tai% t#e 00@ &ati!" lea5i%( a
&e'i$al a1!$%t !f NB00 (N1"000 - NF00) f!& i5ie%'0 O% t#e !t#e& #a%" if t#e ,&!-e+t
#a a +a,ital &eA$i&e1e%t !f N1"@00" t#e e)t &eA$i&e1e%t 2!$l )e N@00 a% t#e eA$it*
&eA$i&e1e%t 2!$l )e N1"000" lea5i%( 9e&! (N1"000 - N1"000) f!& i5ie%'0 If a%* ,&!-e+t
&eA$i&e a% eA$it* ,!&ti!% t#at 2a' (&eate& t#a% t#e +!1,a%*;' a5aila)le le5el'" t#e
+!1,a%* 2!$l i''$e %e2 't!+3
Ar/uments a/ainst Di"idends
Fi&'t" '!1e fi%a%+ial a%al*'t' feel t#at t#e +!%'ie&ati!% !f a i5ie% ,!li+* i' i&&ele5a%t
)e+a$'e i%5e't!&' #a5e t#e a)ilit* t! +&eate O#!1e1aeO i5ie%'0 T#e'e a%al*'t' +lai1
t#at t#i' i%+!1e i' a+#ie5e )* i%i5i$al' a-$'ti%( t#ei& ,e&'!%al ,!&tf!li!' t! &efle+t
t#ei& !2% ,&efe&e%+e'0 F!& e8a1,le" i%5e't!&' l!!3i%( f!& a 'tea* 't&ea1 !f i%+!1e a&e
1!&e li3el* t! i%5e't i% )!%' (i% 2#i+# i%te&e't ,a*1e%t' !%;t +#a%(e)" &at#e& t#a% a
i5ie%-,a*i%( 't!+3 (i% 2#i+# 5al$e +a% fl$+t$ate)0 Be+a$'e t#ei& i%te&e't ,a*1e%t'
2!%;t +#a%(e" t#!'e 2#! !2% )!%' !%;t +a&e a)!$t a ,a&ti+$la& +!1,a%*;' di"idend
po-i(#0
T#e 'e+!% a&($1e%t +lai1' t#at little t! %! i5ie% ,a*!$t i' 1!&e fa5!&a)le f!&
i%5e't!&'0 S$,,!&te&' !f t#i' ,!li+* ,!i%t !$t t#at ta8ati!% !% a i5ie% a&e #i(#e& t#a%
!% a +a,ital (ai%0 T#e a&($1e%t a(ai%'t i5ie%' i' )a'e !% t#e )elief t#at a fi&1 t#at
&ei%5e't' f$%' (&at#e& t#a% ,a*i%( t#e1 !$t a' i5ie%') 2ill i%+&ea'e t#e 5al$e !f t#e
fi&1 a' a 2#!le a% +!%'eA$e%tl* i%+&ea'e t#e 1a&3et 5al$e !f t#e 't!+30 A++!&i%( t! t#e
,&!,!%e%t' !f t#e %! di"idend po-i(#" a +!1,a%*;' alte&%ati5e' t! ,a*i%( !$t e8+e'' +a'#
a' i5ie%' a&e t#e f!ll!2i%(6 $%e&ta3i%( 1!&e ,&!-e+t'" &e,$&+#a'i%( t#e +!1,a%*;'
!2% '#a&e'" a+A$i&i%( %e2 +!1,a%ie' a% ,&!fita)le a''et'" a% &ei%5e'ti%( i% fi%a%+ial
a''et'
- 22 -
Ar/uments for Di"idends
I% !,,!'iti!% t! t#e'e t2! a&($1e%t' i' t#e iea t#at a #i(# di"idend pa#out i' i1,!&ta%t
f!& i%5e't!&' )e+a$'e i5ie%' ,&!5ie +e&tai%t* a)!$t t#e +!1,a%*;' fi%a%+ial 2ell-
)ei%(M i5ie%' a&e al'! att&a+ti5e f!& i%5e't!&' l!!3i%( t! 'e+$&e +$&&e%t i%+!1e0 I%
aiti!%" t#e&e a&e 1a%* e8a1,le' !f #!2 t#e e+&ea'e a% i%+&ea'e !f a i5ie%
i't&i)$ti!% +a% affe+t t#e ,&i+e !f a 'e+$&it*0 7!1,a%ie' t#at #a5e a l!%(-'ta%i%(
#i't!&* !f 'ta)le di"idend pa#outs 2!$l )e %e(ati5el* affe+te )* l!2e&i%( !& !1itti%(
i5ie% i't&i)$ti!%'M t#e'e +!1,a%ie' 2!$l )e ,!'iti5el* affe+te )* i%+&ea'i%(
i5ie% ,a*!$t' !& 1a3i%( aiti!%al ,a*!$t' !f t#e 'a1e i5ie%'0 F$&t#e&1!&e"
+!1,a%ie' 2it#!$t a i5ie% #i't!&* a&e (e%e&all* 5ie2e fa5!&a)l* 2#e% t#e* e+la&e
%e2 i5ie%'0
T#e residua- di"idend po-i(# i' 1!&e '$ita)le f!& t#e (!5e&%1e%t +!%+e&%' )e+a$'e t#e*
1ai%l* ai1 f!& +&eati!% !f 5al$e a% 1a8i1i9ati!% !f 2ealt# a% t#e&ef!&e t#e* #a5e t!
1a3e $'e !f e5e&* 5al$e ae i%5e't1e%t !,,!&t$%it* t#at +!1e' !% t#ei& 2a*0 A little
+#a%(e i% t#e )a'i+ ,!'t$late' !f t#e ,!li+* $'$all* !++$&' 2#e% it i' a,,lie t! t#e
(!5e&%1e%t 'e+t!& )e+a$'e it ta3e' i%t! it' ,$&5ie2 t#e (!5e&%1e%t;' li3i%( f!& i5ie%'
&at#e& t#a% +a,ital (ai%'0
T#e di"idend dis(ount mode- i' $'e f!& t#e ,$&,!'e !f eA$it* 5al$ati!%0 T#e&e a&e
iffe&e%t t*,e' !f i5ie% i'+!$%t 1!el a% all t#e'e 1!el' a&e 5e&* $'ef$l0 T#e
$'ef$l%e'' !f t#e DDM (i5ie% i'+!$%t 1!el) e,e%' !% t#e a,,li+ati!% !f t#e
'a1e0
A 'e%'iti5it* a%al*'i' !f t#e i5ie% i'+!$%t 1!el i' 5e&* %e+e''a&* )e+a$'e t#e 1!el
it'elf i' #i(#l* 'e%'iti5e t!2a&' t#e ,&e'$1,ti!%' &e(a&i%( t#e (&!2t# a% i'+!$%t
&ate'0
T#e i%5e't!& +a% )e )e%efite )* t#e 'e%'iti5it* a%al*'i' )e+a$'e t#i' ,a&ti+$la& a%al*'i'
+a% ,&!5ie a% iea a)!$t #!2 5a&i!$' ,&e'$1,ti!%' +a% +&eate iffe&e%t 5al$e'0 T#e
i5ie% i'+!$%t 1!el +!1,el' t#e i%5e't!& t! t#i%3 a)!$t iffe&e%t 'it$ati!%'
- 2< -
&e(a&i%( t#e 1a&3et ,&i+e !f t#e 't!+30
T#e i5ie% i'+!$%t 1!el i' $'e )* #$(e %$1)e& !f ,&!fe''i!%al' )e+a$'e t#e 1!el
i' a)le t! ill$'t&ate t#e iffe&e%+e )et2ee% &ealit* a% t#e!&ie' t#&!$(# iffe&e%t e8a1,le'0
B$t at t#e 'a1e ti1e it '#!$l al'! )e &e1e1)e&e t#at t#e&e a&e '!1e i1,!&ta%t fa+t!&'
li3e t#e &eali'ti+ t&a%'iti!% ,#a'e' a% '!1e !t#e&'" 2#i+# a&e 1i''i%( f&!1 t#e DDM0
T#e DDM %ee' 5a&i!$' ata t! )&i%( !$t t#e 5al$e !f a% eA$it*0 DPS(1)" 2#i+#
&e,&e'e%t' t#e a1!$%t !f e8,e+te i5ie%" i' 5e&* i1,!&ta%t f!& DDM0 T#e (&!2t# &ate
i% i5ie% i' al'! a% i1,!&ta%t fa+t!& i% t#e $'e !f i5ie% i'+!$%t 1!el0 A%!t#e&
i1,!&ta%t ata i' ;=';0 ;='; &e,&e'e%t' t#e e8,e+te &ate !f &et$&% a% t#i' +a% )e e'ti1ate
t#&!$(# t#e f!ll!2i%( f!&1$la6
Ri'3-f&ee &ate P (1a&3et &i'3 ,&e1i$1)Q Beta
T#e&e a&e 'e5e&al t*,e' !f i5ie% i'+!$%t 1!el0 F!ll!2i%( a&e t#e t2! 1!'t ,&efe&&e
t*,e' !f DDM6
• Sta+-e Mode-< A++!&i%( t! t#i' 1!el" 5al$e !f 't!+3 i' eA$al t! DPS(1) K =' -
(0 T#i' 1!el i' a,,&!,&iate f!& t#e fi&1' 2it# l!%( te&1 'tea* (&!2t#0 T#e'e
t*,e' !f fi&1' ,&ete% t! (&!2 'i1$lta%e!$'l* 2it# t#e l!%( te&1 %!1i%al
e5el!,1e%t &ate !f t#e e+!%!1*0
• T.o1Sta/e Mode-< T#i' ,a&ti+$la& 1!el t&ie' t! )&i%( !$t t#e iffe&e%+e )et2ee%
t#e t#e!&* a% t#e &ealit*0 It 'i1,l* ,&ete%' t#at t#e +!1,a%* 2!$l (! t#&!$(#
'e5e&al (!! a% )a ,e&i!'0 A++!&i%( t! t#i' 1!el" t#e +!1,a%* t#at i' (!i%(
t#&!$(# a #i(#-(&!2t# ,e&i! i' )!$% t! fa+e a e+li%e i% t#e (&!2t# &ate0 Afte&
t#at !2%fall t#e +!1,a%* i' e8,e+te t! e8,e&ie%+e a 'ta)le (&!2t# ,#a'e0
IRRE&E=ANCE O: DI=IDEDS<
MODIG&IANI AND MI&&ER MODE&<
- 2B -
T#e +&$8 !f t#e a&($1e%t '$,,!&ti%( t#e i&&ele5a%+e !f i5ie%' t! Cal$ati!% i' t#at t#e
i5ie% ,!li+* !f a fi&1 i' a ,a&t !f it' fi%a%+i%( e+i'i!%0 A' a ,a&t !f t#e fi%a%+i%(
e+i'i!%" t#e i5ie% ,!li+* !f t#e fi&1 i' a &e'i$al e+i'i!% a% i5ie%' a&e ,a''i5e
&e'i$al'
Cru! of t,e Ar/ument<
T#e +&$8 !f t#e MM ,!'iti!% !% t#e i&&ele5a%+e !f i5ie% i' t#e a&)it&a(e
a&($1e%t0 T#e a&)it&a(e ,&!+e''" i%5!l5e' a '2at#i%( a% )ala%+i%( !,e&ati!%0 I% !t#e&
2!&'" a&)it&a(e &efe&' t! e%te&i%( 'i1$lta%e!$'l* * i%t! t2! t&a%'a+ti!%' #e&e a&e t#e a+t'
!f ,a*i%( !$t i5ie%' a% &ai'i%( e8te&%al f$%' eit#e& t#&!$(# t#e 'ale !f %e2 '#a&e'
!& &ai'i%( aiti!%al l!a%'-t! fi%a%+e i%5e't1e%t ,&!(&a11e'0 A''$1e t#at a fi&1 #a'
'!1e i%5e't1e%t !,,!&t$%it*0
:i5e% it' i%5e't1e%t e+i'i!%" t#e fi&1 #a' t2! alte&%ati5e'6 (i) it +a% ,a''i+e&etai% i'
ea&%i%(' t! fi%a%+e t#e i%5e't1e%t ,&!(&a11eM (ii) !& i't&i)$te t#e ea&%i%(' t! #e
'#a&e#!le&' a' i5ie% a% &ai'e a% eA$al a1!$%t e8te&%all* t#&!$(# t#e 'ale !f %e2
'#a&e'K)!%' f!& t#e ,$&,!'e0 If t#e fi&1 'ele+t' t#e 'e+!% alte&%ati5e" a&)it&a(e ,&!+e''
i' i%5!l5e" i% t#at ,a*1e%t !f i5ie%' i' a''!+iate 2it# &ai'i%( f$%' t#&!$(# !t#e&
1ea%' !f fi%a%+i%(" t#e effe+t !f i5ie% ,a*1e%t !%
S#a&e#!le&'G 2ealt# 2ill )e e8a+tl* !ff'et )* t#e effe+t !f &ai'i%( aiti!%al '#a&e
+a,ital0
W#e% i5ie%' a&e ,ai t! t#e '#a&e#!le&'" t#e 1a&3et ,&i+e !f t#e '#a&e' 2ill
e+&ea'e0 W#at t#e i%5e't!&' a' a &e'$lt !f i%+&ea'e i5ie%' (ai% 2ill )e %e$t&ali9e
+!1,letel* 5ie t#e &e$+ti!% i% t#e te&1i%al 5al$e !f t#e '#a&e'0 T#e 1a&3et ,&i+e )ef!&e
a% afte& t#e ,a*1e%t !f i5ie% 2!$l )e ie%ti+al0 T#e i%5e't!&' a++!&i%( t!
M!i(lia%i a% Mille&" 2!$l" t#e&ef!&e" )e i%iffe&e%t )et2ee% i5ie% a% &ete%ti!% !f
ea&%i%('0 Si%+e t#e '#a&e#!le&' a&e i%iffe&e%t" t#e 2ealt# 2!$l %!t )e affe+t )* +$&&e%t
a% f$t$&e i5ie% e+i'i!%' !f t#e fi&10 It 2!$l e,e% e%ti&el* $,!% t#e e8,e+te
f$t$&e ea&%i%(' !f t#e fi&10
- 2@ -
T#e&e 2!$l )e %! iffe&e%+e t! t#e 5aliit* !f t#e 11 ,&e1i'e" if e8te&%al f$%' 2e&e
&ai'e i% t#e f!&1 !f e)t i%'tea !f eA$it* +a,ital0 T#i' i' )e+a$'e !f t#ei& i%iffe&e%+e
)et2ee% e)t a% eA$it* 2itt* &ete't t! le5e&a(e0 T#e +!'t !f +a,ital i' i%e,e%e%t !f
le5e&a(e a% t#e +!'t !f e)t i' t#e 'a1e a' t#e &eal +!'t !f eA$it*0
T#!'e i%5e't!&' a&e i%iffe&e%t )et2ee% i5ie% a% &etai%e ea&%i%(' i1,l* t#at t#e
i5ie% e+i'i!% i' i&&ele5a%t0 T#e a&)it&a(e ,&!+e'' al'! i1,lie' t#at t#e t!tal 1a&3et
5al$e ,l$' +$&&e%t i5ie%' !f t2! fi&1'" 2#i+# a&e ali3e i% all &e',e+t' e8+e,t DKP &ati!"
2ill )e ie%ti+al0 T#e i%i5i$al '#a&e#!le& +a% &etai% a% i%5e't #i' !2% ea&%i%(' a'
2eMM a' t#e fi&1 2!$l0 Wit# i5ie%' )ei%( i&&ele5a%t" a fi&1G' +!'t !f +a,ital 2!$l )e
i%e,e%e%t !f it' DKP &ati!0
Fi%all*" t#e a&)it&a(e ,&!+e'' 2ill e%'$&e t#at-$%e& +!%iti!%' !f $%+e&tai%t* al'! t#e
i5ie% ,!li+* 2!$l )e i&&ele5a%t0 W#e% t2! fi&1' a&e 'i1ila& i% &e',e+t !f )$'i%e''
&i'3" ,&!',e+ti5e f$t$&e ea&%i%(' a% i%5e't1e%t ,!li+ie'" t#e 1a&3et ,&i+e !f t#ei& '#a&e'
1$'t )e t#e 'a1e0 T#i'" 11 a&($e'" i' 2ealt# t! le'' 2ealt#0 Diffe&e%+e' i% +$&&e%t a%
f$t$&e i5ie% ,!li+ie' +a%%!t affe+t t#e 1a&3et 5al$e !f t#e t2! fi&1' a' t#e ,&e'e%t
5al$e !f ,&!',e+ti5e i5ie%' ,l$' te&1i%al 5al$e i' t#e 'a1e0
A Criti?ue<
M!i(lia%i a% Mille& a&($e t#at t#e i5ie% e+i'i!% !f t#e fi&1 i' i&&ele5a%t i%
t#e 'e%'e t#at t#e 5ale t#e fi&1 i' i%e,e%e%t !f it0 T#e +&$8 !f t#ei& a&($1e%t i' t#at t#e
i%5e't!&' a&e i%iffe&e%t )et2ee% i5ie% a% &ete%ti!% !f ea&%i%('0 T#i' i' 1ai%l*
)e+a$'e !f t#e )ala%+i%( %at$&e' i%te&%al fi%a%+i%( (&etai%e ea&%i%(') a% e8te&%al
fi%a%+i%( (&ai'i%( !f f$%' e8te&%all*) +!%'eA$e%t $,!% i't&i)$ti!% ea&%i%(' t! fi%a%+e
i%5e't1e%t ,&!(&a1G'0 W#et#e& t#e 11 #*,!t#e'e' ,&!5ie' a 'ati'fa+t!&* f&a1e2!&3 f!&
t#e t#e!&eti+al &elati!%'#i, )et2ee% i5ie% e+i'i!% a% 5al$ati!% 2ill e,e%" i% t#e
$lti1ate a%al*'i' !% 2#et#e& e8te&%al a% i%te&%al fi%a%+i%( &eall* )ala%+e ea+# !t#e&0
T#i' i% t$&%" e,e%' $,!% t#e +&iti+al a''$1,ti!%' 'ti,$late )* t#e10 T#ei& +!%+l$'i!%'"
it 1a* )e %!te" $%e& t#e &e't&i+ti5e a''$1,ti!%'" a l!(i+all* +!%'i'te%t a% i%t$iti5el*
a,,eali%(0 B$t t#e'e a''$1,ti!%' a&e $%&eali'ti+ a% $%te%a)le i% ,&a+ti+e A' a &e'$lt" t#e
- 2F -
+!%+l$'i!% t#at i5ie% ,a*1e%t a% !t#e& 1et#!' !f fi%a%+i%( e8a+tl* !ff'et ea+#
!t#e& a%" #e%+e" t#e i&&ele5a%+e !f i5ie%' i' %!t a ,&a+ti+al ,&!,!'iti!%G it i' 1e&el* !f
t#e!&eti+al &ele5a%+e0
T#e 5aliit* !f t#e MM A,,&!a+# i' !,e% t! A$e'ti!% !% t2! 7!$tt'6(i)
I1,e&fe+ti!% !f +a,ital 1a&3et" a% (ii) Re'!l$ti!% !f $%+e&tai%t*
Ma&3et I1,e&fe+ti!%6 M!i(lia%i a% Mille& a''$1e t#at +a,ital 1a&3et'
A&e ,e&fe+t0 T#i' i1,lie' t#at t#e&e a&e %! ta8e'M fl!tati!% +!'t' ! %!t e8i't a% t#e&e i'
a)'e%+e !f t&a%'a+ti!% +!'t'0 T#e'e a''$1,ti!%' ate $%te%a)le i% a+t$al 'it$ati!%'0
A% Ta! Effe(t<
A% a''$1,ti!% !f t#e 11 #*,!t#e'i' i' t#at t#e&e a&e %! ta8e'0 It i1,lie' t#at &ete%ti!% !f
ea&%i%(' (i%te&%al fi%a%+i%() a% ,a*1e%t !f i5ie%' (e8te&%al fi%a%+i%() a&e" f&!1 t#e
5ie2,!i%t !f la2 t&eat1e%t" !% a% eA$al f!!ti%( t#e i%5e't!&' 2!$l fi% )!t# f!&1' !f
fi%a%+i%( eA$all* e'i&a)le0 T#e ta8 lia)ilit* !f t#e i%5e't!&'" )&!al* ',ea3i%(" i' !f t2!
t*,e'6 (i) ta8 !% i5ie% i%+!1e" a% (ii0 +a,ital (ai%'0 W#ile t#e fi&'t t*,e !f ta8 i'
,a*a)le )* t#e i%5e't!&' 2#e% t#e fi&1 ,a*' i5ie%'" t#e +a,ital (ai%' ta8 i' &elate t!
&ete%ti!% !f ea&%i%('0 F&!1 a% !,e&ati!%al 5ie2,!i%t" +a,ital (ai%' ta8 i' (i) l!2e& t#e)e
t#e ta8 !& i5ie% i%+!1e a% (ii) it )e+!1e' ,a*a)le !%l* '#ee% '#a&e' a&e a+t$all*
'!l" t#a% i'" it i' a iffe&e till t#e a+t$al 'ale !f t#e '#a&e'0 T#e t*,e' !f ta8e'" MM
,!'iti!% 2!$l i1,l* !t#e&2i'e0 T#e iffe&e%t ta8 t&eat1e%t !f i5 i%e a% +a,ital (ai%'
1ea%' t#at 2it# t#e &ete%ti!% !f ea&%i%(' t#e '#a&e#!le&'0 F!& e8a1,le" a fi&1 ,a*'
i5ie%' t! t#e '#a&e#!le&' !$t !f t#e &etai%e ea&%i%('M t! fi%a%+e it' i%5e't1e%t
,&!(&a1G' it i''$e' &i(#t' '#a&e'0 T#e '#a&e#!le&' 2!$l #a5e t! ,a* ta8 !% t#e i5ie%
i%+!1e at &ate' a,,&!,&iate t! t#ei& i%+!1e )&a+3et0 S$)'eA$e%tl*" t#e* 2!$l ,$&+#a'e
t#e '#a&e' !f t#e fi&10 7lea&l*" t#a% ta8 +!$l #a5e )ee% a5!ie if" i%'tea !f ,a*i%(
i5ie%" t#e ea&%i%(' 2e&e &etai%e if" #!2e5e& t#e i%5e't!&' &eA$i&e f$%'" t#e* +!$l
'ell a ,a&t !f t#ei& i%5e't1e%t'" i% 2#i+# +a'e t#e* 2ill ,a* ta8 (+a,ital (ai%') at a l!2e&
&ate0 T#e&e i' a efi%ite a5a%ta(e t! t#e i%5e't!&' O2i%( t! t#e ta8 iffe&e%tial i%
i5ie% a% +a,ital (ai%' ta8 a% " t#e&ef!&e" t#e* +a% )e e8,e+te t! ,&efe& &ete%ti!% !f
ea&%i%('0
- 2H -
B% :-otation (osts<
A%!t#e& a''$1,ti!% !f a ,e&fe+t +a,ital 1a&3et $%e&l*i%( t#e MM
H*,!t#e'i' i' i5ie% i&&ele5a%+e i' t#e a)'e%+e !f fl!tati!% +!'t'0 T#e te&1 Jfl!tati!%
+!'tG &efe&' t! t#e +!'t i%5!l5e i% &ai'i%( +a,ital f&!1 t#e 1a&3et f!& i%'ta%+e"
$%e&2&iti%( +!11i''i!%" )&!3e&a(e a% !t#e& e8,e%'e'0 T#e ,&e'e%+e !f fl!tati!% +!'t'
affe+t' t#e )ala%+i%( %at$&e !f i%te&%al (&etai%e ea&%i%(') a% e8te&%al (i5ie%
,a*1e%t') fi%a%+i%(0 T#e MM ,!'iti!%" it 1a* )e &e+alle" a($e' t#at (i5e% t#e
i%5e't1e%t e+i'i!% !f t#e fi&1" e8te&%al f$%' 2!$l #a5e t! )e &ai'e" eA$al t! t#e
a1!$%t !f i5ie%" t#&!$(# t#e 'ale !f %e2 '#a&e t! fi%a%+e t#e i%5e't1e%t
,&!(&a11e0 T#e t2! 1et#!' !f fi%a%+i%( a&e %!t ,e&fe+t '$)'tit$te' )e+a$'e !f
fl!tati!% +!'t'0 T#e i%t&!$+ti!% !f '$+# +!'t' i1,lie' t#at t#e %et ,&!+ee f&!1 t#e 'ale
!f %e2 '#a&e' 2!$l )e le'' t#a% t#e fa+e 5ali !f t#e '#a&e'" e,e%i%( $,!% t#ei& 'i9e0?
it 1ea%' tat t! )e a)le t! 1a3e $'e !f e8te&%al f$%'" eA$i5ale%t t! t#e i5ie%
,a*1e%t'" t#e fi&1' 2!$l #a5e t! 'ell '#a&e' f!& a% a1!$%t i% e8+e'' !f &etai%e
ea&%i%('0 I% !t#e& 2!&'" e8te&%al fi%a%+i%( t#&!$(# 'ale !f '#a&e' 2!$l )e +!'tlie& t#a%
i%te&%al fi%a%+i%( 5ia &etai%e ea&%i%('0 T#e '1alle& t#e 'i9e !f t#e i''$e" t#e (&eate& i'
t#e ,e&+e%ta(e fl!tati!% +!'t0 > T! ill$'t&ate '$,,!'e t#e +!'t !f fl!tati!% i' 10,e& +e%t a%
t#e &etai%e ea&%i%(' a&e R'0>00" I% +a'e i5ie%' a&e ,ai" t#e fi&1 2ill #a5e t! 'ell
'#a&e' 2!&t# R'0100K- t! &ai'e f$%' a&e ,ai" t#e fi&1 2ill #a5e t! 'ell '#a&e' 2!&t#
R'01000K- t! &ai'e f$%' eA$i5ale%t !& t#e &etai%e ea&%i%('0 T#at e8te&%al fi%a%+i%( i'
+!'tlie& i' a%!t#e& 2a* !f 'a*i%( t#at fi&1' 2!$l ,&efe& t! &etai% ea&%i%(' &at#e& ta) ,a*
i5ie%' a% t#e% &ai'e f$%' e8te&%all*0
C% transa(tion and in(on"enien(e Costs <
- 2? -
Det a%!t#e& a''$1,ti!%" 2#i+# i' !,e% t! A$e'ti!%" i' t#at t#e&e a&e %! t&a%'a+ti!%
+!'t' i% t#e +a,ital 1a&3et0 T&a%'a+ti!% +!'t' &efe& t! +!'t' a''!+iate 2it# t#e 'ale !f
'e+$&itie' )* t#e '#a&e#!le&-i%5e't!&'0 T#e %!-t&a%'a+ti!% +!'t' ,!'t$late i1,lie' t#at if
i5ie%' a&e %!t ,ai (!& ea&%i%(' a&e &etai%e)" t#e i%5e't!&' e'i&!$' !f +$&&e%t i%+!1e
t! 1eet +!%'$1,ti!% %ee' +a% 'ell a ,a&t !f t#ei& #!li%(' 2it#!$t i%+$&&i%( a%* +!'t"
li3e )&!3e&a(e a% '! !%0 T#i' i' !)5i!$'l* a% $%&eali'ti+ a''$1,ti!%0 Si%+e t#e 'ale !f
'e+$&itie' i%5!l5e' +!'t" t! (et +$&&e%t i%!1e eA$i5ale%t t! t#e i5ie%" if ,ai" t#e
i%5e't!&' 2!$l #a5e t! 'ell 'e+$&itie' i% e8+e'' !f t#e i%+!1e t#at t#e* 2ill &e+ei5e0 A,at
f&!1 t#e t&a%'a+ti!% +!'t" t#e 'ale !f 'e+$&itie'" a' a% alte&%ati5e t! +$&&e%t i%+!1e" i'
i%+!%5e%ie%t t! t#e i%5e't!&'0 M!&e!5e&" $%+e&tai%t* i' a''!+iate 2it# t#e 'ale !f
'e+$&itie'0 F!& all t#e'e &ea'!%' a% i%5e't!& +a%%!t )e e8,e+te" a' MM a''$1e" t! )e
i%iffe&e%t )et2ee% i5ie% a% &etai%e ea&%i%('0 T#e i%5e't!&' i%te&e'te i% +$&&e%t
i%+!1e 2!$l +e&tai%l* ,&efe& i5ie% ,a*1e%t t! ,l$((i%( )a+3 !f ,&!fit' )* t#e fi&10
D% Institutiona- Restri(tions <
T#e i5ie% alte&%ati5e i' al'! '$,,!&te )* le(al &e't&i+ti!%' a' t! t#e t*,e
!f !&i%a&* '#a&e' i% 2#i+# +e&tai% i%5e't!&' +a% i%5e't f!& i%'ta%+e" t#e Life I%'$&a%+e
7!&,!&ati!% !f I%ia i' ,e&1itte i% te&1' !f +la$'e' I(a) t! I(() !f 'e+ti!% 2H-A !f t#e
I%'$&a%+e A+t" 1><?" t! i%5e't i% !%l* '$+# eA$it* '#a&e' !% 2#i+# a i5ie% !f %!t le''
t#a% B ,e& +e%t i%+l$i%( )!%$' #a' )ee% ,ai f!& @ *ea&' !$t !f H *ea&' i11eiatel*
,&e+ei%(0 T! )e eli(i)le f!& i%'tit$ti!%al i%5e't1e%t" t#e +!1,a%ie' '#!$l ,a*
i5ie%'0 T#e'e le(al i1,ei1e%t' t#e&ef!&e" fa5!& i5ie%' t! &ete%ti!% !f ea&%i%(0 A
5a&iati!% !f t#e le(al &eA$i&e1e%t t! ,a* i5ie%' i' t! )e f!$% i% t#e +a'e !f t#e U%it
T&$'t !f I%ia (UTI)0 T#e UTI i' &eA$i&e i% te&1' !f t#e 'ti,$lati!%' (!5e&%i%( it'
!,e&ati!%" t! i't&i)$te at lea't >0 ,e&+e%t !f it' %et i%+!1e t! $%it #!le&0 It +a%%!t i%5e't
1!&e t#a% @ ,e& +e%t !f it' i%5e%ti)le f$% $%e& t#e $%it '+#e1e' 1>FB a%
1>H1" i% t#e '#a&e' !f %e2 i%$'t&ial $%e&ta3i%('0 T#e ,!i%t i' t#at t#e
eli(i)le 'e+$&itie' f!& i%5e't1e%t )* t#e UTI a&e a''$1e t! )e t#!'e t#at a&e !% t#e
i5ie% ,a*1e%t li't0
- 2> -
T! +!%+l$e t#e i'+$''i!% !f 1a&3et i1,e&fe+ti!%' t#e&e a&e f!$& fa+t!&'"
2#i+# il$te t#e iffe&e%+e !f i%5e't!&' )et2ee% i5ie%' a% &etai%e ea&%i%('0 Of
t#e'e" fl!tati!% +!'t' 'ee1 t! fa5!& &ete%ti!% !f ea&%i%(' !% t#e !t#e& #a%" t#e e'i&e f!&
+$&&e%t i%+!1e a%" t#e &elate t&a%'a+ti!% a% i%+!%5e%ie%+e +!'t'" le(al &e't&i+ti!%' a'
a,,li+a)le t! t#e eli(i)le 'e+$&itie' f!& i%'tit$ti!%al i%5e't1e%t a% ta8 e8a1,le !f
i5ie% i%+!1e i1,l* a ,&efe&e%+e !f ,a*1e%t !f i5ie%'0 I% '$1" t#e&ef!&e" 1a&3et
i1,!&te& i1,lie' t#at i%5e't!&' 2!$l li3e t#e +!1,a%* t! &etai% ea&%i%(' t! fi%a%+e
i%5e't1e%t ,&!(&a1'0 T#e i5ie% ,!li+* i' %!t i&&ele5a%t0
Reso-ution of Un(ertaint#<
A ,a&t f&!1 t#e 1a&3et i1,e&fe+ti!%" t#e 5aliit* !f t#e 11 #*,!t#e'i'"
i%'!fa& a' it a&($e' t#at i5ie%' a&e i&&ele5a%t" i' A$e'ti!%a)le $%e& +!%iti!%' !f
$%+e&tai%t*0 MM #!l" it 2!$l )e &e+alle" t#e at i5ie% ,!li+* i' a' i&&ele5a%t $%e&
+!%iti!%' !f $%+e&tai%t* a'" it i' 2#e% ,&efe+t +e&tai%t* i' a''$1e0 T#e MM #*,!t#e'i'"
#!2e5e&" %!t te%a)le a' i%5e't!&' +a%%!t )et2ee% i5ie% a% &etai%e ea&%i%(' $%e&
+!%iti!%' !f $%+e&tai%t*0 T#i' +a% )e ill$'t&ate 2it# &efe&e%+e t! f!$& a',e+t'6 (i) %ea&
5'0 i'ta%t i5ie%M (ii) i%f!&1ati!%al +!%te%t !f i5ie%'M (i%) ,&efe&e%+e f!& +$&&e%t
i%+!1eM a% (i5) 'ale !f 't!+3 at $%+e&tai% ,&i+eK$%e& ,&i+i%(0
i Near =s Distant Di"idend<
O%e a',e+t !f t#e $%+e&tai%t* 'it$ati!% i' t#e ,a*1e%t !f i5ie% %!2 !& at a late&
ata0 If t#e ea&%i%(' a&e $'e t! ,a* i5ie%' t! t#e i%5e't!&'" t#e* (et i11eiate !& %eat
i5ie% if #!2e5e&" t#e %et ea&%i%(' a&e &etai%e" a% t#e '#a&e#!le&' 2!$l )e e%title
t! &e+ei5e a &et$&% afte& '!1e ti1e i% t#e f!&1 !f a% i%+&ea'e i% t#e ,&i+e !f '#a&e'
(7a,ital (ai%') !& )!%$' '#a&e' a% '! !%0 T#e i5ie%' 1a*" t#e%" )e &efe&&e t! a'
Ji'ta%t-!&-f$t$&eG i5ie%'0 T#e +&$8 !f t#e ,&!)le1 i'6 a&e i%5e't!&' i%iffe&e%t
)et2ee% i11eiate a% f$t$&e i5ie%'0 A++!&i%( t! :!&!%/ i%5e't!&' a&e %!t
i%iffe&e%tM &at#e&" t#e* 2!$l ,&efe& %ea& i5ie% t! i'ta%t i5ie% t#e 2#e% it 2!$l
)e ,a*1e%t !f t#e i%5e't!&' +a%%!t )e ,&e+i'el* f!&e+a't0 T#e l!%(e& t#e i'ta%+e i% f$t$&e
i5ie% ,a*1e%t" t#e #i(#e& i' t#e $%+e&tai%t* t! t#e '#a&e#!le&'
- <0 -
T#e $%+e&tai%t* i%+&ea'e' t#e &i'3 !f t#e i%5e't!&'0 T#e ,a*1e%t !f i11eiate i5ie%
&e'!l5e' $%+e&tai%t*0 T#e a&($1e%t t#at %ea& i5ie% i' ,&efe&&e !5e& t#e i'ta%t
i5ie%' i%5!l5e' t#e .)i&-i%-#a%G a&($1e%t0 T#i' a&($1e%t i' e5el!,e i% '!1e
etail i% t#e late& ,a&t !f t#i' &e,!&t" 'i%+e +$&&e%t i5ie%' a&e le'' &i'3* t#a%
f$t$&eKi'ta%t i5ie%'" '#a&e#!le&' 2!$l fa5!&' i5ie%' t! &etai%e ea&%i%('0
ii% Informationa- Content of Di"idends<
A%!t#e& a',e+t !f $%+e&tai%t*" 5e&* +l!'el* &elate t! t#e fi&'t (i0e0
Re'!l$ti!% !f $%+e&tai%t* !& t#e L)i&-i%-#a%G a&($1e%t) i' t#e i%f!&1ati!%al +!%te%t !f
i5ie% a&($1e%t0 A++!&i%( t! t#e latte& a&($1e%t" a' t#e %a1e '$((e't'" t#e i5ie%
+!%tai%' '!1e i%f!&1ati!% 5ital t! t#e i%5e't!&'0 T#e ,a*1e%t !f i5ie% +!%5e*' t! t#e
'#a&e#!le&' i%f!&1ati!% &elati%( t! ,&!fita)ilit* !f t#e fi&10
T#e i%te&%ati!%al +!%te%t a&($1e%t fi%' '$,,!&t i% '!1e e1,i&i+al e5ie%+e0 IT i
+!%te%e t#at +#a%(e' i% i5ie%' +!%5e* 1!&e 'i(%ifi+a%t i%f!&1ati!% t#a% 2#at
ea&%i%(' a%%!$%+e1e%t' !0 F$&t#e&" t#e 1a&3et &ea+t' t! i5ie% +#a%(e'-,&i+e' &i'e i%
&e',!%'e t! a 'i(%ifi+a%t i%+&ea'e i% i5ie%' a% fall 2#e% t#e&e i' a 'i(%ifi+a%t
e+&ea'e !& !1i''i!%0
iii% Preferen(e for Current In(ome<
T#e T#i& a',e+t !f t#e $%+e&tai%t* A$e'ti!% t! i5ie%' i' )a'e !% t#e e'i&e !f
i%5e't!&' f!& +$&&e%t i%+!1e t! 1eet + +!%'$1,ti!% &eA$i&e1e%t'0 T#e MM #*,!t#e'i' !f
i&&ele5a%+e !f i5ie%' i1,lie' t#at i% +a'e i5ie%' a&e %!t ,ai" i%5e't!&' 2#! ,&efe&
+$&&e%t i%+!1e +a% 'ell a ,a&t !f t#ei& #!li%(' i% t#e fi&1 f!& t#e ,$&,!'e0 B$t" $%e&
$%+e&tai%t* +!%iti!%'" t#e t2! alte&%ati5e' a&e %!t !% t#e 'a1e f!!ti%( )e+a$'e (i) 'elli%(
a '1all f&a+ti!% !f #!li%(' ,e&i!i+all* i' i%+!%5e%ie%t0 t#at 'elli%( '#a&e' t! !)tai%
i%+!1e" a' a% alte&ati5e t! i5ie%" i%5!l5e' $%+e&tai% ,&i+e a% i%+!%5e%ie%+e" i1,lie'
t#at i%5e't!&' a&e li3el* t! ,&efe& +$&&e%t i5ie%0 T#e MM ,&!,!'iti!% 2!$l" t#e&ef!&e"
%!t )e 5ali )e+a$'e i%5e't!&' a&e %!t i%iffe&e%t0
- <1 -
i"% Under pri(in/
fi%all* t#e MM #*,!t#e'i' 2!$l al'! %!t )e 5ali 2#e% +!%iti!%' a&e a''$1e t! )e
$%+e&tai% )e+a$'e !f t#e ,&i+e' at 2#i+# t#e fi&1' +a% 'ell '#a&e' t! &ai'e f$%' t! fi%a%+e
i%5e't1e%t ,&!(&a1G' +!%'eA$e%t $,!% t#e i't&i)$ti!% !f ea&%i%(' t! t#e '#a&e#!le&'
T#e i&&ele5a%+e a&($1e%t 2!$l 5ali ,&!5ie t#e fi&1 i' a)le t! 'ell '#a&e' t! &e,la+e
i5ie%' at t#e +$&&e%t ,&i+e0 Si%+e t#e '#a&e' 2!$l #a5e t! )e !ffe&e t! )ee2
i%5e't!&'" t#e fi&1 +a% 'ell t#e '#a&e' !%l* at a ,&i+e )el!2 t#e ,&e5aili%( ,&i+e0
RE&E=ANCE O: DI=IDENDS
I% '#a&, +!%t&a't t! t#e MM ,!'iti!%" t#e&e a&e '!1e t#e!&ie' t#at +!%'ie& i5ie%
e+i'i!%' t! )e a% a+ti5e 5a&ia)le i% ete&1i%i%( t#e 5al$e !f a fi&10 T#e i5ie%
e+i'i!% i'" t#e&ef!&e" &ele5a%t0 We +&iti+all* e8a1i%e )el!2 t2! t#e!&ie' &e,&e'e%ti%(
t#i' %!ti!%6
i) WALTERGS MODEL
ii) :ORDONGS MODEL
*A&TER’S MODE&
P&!,!'iti!% Walte&G' 1!el' '$,,!&t t#e !+t&i%e t#at i5ie%' a&e &ele5a%t0 T#e
i%5e't1e%t ,!li+* !f a fi&1 +a%%!t )e 'e,a&ate f&!1 it' i5ie%' ,!li+* a% )!t# a&e"
a++!&i%( t! Walte&" i%te&li%3e0 T#e +#!i+e !f a% a,,&!,&iate i5ie% ,!li+* affe+t' t#e
5al$e !f a% e%te&,&i'e0
T#e 3e* a&($1e%t i% '$,,!&t !f t#e &ele5a%+e ,&!,!'iti!% !f Walte&G' 1!el i' t#e
&elati!%'#i, )et2ee% t#e &et$&% !% a fi&1G' i%5e't1e%t !& it' i%te&%al &ate !f &et$&% (&) a%
it' +!'t !f +a,ital !& t#e &eA$i&e &ate !f &et$&% (=e) T#e fi&1 2!$l #a5e a% !,ti1$1
i5ie% ,!li+*" 2#i+# 2ill )e ete&1i%e * t#e &elati!%'#i, !f & a% 30 I% !t#e& 2!&'" if
t#e &et$&% !% i%5e't1e%t' e8+ee' t#e +!'t !f +a,ital" t#e fi&1 '#!$l &ef&ai% t#e ea&%i%('"
2#e&ea' it '#!$l i't&i)$te t#e ea&%i%(' t! t#e '#a&e#!le&' i% +a'e t#e &eA$i&e &ate !f
&et$&% e8+ee' t#e e8,e+te &et$%e !% t#e fi&1G' i%5e't1e%t'0 T#e &ati!%ale i' t#at if & R
3e" t#e fi&1 i' a)le t! ea&% 1!&e t#a% 2#at t#e '#a&e#!le&' +!$l )* &ei%5e'ti%(" if t#e
- <2 -
ea&%i%(' a&e ,ai t! t#e10 T#e i1,li+ati!% !f & S 3e i' t#at '#a&e#!le&' +a% ea&% a #i(#e&
&et$&% )* i%5e'ti%( el'e2#e&e0
Walte&G' 1!el" t#$'" &elate' t#e i't&i)$ti!% !f i5ie%' (&ete%ti!% !f ea&%i%() t!
a5aila)le i%5e't1e%t !,,!&t$%itie'0 If a fi&1 #a' aeA$ate ,&!fita)le i%5e't1e%t
!,,!&t$%itie'0 It 2ill )e a)le t! ea&% 1!&e t#a% 2#at t#e i%5e't!&' e8,e+t '! t#at &R3e0
S$+# fi&1' 1a* )e +alle (&!2t# fi&1'0 F!& (&!2t# fi&1'" t#e !,ti1$1 i5ie% ,!li+*
2!$l )e (i5e% )* a DKP &ati! !f 9e&!0
T#at i' t! 'a* t#e fi&1 '#!$l ,l!$(# )a+3 t#e e%ti&e ea&%i%(' 2it#i% t#e fi&10 T#e 1a&3et
5al$e !f t#e '#a&e' 2ill )e 1a8i1i9e a' a &e'$lt0 I% +!%t&a't" if a fi&1 !e' %!t #a5e
,&!fita)le i%5e't1e%t !,,!&t$%itie' (2#e% & S 3e") t#e '#a&e#!le&' 2ill )e )ette& !ff if
ea&%i%(' a&e ,ai !$t t! t#e1 '! a' t! e%a)le t#e1 t! ea&% a #i(#e& &et$&% )* $'i%( t#e
f$%' el'e2#e&e0 I% '$+# a +a'e" t#e 1a&3et ,&i+e !f '#a&e' 2ill )e 1a8i1i9e )* t#e
i't&i)$ti!% !f t#e e%ti&e ea&%i%(' a' i5ie%'0 A DTP &ati! !f 100 2!$l (i5e a%
!,ti1$1 i5ie%' ,!li+*0
Fi%all*" 2#e% &U 3 (%!&1al fi&1')" it i' a 1atte& !f i%iffe&e%+e 2#et#e& ea&%i%(' a&e
&etai%e !& i't&i)$te0 T#i' i' '! )e+a$'e f!& all DKP &ati!' (&a%(i%( )et2ee% 9e&! a%
100) t#e 1a&3et ,&i+e !f '#a&e' 2ill &e1ai% +!%'ta%t0 F!& '$+# fi&1'" t#e&e i' %! !,ti1$1
i5ie% ,!li+* (DKP &a&i!0)
Assumptions<
T#e +&iti+al a''$1,ti!%' !f Walte&G' M!el a&e a' f!ll!26
10 All fi%a%+i%( i' !%e t#&!$(# &etai%e ea&%i%('6 e8te&%al '!$&+e' !f f$%'
li3e e)t !& %e2 eA$it* +a,ital a&e %!t $'e0
20 Wit# aiti!%al i%5e't1e%t' $%e&ta3e%" t#e fi&1G' )$'i%e''
&i'3 !e' %!t +#a%(e0 It i1,lie' t#at & a% 3 a&e +!%'ta%t0
< T#e&e i' %! +#a%(e i% t#e 3e* 5a&ia)le" %a1el*" )e(i%%i%( ea&%i%(' ,e&
'#a&e" E0 A% i5ie%' ,e& '#a&e" D0 T#e 5al$e' !f D a% E 1a* )e +#a%(e
i% t#e 1!el t! ete&1i%e &e'$lt'" )$t a%* (i5e% 5al$e !f E a% D a&e a''$1e
- << -
t! &e1ai% +!%'ta%t i% ete&%$)$)( &e'$lt'" )$t a%* (i5e% 5al$e !f E a% D a&e
a''$1e t! &e1ai% +!%'ta%t i% ete&1i%i%( a (i5e% 5al$e0
B0 T#e fi&1 #a' ,e&,et$al (!& 5e&* l!%() life0
&imitations<
T#e Walte&G' 1!el" !%e !f t#e ea&lie't t#e!&eti+al 1!el'" e8,lai%' t#e &elati!%'#i,
)et2ee% i5ie% ,!li+* a% 5al$e !f t#e fi&1 $%e& +e&tai% 'i1,lifie a''$1,ti!%'0
S!1e !f t#e a''$1,ti!%' ! %!t 'ta% +&iti+al e5al$ati!%0 IN t#e fi&'t ,la+e" t#e Walte&G'
1!el a''$1e' t#at e8+l$'i5el* &etai%e ea&%i%(' fi%a%+e t#e fi&1G' i%5e't1e%tM %!
e8te&%al fi%a%+i%( i' $'e0 T#e 1!el 2!$l )e !%l* a,,li+a)le t! all- eA$it* fi&1'0
Se+!%l*" t#e 1!el a''$1e' t#at & i' +!%'ta%t0 T#i' i' %!t a &eali'ti+ a''$1,ti!% )e+a$'e
2#e% t#e fi&1 1a3e' i%+&ea'e i%5e't1e%t'" & al'! +#a%(e'0 Fi%all* a' &e(a&' t#e
a''$1,ti!% !f +!%'ta%t &i'3 +!1,le8i!% !f fi&1 #a' a i&e+t )ea&i%( !% it0 B* a''$1i%( a
+!%'ta%t =e0 Walte&G' 1!el i(%!&e' t#e effe+t !f &i'3 !% t#e 5al$e !f t#e fi&10
GPRDON’S MODE&
A%!t#e& t#e!&*" 2#i+# +!%te%' t#at i5ie%' a&e &ele5a%t" i' :!&!%G' 1!el0 T#i'
1!el" 2#i+# !,i%e' t#at i5ie% ,!li+* !f a fi&1 affe+t' it' 5al$e" i' )a'e !% t#e
f!ll!2i%( a''$1,ti!%'6
Assumptions<
10 T#e fi&1 i' a% all-eA$it* fi&10 N! e8te&%al fi%a%+i%( i' $'e a% e8+l$'i5el*
&etai%e ea&%i%(' fi%a%+e i%5e't1e%t ,&!(&a1G'0
20 & a% 3e a&e +!%'ta%t0
<0 T#e fi&1 #a' ,e&,et$al life0
B0 T#e &ete%ti!% &ati!" !%+e e+ie $,!%" i' +!%'ta%t0 T#$'" t#e (&!2t# &ate" ((U)&)
i' al'! +!%'ta%t0
@0 =+R)&0
- <B -
Ar/uments<
It +a% )e 'ee f&!1 t#e a''$1,ti!% !f :!&!%G' 1!el t#at t#e* a&e 'i1ila& t! t#!'e !f
Walte&G' 1!el0 A' a &e'$lt" :!&!%G' 1!el" li3e Walte&G' +!%te%' t#at i5ie% ,!li+*
!f t#e fi&1 i' &ele5a%t a% t#at i%5e't!&' ,$t a ,!'iti5e ,&e1i$1 !% +$&&e%t
i%+!1e'Ki5ie%'0 T#e +&$8 !f :!&!%G' a&($1e%t' i' a t2!-f!l a''$1,ti!%6 (i)
i%5e't!&' a&e &i'3 a5e&'e" a% (ii) t#e* ,$t a ,&e1i$1 !% a +e&tai% &et$&% a% i'+!$%tK
,e%ali9e $%+e&tai% &et$&%'0
A' i%5e't!&' a&e &ati!%al" t#e* 2a%t t! a5!i &i'30 T#e te&1 &i'3 &efe&' t! t#e ,!''i)ilit*
!f %!t (etti%( a &et$&% !% i%5e't1e%t0 T#e ,a*1e%t !f +$&&e%t i5ie%' i,'! fa+t!
+!1,letel* &e1!5e' a%* +#a%+e !f &i'30 If" #!2e5e&" t#e fi&1 &etai%' t#e ea&%i%(' (i0e0
+$&&e%t i5ie%' i' $%+e&tai%" )!t# 2it# &e',e+t t! t#e a1!$%t a' 2ell a' t#e ti1i%(0 T#e
&ati!%al i%5e't!&' +a% &ea'!%a)l* )e e8,e+te t! ,&efe& +$&&e%t i5ie%0 I% !t#e& 2!&'"
t#e* 2!$l i'+!$%t f$t$&e i5ie%' t#at a&e t#e* 2!$l ,la+ele'' i1,!&ta%+e !% it a'
+!1,a&e t! +$&&e%t i5ie%0 T#e i%5e't!&' e5al$ate t#e &etai%e ea&%i%(' a' a &i'3*
,&!1i'e0 I% +a'e t#e ea&%i%(' a&e &etai%e" t#e&ef!&e t#e 1a&3et ,&i+e !f t#e '#a&e' 2!$l
)e a5e&'el* affe+te0
T#e a)!5e a&($1e%t $%e&l*i%( :!&!%G' 1!el !f i5ie% &ele5a%+e i' al'!
e'+&i)e a' a )i&-i%-t#e-#a% a&($1e%t0 .T#at a )i& i% #a% i' )ette& t#a% t2! i% t#e
)$'# i' )a'e t! t#e l!(i+ t#at 2#at i' a5aila)le at ,&e'e%t i' ,&efe&a)le t! 2#at 1a* )e
a5aila)le i% t#e f$t$&e0 Ba'i%( #i' 1!el !% t#i' a&($1e%t" :!&!% a&($e' t#at t#e f$t$&e'
a&e $%+e&tai% a% t#e 1!&e i'ta%t t#e f$t$&e i'" t#e 1!&e $%+e&tai% i% it i' li3el* t! )e0 If"
t#e&ef!&e" +$&&e%t i5ie%' a&e 2it##el t! &etai% ,&!fit'" 2#et#e& t#e i%5e't!&' 2!$l at
all &e+ei5e t#e1 late& i' $%+e&tai%0 I%5e't!&' 2!$l %at$&all* li3e t! a5!i $%+e&tai%t*0 I%
fa+t" t#e* 2!$l )e i%+li%e t! ,a* a #i(#e& ,&i+e f!& '#a&e' !% 2#i+# +$&&e%t i5ie%'
a&e ,ai0 7!%5e&'el*" t#e* 2!$l i'+!$%t t#e 5al$e !f '#a&e' !f a fi&1" 2#i+#
P!'t,!%e' i5ie%'0 T#e i'+!$%t &ate 2!$l 5a&*" a' '#!2% if fi($&e 2it# t#e &ete%ti!%
&ate !& le5el !f &etai%e ea&%i%('0 T#e te&1 &ete%ti!% &ati! 1ea%' t#e ,e&+e%ta(e !f
ea&%i%(' &etai%e0 It i' t#e i%5e&' !f DKP &ati!0 T#e !1i''i!% !f i5ie%'" !& ,a*1e%t !f
l!2 i5ie%'" 2!$l l!2e& t#e 5al$e !f t#e '#a&e'0
- <@ -
Di"idend Capita-i@ation Mode-6 A++!&i%( t! :!&!%" t#e 1a&3et 5al$e !f a '#a&e
i' eA$al t! t#e ,&e'e%t 5al$e !f f$t$&e 't&ea1' !f i5ie%'0 A 'i1,lifie 5e&'i!% !f
:!&!%G' 1!el +a% )e '*1)!li+all* 1? e8,&e''e a'
E ( 1-) )
=+-)&
W#e&e , U ,&i+e !f a '#a&e
EU Ea&%i%(' ,e& '#a&e
)U Rete%ti!% &ati! !& ,e&+e%ta(e !f ea&%i%(' &etai%e0
1-)UDKP &ati!" i0e0 ,e&+e%ta(e !f ea&%i%(' i't&i)$te' a' i5ie%'
=+U 7a,itali9ati!% &ateK+!'t !f +a,ital
B&U(U:&!2t# &ateU &ate !f &et$&% !% i%5e't1e%t !f a% all-eA$it* fi&1
- <F -
DI=IDEND PO&ICIES<
I% t#e li(#t !f t#e +!%fli+ti%( a% +!%t&ai+t!&* 5ie2,!i%t' a' al'! t#e a5aila)le
e1,i&i+al e5ie%+e" t#e&e a,,ea&' t! )e a +a'e f!& t#e ,&!,!'iti!% t#at i5ie% e+i'i!%'
a&e &ele5a%t i% t#e 'e%'e t#at i%5e't!&' ,&efe& t#e1 !5e& &etai%e ea&%i%(' a% t#e* #a5e a
)ea&i%( !% t#e fi&1G' !)-e+ti5e !f 1a8i1i9i%( t#e '#a&e#!le&G' 2ealt#0
:ACTORS DETERMINIG T0E DI=IDEND PO&ICIES<
T#e fa+t!&' ete&1i%i%( t#e i5ie% ,!li+* !f a fi&1 1a*" f!& ,$&,!'e !f
e8,!'iti!%" )e +la''ifie i%t!6 (a) Di5ie% ,a*!$t (DKP) &ati!" ()) Sta)ilit* !f i5ie%'"
(+) Le(al" +!%t&a+t$al a% i%te&%al +!%'t&ai%t' a% &e't&i+ti!%'" () O2%e&G'
+!%'ie&ati!%'" (e) 7a,ital 1a&3et +!%'ie&ati!%'" a% (f) I%flati!%0
A% Di"idend Pa#out 'DAP$ Ratio <
A 1a-!& a',e+t !f t#e i5ie% ,!li+* !f a fi&1 i' it' i5ie% ,a*!$t (DKP)
&ati!" t#at i'" t#e ,e&+e%ta(e '#a&e !f t#e %et ea&%i%(' i't&i)$te t! t#e '#a&e#!le&'
a' i5ie%'0 T#e &ele5a%+e !f t#e DKP &ati!" a' a ete&1i%a%t !f t#e i5ie% ,!li+*
!f a fi&1" #a' )ee% e8a1i%e at '!1e le%(t# i% t#e ,&e+ei%( +#a,te&0 It i' )&iefl*
&e+a,it$late #e&e0
Di5ie% ,!li+* i%5!l5e' t#e e+i'i!% t! ,a* !$t ea&%i%(' !& t! &etai% t#e1 f!&
&ei%5e't1e%t i% t#e fi&10 T#e &etai%e ea&%i%(' +!%'tit$te a '!$&+e !f fi%a%+i%(0 T#e
,a*1e%t !f i5ie%' &e'$lt i% t#e &e$+ti!% !f +a'# a'" t#e&ef!&e" i% a e,leti!% !f
t!tal a''et'0 I% !&e& t! 1ai%tai% t#e a''et le5el" a' 2ell a' fi%a%+e i%5e't1e%t
!,,!&t$%itie'" t#e fi&1 1$'t !)tai% f$%' f&!1 t#e i''$e !f aiti!%al eA$it* !& e)t0 If
t#e fi&1 i' $%a)le t! &ai'e e8te&%al f$%'" it' (&!2t# 2!$l )e affe+te0 T#$'" i5ie%
i1,l* !$tfl!2 !f +a'# a% l!2e& f$t$&e (&!2t#0 I% !t#e& 2!&'" t#e i5ie% ,!li+* !f t#e
fi&1 affe+t' )!t# t#e '#a&e#!le&'G 2ealt# a% t#e l!%(-te&1 (&!2t# !f t#e fi&10 T#e
!,ti1$1 i5ie% ,!li+* '#!$l 't&i3e t#e )ala%+e )et2ee% +$&&e%t i5ie%' a% f$t$&e
(&!2t# 2#i+# 1a8i1i9e' t#e ,&i+e !f t#e fi&1G' '#a&e'0 T#e DKP &ati! !f a fi&1 '#!$l )e
ete&1i%e 2it# &efe&e%+e t! t2! )a'i+ !)-e+ti5e'-1a8i1i9i%( t#e 2ealt# !f t#e fi&1G'
- <H -
!2%e&' a% ,&!5ii%( '$ffi+ie%t f$%' t! fi%a%+e (&!2t#0 T#e'e !)-e+ti5e' a&e %!t
1$t$all* e8+l$'i5e" )$t i%te&&elate0
:i5e% t#e !)-e+ti5e !f 2ealt# 1a8i1i9ati!%" t#e fi&1G' i5ie% ,!li+* (DKP
&ati! ) '#!$l )e !%e" 2#i+# +a% 1a8i1i9e t#e 2ealt# !f it' !2%e&' i% t#e Jl!%( &$%G0
I% t#e!&*" it +a% )e e8,e+te t#at t#e '#a&e#!le&' ta3e i%t! a++!$%t t#e l!%(-&$%
effe+t' !f DKP &ati! t#at i'" if t#e fi&1 i' ,a*i%( l!2 i5ie%' a% #a5i%( #i(#
&ete%ti!%'" t#e* &e+!(%i9e t#e ele1e%t !f (&!2t# i% t#e le5el !f f$t$&e ea&%i%(' !f t#e
fi&10 H!2e5e&" i% ,&a+ti+e" t#e* #a5e a +lea&-+$t ,&efe&e%+e f!& i5ie%' )e+a$'e !f
$%+e&tai%t* a% i1,e&fe+t +a,ital 1a&3et'0 T#e ,a*1e%t !f i5ie%' +a% t#e&ef!&e"
)e e8,e+te t! affe+t t#e ,&i+e !f '#a&e'6 a l!2 DKP &ati! 1a* +a$'e a e+li%e i% '#a&e
,&i+e'" 2#ile a #i(# &ati! 1a* lea t! &i'e i% t#e 1a&3et ,&i+e !f t#e '#a&e'0
Ma3i%( a '$ffi+ie%t ,&!5i'i!% f!& fi%a%+i%( (&!2t# +a% )e +!%'ie&e a
'e+!%a&* !)-e+ti5e !f i5ie% ,!li+*0 Wit#!$t aeA$ate f$%' t! i1,le1e%t
a++e,ta)le ,&!-e+t'" t#e !)-e+ti5e !f 2ealt# 1a8i1i9ati!% +a%%!t )e a+#ie5e0 T#e
fi&1 1$'t f!&e+a't it' f$t$&e %ee' f!& f$%'" a% ta3i%( i%t! a++!$%t t#e e8te&%al
a5aila)ilit* !f f$%' a% +e&tai% 1a&3et +!%'ie&ati!%'" ete&1i%e )!t#
T#e a1!$%t !f &etai%e ea&%i%(' %eee a% t#e a1!$%t !f &etai%e ea&%i%(' a5aila)le
afte& t#e 1i%i1$1 i5ie%' #a5e )ee% ,ai0 T#$'" i5ie% ,a*1e%t' '#!$l %!t )e
5ie2e a' a &e'i$al" )$t &at#e& a &eA$i&e !$tla* afte& 2#i+# a%* &e1ai%i%( f$%' +a% )e
&ei%5e'te i% t#e fi&10
B% Sta+i-it# of Di"idends<
T#e 'e+!% 1a-!& a',e+t !f t#e i5ie% ,!li+* !f a fi&1 i' t#e 'ta)ilit* !f
i5ie%'0 T#e i%5e't!&' fa5!&' 'ta)le i5ie% a' 1$+# a' t#e* fa5!&' t#e ,a*1e%t !f
i5ie%' (DKP &ati!)0
T#e te&1 i5ie% 'ta)ilit* &efe&' t! t#e +!%'i'te%+* !& la+3 !f 5a&ia)ilit* i% t#e
't&ea1 !f i5ie%'0 I% 1!&e ,&e+i'e te&1'" it 1ea%' t#at a +e&tai% 1i%i1$1 a1!$%t
!f i5ie% i' ,ai !$t &e($la&l*0 T#e 'ta)ilit* !f i5ie%' +a% ta3e a%* !f t#e
- <? -
f!ll!2i%( t#&ee f!&1'6 (i) +!%'ta%t i5ie% ,e& '#a&e" (ii) +!%'ta%tK'ta)le KP &ati!" a%
(iii) +!%'ta%t i5ie% ,e& '#a&e ,l$' e8t&a i5ie%0
i% Constant di"idend per S,are<
A++!&i%( t! t#i' f!&1 !f 'ta)le i5ie% ,!li+*" a +!1,a%* f!ll!2' a ,!li+* !f
+e&tai% fi8e a1!$%t ,e& '#a&e a' i5ie%0 F!& i%'ta%+e" !% a '#a&e !f fa+e 5al$e !f R'
10" fi&1 1a* ,a* a fi8e a1!$%t !f" 'a* R' 2-@0 a' i5ie%0 T#i' a1!$%t 2!$l )e ,ai
*ea& afte& *ea&" i&&e',e+ti5e !f #t le5el !f ea&%i%('0 !I% !t#e& 2!&'" fl$+t$ati!%' i%
ea&%i%(' 2!$l %!t affe+t t#e i5ie% ,a*1e%t'0 I% fa+t" 2#e% a +!1,a%* f!ll!2' '$+# a
i5ie% ,!li+*" it 2ill ,a* i5ie%' t! t#e '#a&e#!le& e5e% 2#e% it '$ffe&' l!''e'0 A
'ta)le i5ie% ,!li+* i% te&1' !f fi8e a1!$%t !f i5ie% ,e& '#a&e !e' %!t" #!2e5e&"
1ea% t#at t#e a1!$%t !f i5ie% i' fi8e f!& all ti1e' t! +!1e0 T#e i5ie%' ,e& '#a&e
a&e i%+&ea'e !5e& t#e *ea&' 2#e% t#e ea&%i%(' !f t#e fi&1 i%+&ea'e a% it i'
E8,e+te t#at t#e %e2 le5el !f ea&%i%(' +a% )e 1ai%tai%e0 Of +!$&'e" if t#e i%+&ea'e t!
)e te1,!&a&*" t#e a%%$al i5ie% &e1ai%' at t#e e8i'ti%( le5el0
It +a%" t#$'" )e 'ee% t#at 2#ile t#e ea&%i%(' 1a* fl$+t$ate f&!1 *ea& t! *ea&" t#e
i5ie% ,e& '#a&e i' +!%'ta%t L T! )e a)le t! ,$&'$e '$+# a ,!li+*" a fi&1 2#!'e ea&%i%('
a&e %!t 'ta)le 2!$l #a5e t! 1a3e ,&!5i'i!%' i% *ea&' 2#e% ea&%i%(' a&e #i(#e& f!&
,a*1e%t !f i5ie%' i% lea% *ea&'0 S$+# fi&1' $'$all* +&eate a &e'e&5e f!& i5ie%'
eA$ali9ati!%0 T#e )ala%+e 'ta%i%( i% t#i' f$% i' %!&1all* i%5e'te i% '$+# a''et' a' +a%
)e &eail* +!%5e&te i%t! +a'#0
ii% Constant Pa#out Ratio<
Wit# +!%'ta%tKta&(et ,a*!$t &ati!" a fi&1 ,a*' a +!%'ta%t ,e&+e%ta(e !f %et ea&%i%('
a' i5ie% t! t#e '#a&e#!le&'0 I% !t#e& 2!&'" a 'ta)le i5ie% ,a*!$t &ati! i1,lie'
t#at t#e ,e&+e%ta(e !f ea&%i%(' ,ai !$t ea+# *ea& i' fi8e0 A++!&i%(l*" i5ie%' 2!$l
fl$+t$ate ,&!,!&ti!%atel* 2it# ea&%i%(' a% a&e li3el* t! )e #i(#l* 5!latile i% t#e 2a3e !f
2ie fl$+t$ati!%' i% t#e ea&%i%(' !f t#e +!1,a%*0 A' a &e'$lt" 2#e% t#e ea&%i%(' !f a fi&1
e+li%e '$)'ta%tiall* !& t#e&e i' a l!'' i% a (i5e% ,e&i!" t#e i5ie%'" a++!&i%( t! t#e
ta&(et ,a*!$t &ati!" 2!$l )e l!2 !& %il0 T! ill$'t&ate" if affi&1 #a' a ,!li+* !f @0 ,e&+e%t
- <> -
ta&(et ,a*!$t &ati!'" it' i5ie%' 2ill &a%(e )et2ee% R' @a% 9e&! ,e& '#a&e !% t#e
a''$1,ti!% t#at t#e ea&%i%(' ,e& '#a&e a&e R' 10 a% 9e&! &e',e+ti5el*0 T#e &elati!%'#i,
)et2ee% t#e ea&%i%(' ,e& '#a&e (EPS) a% i5ie% ,e& '#a&e (DPS) $%e& t#e ,!li+* !f
+!%'ta%t ,a*!$t &ati!0
ii% Sta+-e Rupee Di"idend p-us E!tra Di"idend<
U%e& t#i' ,!li+*" a fi&1 $'$all* ,a*' a fi8e i5ie% t! t#e '#a&e#!le&' a% i% *ea&'
!f 1a&3e ,&!',e&it*M aiti!%al !& e8t&a i5ie% i' ,ai !5e& a% a)!5e t#e &e($la&
i5ie%0 A' '!!% a %!&1al +!%iti!%' &et$&%" t#e fi&1 +$t' e8t&a i5ie% a% ,a*' t#e
%!&1al i5ie% ,e& '#a&e0 T#e ,!li+* !f ,a*i%( ',!&ai+ i5ie%' 1a* %!t fi% fa5!&
2it# t#e10 T#e alte&%ati5e t! t#e +!1)i%ati!% !f a '1all &e($la& i5ie% a% a% e8t&a
i5ie% i' '$ita)le f!& +!1,a%ie' 2#!'e ea&%i%(' fl$+t$ate 2iel*0 Wit# t#i' 1et#!" a
fi&1 +a% &e($la&l* ,a* a fi8e" t#!$(# '1all" a1!$%t !f i5ie% '! t#at t#e&e i' %! &i'3
!f )ei%( a)le t! ,a* i5ie% t! t#e '#a&e#!le&'0 At t#e 'a1e ti1e" t#e i%5e't!&' +a%
,a&ti+i,ate i% t#e ,&!',e&it* !f t#e fi&10 B* +alli%( t#e a1!$%t )* 2#i+# t#e i5ie%'
e8+ee t#e %!&1al ,a*1e%t' a' e8t&a0 T#e fi&1" i% effe+t" +a$ti!%' t#e i%5e't!&'-)!t#
e8i'te%t a' 2ell a' ,&!',e+ti5e- t#e* '#!$l %!t +!%'ie& it a' a ,e&1a%e%t i%+&ea'e i%
i5ie%'0 It 1a*" t#e&ef!&e" )e %!te t#at f&!1 t#e i%5e't!&G' 5ie2,!i%t" t#e e8t&a
i5ie% i' !f a ',!&ai+ %at$&e0 W#at t#e i%5e't!&' e8,e+t i' t#at t#e* '#!$l (et a%
a''$&e fi8e a1!$%t a' i5ie%'" 2#i+# '#!$l (&a$all* a% +!%'i'te%tl* i%+&ea'e !5e&
t#e *ea&'0 T#e 1!'t +!11e%a)le f&!1 !f 'ta)le i5ie% ,!li+* i' t#e +!%'ta%t i5ie%
,e& '#a&e ,!li+*0 T#e&e a&e 'e5e&al &ea'!%' 2#* i%5e't!&' 2#* i%5e't!&' 2!$l ,&efe& a
'ta)le i5ie% ,!li+*0 T#e&e ate 'e5e&al &ea'!%' 2#* i%5e't!&' 2!$l ,&efe& a 'ta)le
i5ie% ,!li+* a% ,a* a #i(#e& ,&i+e f!& a fi&1G' '#a&e' 2#i+# !)'e&5e 'ta)ilit* i%
i5ie% ,a*1e%t'0
Desire for Current In(ome<
A fa+t!& fa5!&i%( a 'ta)le ,!li+* i' t#e e'i&e f!& +$&&e%t i%+!1e )* '!1e i%5e't!&'0
I%5e't!&' '$+# a' &eti&e ,e&'!%' a% 2i%!2'" f!& e8a1,le" 5ie2 i5ie%' a' a '!$&+e
!f f$%' t! 1eet t#ei& +$&&e%t li5i%( e8,e%'e'0 S$+# e8,e%'e' a&e fai&l* +!%'ta%t f&!1
,e&i! t! ,e&i!0 T#e&ef!&e" a fall i% i5ie% 2ill %e+e''itate 'elli%( '#a&e' t! !)tai%
f$%' t! 1eet +$&&e%t e8,e%'e' a%" +!%5e&'e" &ei%5e't1e%t !f '!1e !f t#e i5ie%
i%+!1e if i5ie%' &i'e 'i(%ifi+a%tl*0 F!& !%e t#i%(" 1a%* !f t#e i%+!1e-+!%'+i!$'
- B0 -
i%5e't!&' 1a* %!t li3e t! Ji, i%t! t#ei& ,&i%+i,alG f!& +$&&e%t +!%'$1,ti!%0 M!&e!5e&"
eit#e& !f t#e alte&%ati5e' i%5!l5e'" i%+!%5e%ie%+e a,a&t" t&a%'a+ti!% +!'t' i% te&1' !f
)&!3e&a(e" a% !t#e& e8,e%'e'0 T#e'e +!'t' a&e a5!ie if t#e i5ie% 't&ea1 i' 'ta)le
a% ,&ei+ta)le0 O)5i!$'l*" '$+# a (&!$, !f i%5e't!&' 1a* 5e 2illi%( t! ,a* a #i(#e&
'#a&e ,&i+e t! a5!i t#e i%+!%5e%ie%+e !f e&&ati+ i5ie%0 Pa*1e%t'" 2#i+# i'&$,t t#ei&
)$(eti%(0 T#e* 2!$l ,la+e ,!'iti5e $tilit* !% 'ta)le i5ie%'0
Information (ontent
A%!t#e& &ea'!% f!& ,$&'i%( a 'ta)le i5ie% ,!li+* i' t#at i%5e't!&G' a&e t#!$(#t t!
$'e i5ie%' a% +#a%(e' i% i5ie%' a' a '!$&+e !f i%f!&1ati!% a)!$t t#e fi&1G'
,&!fita)ilit*0 If i%5e't!&' 3%!2 t#at t#e fi&1 2ill +#a%(e i5ie%' !%l* if t#e
1a%a(e1e%t f!&e'ee' a ,e&1a%e%t ea&%i%(' +#a%(e" t#e% t#e le5el !f i5ie%' i%f!&1'
i%5e't!&' a)!$t t#e +!1,a+t' e8,e+te ea&%i%('0 A++!&i%(l*" t#e 1a&3et 5ie2' t#e
+#a%(e' i% t#e i5ie%' !f '$+# a +!1,a%* a' !f a 'e1i-,e&1a%e%t %at$&e0 A +$t i%
i5ie% i1,lie' ,!!& ea&%i%(' e8,e+tati!%M %! +#a%(e" i1,lie' ea&%i%(' 'ta)ilit*M a% a
i5ie% i%+&ea'e" 'i(%ifie' t#e 1a%a(e1e%t' !,ti1i'1 a)!$t ea&%i%('0 O% t#e !t#e&
#a%" a +!1,a%* t#at ,$&'$e' a% e&&ati+ i5ie% ,a*!$t ,!li+* !e' %!t ,&!5ie a%*
'$+# i%f!&1ati!%" t#e&e)* i%+&ea'i%( t#e &i'3 a''!+iate 2it# t#e '#a&e'0 Sta)ilit* !f
i5ie%'" 2#e&e '$+# i5ie%' a&e )a'e $,!% l!%(-&$% ea&%i%( ,!2e& !f t#e +!1,a%*"
i'" t#e&ef!&e" a 1ea%' !f &e$+i%( '#a&e-&i'3i%e'' a% +!%'eA$e%tl* i%+&ea'i%( '#a&e 5al$e
t! i%5e't!&'0
Re?uirements of Institutiona- In"estors<
A t#i& fa+t!& e%+!$&a(i%( 'ta)le i5ie% ,!li+* i' t#e ReA$i&e1e%t !f i%'tit$ti!%al
i%5e't!&' li3e Life I%'$&a%+e 7!&,!&ati!% !f I%ia a% :e%e&al I%'$&a%+e 7!&,!&ati!% !f
I%ia (i%'$&a%+e +!1,a%ie') a% U%it T&$'t !f I%ia (1$t$al f$%') a% '! !%" t! i%5e't i%
+!1,a%ie' 2#i+# #a5e a &e+!& !f +!%ti%$!$' a% 'ta)le i5ie%0 T#e'e fi%a%+ial
i%'tit$ti!%' !2i%( t! t#e la&(e 'i9e !f t#ei& i%5e%ti)le f$%'" &eV&e'e%t a 'i(%ifi+a%t f!&+e
i% t#e fi%a%+ial 1a&3et' a% t#ei& e1a% f!& t#e +!1,a%*G' 'e+$&itie' +a% #a5e a%
fi%a%+ial 1a&3et' a% t#ei& e1a% f!& t#e +!1,a%*G' 'e+$&itie' +#a #a5e a% e%#a%+i%(
- B1 -
Effe+t !% it' ,&i+e a%" t#e&e )* !% t#e '#a&e#!le&G' 2ealt#0 A 'tale i5ie% ,!li+* i' a
,&e&eA$i'ite t! att&a+t t#e i%5e%ti5e f$%' !f t#e'e i%'tit$ti!%'0 O%e +!%'eA$e%tial i1,a+t
!f t#e ,$&+#a'e !f '#a&e' %a* t#e1 i' t#at t#e&e 1a* )e a% i%+&ea'e' i% t#e (e%e&al
e1a% f!& t#e +!1,a%*G' '#a&e'0 De+&ea'e 1a&3eta)ilit* &i'3" +!$,le 2it# e+&ea'e
fi%a%+ial &i'3" 2ill #a5e a ,!'iti5e effe+t !% t#e 5al$e !f t#e fi&1G' '#a&e'0
A ,a&t f&!1 t#e!&eti+al ,!'t$late' f!& t#e e'i&a)ilit* !f 'ta)le i5ie%'" t#e&e a&e al'!
Ma%$ e1,i&i+al 't$ie' +la''i+ a1!%( t#e1 )ei%( t#at !f li1%e&@0 T! '$,,!&t t#e
5ie2,!i%t t#at +!1,a%ie' ,$&'e& a 'ta)le i5ie% ,!li+*0 I% !t#e& 2!&'" +!1,a%ie'"
2#ile ta3i%( e+i'i!%' !% t#e ,a*1e%t !f i5ie%" )ea& 1i% t#e i5ie% )el!2 t#e
a1!$%t ,ai i% ,&e5i!$' *ea&'0 A+t$all*" 1!'t fi&1' 'ee1 t! fa5!& a ,!li+* !f e'ta)li'#i%(
a %!%-e+&ea'i%( i5ie% ,e& '#a&e a)!5e a le5el t#a% +a% 'afel* )e '$'tai%e i% t#e
f$t$&e0 T#e'e +a$ti!$' +&ee, $, !f i5ie%' ,e& '#a&e &e'$lt' i% 'ta)le i5ie% ,e& '#a&e
,atte&% $&i%( fl$+t$a%t ea&%i%(' ,e& '#a&e ,e&i!'" a% a &i'i%( 'teV f$%+ti!% ,atte&% !f
i5ie%' ,e& '#a&e $&i%( i%+&ea'i%( ea&%i%( ,e& '#a&e ,e&i!'0
- B2 -
C0APTER1III
INDUSTR; PRO:I&E
- B< -
A +an> i' a fi%a%+ial i%'tit$ti!% t#at a++e,t' e,!'it' a% +#a%%el' t#!'e e,!'it' i%t!
le%i%( a+ti5itie'0 Ba%3' ,&i1a&il* ,&!5ie fi%a%+ial 'e&5i+e' t! +$'t!1e&' 2#ile
e%&i+#i%( i%5e't!&'0 :!5e&%1e%t &e't&i+ti!%' !% fi%a%+ial a+ti5itie' )* )a%3' 5a&* !5e&
ti1e a% l!+ati!%0 Ba%3' a&e i1,!&ta%t ,la*e&' i% fi%a%+ial 1a&3et' a% !ffe& 'e&5i+e'
'$+# a' i%5e't1e%t f$%' a% l!a%'0 I% '!1e +!$%t&ie' '$+# a' :e&1a%*" )a%3' #a5e
#i't!&i+all* !2%e 1a-!& 'ta3e' i% i%$'t&ial +!&,!&ati!%' 2#ile i% !t#e& +!$%t&ie' '$+# a'
t#e U%ite State' )a%3' a&e ,&!#i)ite f&!1 !2%i%( %!%-fi%a%+ial +!1,a%ie'0 I% Wa,a%"
)a%3' a&e $'$all* t#e %e8$' !f a +&!''-'#a&e #!li%( e%tit* 3%!2% a' t#e 3ei&et'$0 I%
F&a%+e" )a%+a''$&a%+e i' ,&e5ale%t" a' 1!'t )a%3' !ffe& i%'$&a%+e 'e&5i+e' (a% %!2 &eal
e'tate 'e&5i+e') t! t#ei& +lie%t'0
T#e le5el !f (!5e&%1e%t &e($lati!% !f t#e )a%3i%( i%$'t&* 5a&ie' 2iel*" 2it# +!$%t&ie'
'$+# a' I+ela%" #a5i%( &elati5el* li(#t &e($lati!% !f t#e )a%3i%( 'e+t!&" a% +!$%t&ie'
'$+# a' 7#i%a #a5i%( a 2ie 5a&iet* !f &e($lati!%' )$t %! '*'te1ati+ ,&!+e'' t#at +a% )e
f!ll!2e t*,i+al !f a +!11$%i't '*'te10
T#e !le't )a%3 'till i% e8i'te%+e i' M!%te ei Pa'+#i i Sie%a" #eaA$a&te&e i% Sie%a"
Ital*" 2#i+# #a' )ee% !,e&ati%( +!%ti%$!$'l* 'i%+e 1BH20
0istor#
Ori/in of t,e .ord
T#e %a1e bank e&i5e' f&!1 t#e Italia% 2!& banco Oe'3K)e%+#O" $'e $&i%( t#e
Re%ai''a%+e )* We2i'# Fl!&e%ti%e )a%3e&'" 2#! $'e t! 1a3e t#ei& t&a%'a+ti!%' a)!5e a
e'3 +!5e&e )* a (&ee% ta)le+l!t#0 H!2e5e&" t#e&e a&e t&a+e' !f )a%3i%( a+ti5it* e5e% i%
a%+ie%t ti1e'" 2#i+# i%i+ate' t#at t#e 2!&
a%3; 1i(#t %!t %e+e''a&il* +!1e f&!1 t#e
2!&a%+!;0
I% fa+t" t#e 2!& t&a+e' it' !&i(i%' )a+3 t! t#e A%+ie%t R!1a% E1,i&e" 2#e&e
1!%e*le%e&' 2!$l 'et $, t#ei& 'tall' i% t#e 1ile !f e%+l!'e +!$&t*a&' +alle
macella !% a l!%( )e%+# +alle a bancu" f&!1 2#i+# t#e 2!&' banco a% bank a&e
e&i5e0 A' a 1!%e*+#a%(e&" t#e 1e&+#a%t at t#e bancu i %!t '! 1$+# i%5e't 1!%e* a'
1e&el* +!%5e&t t#e f!&ei(% +$&&e%+* i%t! t#e !%l* le(al te%e& i% R!1eXt#at !f t#e
I1,e&ial Mi%t0
- BB -
T#e ea&lie't e5ie%+e !f 1!%e*-+#a%(i%( a+ti5it* i' e,i+te !% a 'il5e& &a+#1 +!i%
f&!1 a%+ie%t Helle%i+ +!l!%* T&a,e9$' !% t#e Bla+3 Sea" 1!e&% T&a)9!%" +0 <@0L<2@
B7" ,&e'e%te i% t#e B&iti'# M$'e$1 i% L!%!%0 T#e +!i% '#!2' a )a%3e&;' ta)le
(trapeza) lae% 2it# +!i%'" a ,$% !% t#e %a1e !f t#e +it*0
I% fa+t" e5e% t!a* i% M!e&% :&ee3 t#e 2!& T&a,e9a (???????) 1ea%' )!t# a ta)le a%
a )a%30
Traditiona- +an>in/ a(ti"ities
Ba%3' a+t a' ,a*1e%t a(e%t' )* +!%$+ti%( +#e+3i%( !& +$&&e%t a++!$%t' f!& +$'t!1e&'"
,a*i%( +#eA$e' &a2% )* +$'t!1e&' !% t#e )a%3" a% +!lle+ti%( +#eA$e' e,!'ite t!
+$'t!1e&'; +$&&e%t a++!$%t'0 Ba%3' al'! e%a)le +$'t!1e& ,a*1e%t' 5ia !t#e& ,a*1e%t
1et#!' '$+# a' tele(&a,#i+ t&a%'fe&" EFTPOS" a% ATM0
Ba%3' )!&&!2 1!%e* )* a++e,ti%( f$%' e,!'ite !% +$&&e%t a++!$%t'" )* a++e,ti%(
te&1 e,!'it'" a% )* i''$i%( e)t 'e+$&itie' '$+# a' )a%3%!te' a% )!%'0 Ba%3' le%
1!%e* )* 1a3i%( a5a%+e' t! +$'t!1e&' !% +$&&e%t a++!$%t'" )* 1a3i%( i%'tall1e%t
l!a%'" a% )* i%5e'ti%( i% 1a&3eta)le e)t 'e+$&itie' a% !t#e& f!&1' !f 1!%e* le%i%(0
Ba%3' ,&!5ie al1!'t all ,a*1e%t 'e&5i+e'" a% a )a%3 a++!$%t i' +!%'ie&e
i%i',e%'a)le )* 1!'t )$'i%e''e'" i%i5i$al' a% (!5e&%1e%t'0 N!%-)a%3' t#at ,&!5ie
,a*1e%t 'e&5i+e' '$+# a' &e1itta%+e +!1,a%ie' a&e %!t %!&1all* +!%'ie&e a% aeA$ate
'$)'tit$te f!& #a5i%( a )a%3 a++!$%t0
Ba%3' )!&&!2 1!'t f$%' f&!1 #!$'e#!l' a% %!%-fi%a%+ial )$'i%e''e'" a% le% 1!'t
f$%' t! #!$'e#!l' a% %!%-fi%a%+ial )$'i%e''e'" )$t %!%-)a%3 le%e&' ,&!5ie a
'i(%ifi+a%t a% i% 1a%* +a'e' aeA$ate '$)'tit$te f!& )a%3 l!a%'" a% 1!%e* 1a&3et
f$%'" +a'# 1a%a(e1e%t t&$'t' a% !t#e& %!%-)a%3 fi%a%+ial i%'tit$ti!%' i% 1a%* +a'e'
,&!5ie a% aeA$ate '$)'tit$te t! )a%3' f!& le%i%( 'a5i%(' t!0
Entr# re/u-ation
7$&&e%tl* i% 1!'t -$&i'i+ti!%' +!11e&+ial )a%3' a&e &e($late )* (!5e&%1e%t e%titie'
a% &eA$i&e a ',e+ial )a%3 li+e%+e t! !,e&ate0
- B@ -
U'$all* t#e efi%iti!% !f t#e )$'i%e'' !f )a%3i%( f!& t#e ,$&,!'e' !f &e($lati!% i'
e8te%e t! i%+l$e a++e,ta%+e !f e,!'it'" e5e% if t#e* a&e %!t &e,a*a)le t! t#e
+$'t!1e&;' !&e&Xalt#!$(# 1!%e* le%i%(" )* it'elf" i' (e%e&all* %!t i%+l$e i% t#e
efi%iti!%0
U%li3e 1!'t !t#e& &e($late i%$'t&ie'" t#e &e($lat!& i' t*,i+all* al'! a ,a&ti+i,a%t i% t#e
1a&3et" i0e0 a (!5e&%1e%t-!2%e (+e%t&al) )a%30 7e%t&al )a%3' al'! t*,i+all* #a5e a
1!%!,!l* !% t#e )$'i%e'' !f i''$i%( )a%3%!te'0 H!2e5e&" i% '!1e +!$%t&ie' t#i' i' %!t
t#e +a'e0 I% t#e U=" f!& e8a1,le" t#e Fi%a%+ial Se&5i+e' A$t#!&it* li+e%+e' )a%3'" a%
'!1e +!11e&+ial )a%3' ('$+# a' t#e Ba%3 !f S+!tla%) i''$e t#ei& !2% )a%3%!te' i%
aiti!% t! t#!'e i''$e )* t#e Ba%3 !f E%(la%" t#e U= (!5e&%1e%t;' +e%t&al )a%30
Definition
T#e efi%iti!% !f a )a%3 5a&ie' f&!1 +!$%t&* t! +!$%t&*0
U%e& E%(li'# +!11!% la2" a )a%3e& i' efi%e a' a ,e&'!% 2#! +a&&ie' !% t#e )$'i%e''
!f )a%3i%(" 2#i+# i' ',e+ifie a'6
• +!%$+ti%( +$&&e%t a++!$%t' f!& #i' +$'t!1e&'
• ,a*i%( +#eA$e' &a2% !% #i1" a%
• +!lle+ti%( +#eA$e' f!& #i' +$'t!1e&'0
I% 1!'t E%(li'# +!11!% la2 -$&i'i+ti!%' t#e&e i' a Bill' !f E8+#a%(e A+t t#at +!ifie'
t#e la2 i% &elati!% t! %e(!tia)le i%'t&$1e%t'" i%+l$i%( +#eA$e'" a% t#i' A+t +!%tai%' a
'tat$t!&* efi%iti!% !f t#e te&1 banker6 banker i%+l$e' a )!* !f ,e&'!%'" 2#et#e&
i%+!&,!&ate !& %!t" 2#! +a&&* !% t#e )$'i%e'' !f )a%3i%(; (Se+ti!% 2" I%te&,&etati!%)0
Alt#!$(# t#i' efi%iti!% 'ee1' +i&+$la&" it i' a+t$all* f$%+ti!%al" )e+a$'e it e%'$&e' t#at
t#e le(al )a'i' f!& )a%3 t&a%'a+ti!%' '$+# a' +#eA$e' ! %!t e,e% !% #!2 t#e )a%3 i'
!&(a%i'e !& &e($late0
T#e )$'i%e'' !f )a%3i%( i' i% 1a%* E%(li'# +!11!% la2 +!$%t&ie' %!t efi%e )* 'tat$te
)$t )* +!11!% la2" t#e efi%iti!% a)!5e0 I% !t#e& E%(li'# +!11!% la2 -$&i'i+ti!%'
t#e&e a&e 'tat$t!&* efi%iti!%' !f t#e business of banking !& banking business0 W#e%
l!!3i%( at t#e'e efi%iti!%' it i' i1,!&ta%t t! 3ee, i% 1i% t#at t#e* a&e efi%i%( t#e
)$'i%e'' !f )a%3i%( f!& t#e ,$&,!'e' !f t#e le(i'lati!%" a% %!t %e+e''a&il* i% (e%e&al0 I%
- BF -
,a&ti+$la&" 1!'t !f t#e efi%iti!%' a&e f&!1 le(i'lati!% t#at #a' t#e ,$&,!'e' !f e%t&*
&e($lati%( a% '$,e&5i'i%( )a%3' &at#e& t#a% &e($lati%( t#e a+t$al )$'i%e'' !f )a%3i%(0
H!2e5e&" i% 1a%* +a'e' t#e 'tat$t!&* efi%iti!% +l!'el* 1i&&!&' t#e +!11!% la2 !%e0
E8a1,le' !f 'tat$t!&* efi%iti!%'6
• O)a%3i%( )$'i%e''O 1ea%' t#e )$'i%e'' !f &e+ei5i%( 1!%e* !% +$&&e%t !& e,!'it
a++!$%t" ,a*i%( a% +!lle+ti%( +#eA$e' &a2% )* !& ,ai i% )* +$'t!1e&'" t#e
1a3i%( !f a5a%+e' t! +$'t!1e&'" a% i%+l$e' '$+# !t#e& )$'i%e'' a' t#e
A$t#!&it* 1a* ,&e'+&i)e f!& t#e ,$&,!'e' !f t#i' A+tM (Ba%3i%( A+t (Si%(a,!&e)"
Se+ti!% 2" I%te&,&etati!%)0
• O)a%3i%( )$'i%e''O 1ea%' t#e )$'i%e'' !f eit#e& !& )!t# !f t#e f!ll!2i%(6
10 &e+ei5i%( f&!1 t#e (e%e&al ,$)li+ 1!%e* !% +$&&e%t" e,!'it" 'a5i%(' !& !t#e&
'i1ila& a++!$%t &e,a*a)le !% e1a% !& 2it#i% le'' t#a% V< 1!%t#'Y 000 !& 2it# a
,e&i! !f +all !& %!ti+e !f le'' t#a% t#at ,e&i!M
20 ,a*i%( !& +!lle+ti%( +#eA$e' &a2% )* !& ,ai i% )* +$'t!1e&'
VFY
Si%+e t#e a5e%t !f EFTPOS (Ele+t&!%i+ F$%' T&a%'fe& at P!i%t Of Sale)" i&e+t +&eit"
i&e+t e)it a% i%te&%et )a%3i%(" t#e +#eA$e #a' l!'t it' ,&i1a+* i% 1!'t )a%3i%( '*'te1'
a' a ,a*1e%t i%'t&$1e%t0 T#i' #a' le le(al t#e!&i't' t! '$((e't t#at t#e +#eA$e )a'e
efi%iti!% '#!$l )e )&!ae%e t! i%+l$e fi%a%+ial i%'tit$ti!%' t#at +!%$+t +$&&e%t
a++!$%t' f!& +$'t!1e&' a% e%a)le +$'t!1e&' t! ,a* a% )e ,ai )* t#i& ,a&tie'" e5e% if
t#e* ! %!t ,a* a% +!lle+t +#eA$e'0
A((ountin/ for +an> a((ounts
Ba%3 'tate1e%t' a&e a++!$%ti%( &e+!&' ,&!$+e )* )a%3' $%e& t#e 5a&i!$' a++!$%ti%(
'ta%a&' !f t#e 2!&l0 U%e& :AAP a% IFRS t#e&e a&e t2! 3i%' !f a++!$%t'6 e)it a%
+&eit0 7&eit a++!$%t' a&e Re5e%$e" EA$it* a% Lia)ilitie'0 De)it A++!$%t' a&e A''et'
a% E8,e%'e'0 T#i' 1ea%' *!$ +&eit a credit account t! i%+&ea'e it' )ala%+e" a% *!$
e)it a debit account t! e+&ea'e it' )ala%+e0
T#i' al'! 1ea%' *!$ e)it *!$& 'a5i%(' a++!$%t e5e&* ti1e *!$ e,!'it 1!%e* i%t! it
(a% t#e a++!$%t i' %!&1all* i% efi+it)" 2#ile *!$ +&eit *!$& +&eit +a& a++!$%t e5e&*
ti1e *!$ ',e% 1!%e* f&!1 it (a% t#e a++!$%t i' %!&1all* i% +&eit)0
- BH -
H!2e5e&" if *!$ &ea *!$& )a%3 'tate1e%t" it 2ill 'a* t#e !,,!'iteXt#at *!$ +&eit *!$&
a++!$%t 2#e% *!$ e,!'it 1!%e*" a% *!$ e)it it 2#e% *!$ 2it#&a2 f$%'0 If *!$ #a5e
+a'# i% *!$& a++!$%t" *!$ #a5e a ,!'iti5e (!& +&eit) )ala%+eM if *!$ a&e !5e&&a2%" *!$
#a5e a %e(ati5e (!& efi+it) )ala%+e0
T#e &ea'!% f!& t#i' i' t#at t#e )a%3" a% %!t *!$" #a' ,&!$+e t#e )a%3 'tate1e%t0 D!$&
'a5i%(' 1i(#t )e your a''et'" )$t the bank's lia)ilit*" '! t#e* a&e +&eit a++!$%t' (2#i+#
'#!$l #a5e a ,!'iti5e )ala%+e)0 7!%5e&'el*" *!$& l!a%' a&e your lia)ilitie' )$t the bank's
a''et'" '! t#e* a&e e)it a++!$%t' (2#i+# '#!$l al'! #a5e a ,!'iti5e )ala%+e)0
W#e&e )a%3 t&a%'a+ti!%'" )ala%+e'" +&eit' a% e)it' a&e i'+$''e )el!2" t#e* a&e !%e
'! f&!1 t#e 5ie2,!i%t !f t#e a++!$%t #!le&X2#i+# i' t&aiti!%all* 2#at 1!'t ,e!,le a&e
$'e t! 'eei%(0
E(onomi( fun(tions
10 i''$e !f 1!%e*" i% t#e f!&1 !f )a%3%!te' a% +$&&e%t a++!$%t' '$)-e+t t! +#eA$e
!& ,a*1e%t at t#e +$'t!1e&;' !&e&0 T#e'e +lai1' !% )a%3' +a% a+t a' 1!%e*
)e+a$'e t#e* a&e %e(!tia)le a%K!& &e,a*a)le !% e1a%" a% #e%+e 5al$e at ,a&0
T#e* a&e effe+ti5el* t&a%'fe&a)le )* 1e&e eli5e&*" i% t#e +a'e !f )a%3%!te'" !& )*
&a2i%( a +#eA$e t#at t#e ,a*ee 1a* )a%3 !& +a'#0
20 %etti%( a% 'ettle1e%t !f ,a*1e%t' L )a%3' a+t a' )!t# +!lle+ti!% a% ,a*i%(
a(e%t' f!& +$'t!1e&'" ,a&ti+i,ati%( i% i%te&)a%3 +lea&i%( a% 'ettle1e%t '*'te1' t!
+!lle+t" ,&e'e%t" )e ,&e'e%te 2it#" a% ,a* ,a*1e%t i%'t&$1e%t'0 T#i' e%a)le'
)a%3' t! e+!%!1i'e !% &e'e&5e' #el f!& 'ettle1e%t !f ,a*1e%t'" 'i%+e i%2a& a%
!$t2a& ,a*1e%t' !ff'et ea+# !t#e&0 It al'! e%a)le' t#e !ff'etti%( !f ,a*1e%t
fl!2' )et2ee% (e!(&a,#i+al a&ea'" &e$+i%( t#e +!'t !f 'ettle1e%t )et2ee% t#e10
<0 +&eit i%te&1eiati!% L )a%3' )!&&!2 a% le% )a+3-t!-)a+3 !% t#ei& !2% a++!$%t
a' 1ile 1e%0
B0 +&eit A$alit* i1,&!5e1e%t L )a%3' le% 1!%e* t! !&i%a&* +!11e&+ial a%
,e&'!%al )!&&!2e&' (!&i%a&* +&eit A$alit*)" )$t a&e #i(# A$alit* )!&&!2e&'0 T#e
i1,&!5e1e%t +!1e' f&!1 i5e&'ifi+ati!% !f t#e )a%3;' a''et' a% +a,ital 2#i+#
,&!5ie' a )$ffe& t! a)'!&) l!''e' 2it#!$t efa$lti%( !% it' !)li(ati!%'0 H!2e5e&"
)a%3%!te' a% e,!'it' a&e (e%e&all* $%'e+$&eM if t#e )a%3 (et' i%t! iffi+$lt*
- B? -
a% ,le(e' a''et' a' 'e+$&it*" t! &ai'e t#e f$%i%( it %ee' t! +!%ti%$e t! !,e&ate"
t#i' ,$t' t#e %!te #!le&' a% e,!'it!&' i% a% e+!%!1i+all* '$)!&i%ate
,!'iti!%0
@0 1at$&it* t&a%'f!&1ati!% L )a%3' )!&&!2 1!&e !% e1a% e)t a% '#!&t te&1
e)t" )$t ,&!5ie 1!&e l!%( te&1 l!a%'0 I% !t#e& 2!&'" t#e* )!&&!2 '#!&t a%
le% l!%(0 Wit# a 't&!%(e& +&eit A$alit* t#a% 1!'t !t#e& )!&&!2e&'" )a%3' +a% !
t#i' )* a((&e(ati%( i''$e' (e0(0 a++e,ti%( e,!'it' a% i''$i%( )a%3%!te') a%
&ee1,ti!%' (e0(0 2it#&a2al' a% &ee1,ti!%' !f )a%3%!te')" 1ai%tai%i%(
&e'e&5e' !f +a'#" i%5e'ti%( i% 1a&3eta)le 'e+$&itie' t#at +a% )e &eail* +!%5e&te
t! +a'# if %eee" a% &ai'i%( &e,la+e1e%t f$%i%( a' %eee f&!1 5a&i!$' '!$&+e'
(e0(0 2#!le'ale +a'# 1a&3et' a% 'e+$&itie' 1a&3et')0
&a. of +an>in/
Ba%3i%( la2 i' )a'e !% a +!%t&a+t$al a%al*'i' !f t#e &elati!%'#i, )et2ee% t#e bank
(efi%e a)!5e) a% t#e customerXefi%e a' a%* e%tit* f!& 2#i+# t#e )a%3 a(&ee' t!
+!%$+t a% a++!$%t0
T#e la2 i1,lie' &i(#t' a% !)li(ati!%' i%t! t#i' &elati!%'#i, a' f!ll!2'6
10 T#e )a%3 a++!$%t )ala%+e i' t#e fi%a%+ial ,!'iti!% )et2ee% t#e )a%3 a% t#e
+$'t!1e&6 2#e% t#e a++!$%t i' i% +&eit" t#e )a%3 !2e' t#e )ala%+e t! t#e
+$'t!1e&M 2#e% t#e a++!$%t i' !5e&&a2%" t#e +$'t!1e& !2e' t#e )ala%+e t! t#e
)a%30
20 T#e )a%3 a(&ee' t! ,a* t#e +$'t!1e&;' +#eA$e' $, t! t#e a1!$%t 'ta%i%( t! t#e
+&eit !f t#e +$'t!1e&;' a++!$%t" ,l$' a%* a(&ee !5e&&aft li1it0
<0 T#e )a%3 1a* %!t ,a* f&!1 t#e +$'t!1e&;' a++!$%t 2it#!$t a 1a%ate f&!1 t#e
+$'t!1e&" e0(0 a +#eA$e &a2% )* t#e +$'t!1e&0
B0 T#e )a%3 a(&ee' t! ,&!1,tl* +!lle+t t#e +#eA$e' e,!'ite t! t#e +$'t!1e&;'
a++!$%t a' t#e +$'t!1e&;' a(e%t" a% t! +&eit t#e ,&!+ee' t! t#e +$'t!1e&;'
a++!$%t0
@0 T#e )a%3 #a' a &i(#t t! +!1)i%e t#e +$'t!1e&;' a++!$%t'" 'i%+e ea+# a++!$%t i'
-$'t a% a',e+t !f t#e 'a1e +&eit &elati!%'#i,0
- B> -
F0 T#e )a%3 #a' a lie% !% +#eA$e' e,!'ite t! t#e +$'t!1e&;' a++!$%t" t! t#e e8te%t
t#at t#e +$'t!1e& i' i%e)te t! t#e )a%30
H0 T#e )a%3 1$'t %!t i'+l!'e etail' !f t&a%'a+ti!%' t#&!$(# t#e +$'t!1e&;' a++!$%t
X$%le'' t#e +$'t!1e& +!%'e%t'" t#e&e i' a ,$)li+ $t* t! i'+l!'e" t#e )a%3;'
i%te&e't' &eA$i&e it" !& t#e la2 e1a%' it0
?0 T#e )a%3 1$'t %!t +l!'e a +$'t!1e&;' a++!$%t 2it#!$t &ea'!%a)le %!ti+e" 'i%+e
+#eA$e' a&e !$t'ta%i%( i% t#e !&i%a&* +!$&'e !f )$'i%e'' f!& 'e5e&al a*'0
T#e'e i1,lie +!%t&a+t$al te&1' 1a* )e 1!ifie )* e8,&e'' a(&ee1e%t )et2ee% t#e
+$'t!1e& a% t#e )a%30 T#e 'tat$te' a% &e($lati!%' i% f!&+e 2it#i% a ,a&ti+$la&
-$&i'i+ti!% 1a* al'! 1!if* t#e a)!5e te&1' a%K!& +&eate %e2 &i(#t'" !)li(ati!%' !&
li1itati!%' &ele5a%t t! t#e )a%3-+$'t!1e& &elati!%'#i,0
S!1e t*,e' !f fi%a%+ial i%'tit$ti!%" '$+# a' )$ili%( '!+ietie' a% +&eit $%i!%'" 1a* )e
,a&tl* !& 2#!ll* e8e1,t f&!1 )a%3 li+e%+e &eA$i&e1e%t'" a% t#e&ef!&e &e($late $%e&
'e,a&ate &$le'0
T#e &eA$i&e1e%t' f!& t#e i''$e !f a )a%3 li+e%+e 5a&* )et2ee% -$&i'i+ti!%' )$t t*,i+all*
i%+l$e6
10 Mi%i1$1 +a,ital
20 Mi%i1$1 +a,ital &ati!
<0 ;Fit a% P&!,e&; &eA$i&e1e%t' f!& t#e )a%3;' +!%t&!lle&'" !2%e&'" i&e+t!&'" a%K!&
'e%i!& !ffi+e&'
B0 A,,&!5al !f t#e )a%3;' )$'i%e'' ,la% a' )ei%( '$ffi+ie%tl* ,&$e%t a% ,la$'i)le0
T#pes of +an>s
Ba%3'; a+ti5itie' +a% )e i5ie i%t! &etail )a%3i%(" eali%( i&e+tl* 2it# i%i5i$al' a%
'1all )$'i%e''e'M )$'i%e'' )a%3i%(" ,&!5ii%( 'e&5i+e' t! 1i-1a&3et )$'i%e''M +!&,!&ate
)a%3i%(" i&e+te at la&(e )$'i%e'' e%titie'M ,&i5ate )a%3i%(" ,&!5ii%( 2ealt#
1a%a(e1e%t 'e&5i+e' t! #i(# %et 2!&t# i%i5i$al' a% fa1ilie'M a% i%5e't1e%t )a%3i%("
&elati%( t! a+ti5itie' !% t#e fi%a%+ial 1a&3et'0 M!'t )a%3' a&e ,&!fit-1a3i%(" ,&i5ate
e%te&,&i'e'0 H!2e5e&" '!1e a&e !2%e )* (!5e&%1e%t" !& a&e %!%-,&!fit !&(a%i9ati!%'0
- @0 -
7e%t&al )a%3' a&e %!&1all* (!5e&%1e%t-!2%e a% +#a&(e 2it# A$a'i-&e($lat!&*
&e',!%'i)ilitie'" '$+# a' '$,e&5i'i%( +!11e&+ial )a%3'" !& +!%t&!lli%( t#e +a'# i%te&e't
&ate0 T#e* (e%e&all* ,&!5ie liA$iit* t! t#e )a%3i%( '*'te1 a% a+t a' t#e le%e& !f la't
&e'!&t i% e5e%t !f a +&i'i'0
T#pes of retai- +an>s
• 7!11e&+ial )a%36 t#e te&1 $'e f!& a %!&1al )a%3 t! i'ti%($i'# it f&!1 a%
i%5e't1e%t )a%30 Afte& t#e :&eat De,&e''i!%" t#e U0S0 7!%(&e'' &eA$i&e t#at
)a%3' !%l* e%(a(e i% )a%3i%( a+ti5itie'" 2#e&ea' i%5e't1e%t )a%3' 2e&e li1ite
t! +a,ital 1a&3et a+ti5itie'0 Si%+e t#e t2! %! l!%(e& #a5e t! )e $%e& 'e,a&ate
!2%e&'#i," '!1e $'e t#e te&1 O+!11e&+ial )a%3O t! &efe& t! a )a%3 !& a i5i'i!%
!f a )a%3 t#at 1!'tl* eal' 2it# e,!'it' a% l!a%' f&!1 +!&,!&ati!%' !& la&(e
)$'i%e''e'0
• 7!11$%it* Ba%3'6 l!+all* !,e&ate fi%a%+ial i%'tit$ti!%' t#at e1,!2e&
e1,l!*ee' t! 1a3e l!+al e+i'i!%' t! 'e&5e t#ei& +$'t!1e&' a% t#e ,a&t%e&'0
• 7!11$%it* e5el!,1e%t )a%3'6 &e($late )a%3' t#at ,&!5ie fi%a%+ial 'e&5i+e'
a% +&eit t! $%e&-'e&5e 1a&3et' !& ,!,$lati!%'0
• P!'tal 'a5i%(' )a%3'6 'a5i%(' )a%3' a''!+iate 2it# %ati!%al ,!'tal '*'te1'0
• P&i5ate )a%3'6 )a%3' t#at 1a%a(e t#e a''et' !f #i(# %et 2!&t# i%i5i$al'0
• Off'#!&e )a%3'6 )a%3' l!+ate i% -$&i'i+ti!%' 2it# l!2 ta8ati!% a% &e($lati!%0
Ma%* !ff'#!&e )a%3' a&e e''e%tiall* ,&i5ate )a%3'0
• Sa5i%(' )a%36 i% E$&!,e" 'a5i%(' )a%3' ta3e t#ei& &!!t' i% t#e 1>t# !& '!1eti1e'
e5e% 1?t# +e%t$&*0 T#ei& !&i(i%al !)-e+ti5e 2a' t! ,&!5ie ea'il* a++e''i)le
'a5i%(' ,&!$+t' t! all 't&ata !f t#e ,!,$lati!%0 I% '!1e +!$%t&ie'" 'a5i%(' )a%3'
2e&e +&eate !% ,$)li+ i%itiati5eM i% !t#e&'" '!+iall* +!11itte i%i5i$al' +&eate
f!$%ati!%' t! ,$t i% ,la+e t#e %e+e''a&* i%f&a't&$+t$&e0 N!2aa*'" E$&!,ea%
'a5i%(' )a%3' #a5e 3e,t t#ei& f!+$' !% &etail )a%3i%(6 ,a*1e%t'" 'a5i%('
,&!$+t'" +&eit' a% i%'$&a%+e' f!& i%i5i$al' !& '1all a% 1ei$1-'i9e
e%te&,&i'e'0 A,a&t f&!1 t#i' &etail f!+$'" t#e* al'! iffe& f&!1 +!11e&+ial )a%3'
)* t#ei& )&!al* e+e%t&ali'e i't&i)$ti!% %et2!&3" ,&!5ii%( l!+al a% &e(i!%al
!$t&ea+#Xa% )* t#ei& '!+iall* &e',!%'i)le a,,&!a+# t! )$'i%e'' a% '!+iet*0
- @1 -
• B$ili%( '!+ietie' a% La%e')a%3'6 i%'tit$ti!%' t#at +!%$+t &etail )a%3i%(0
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!%l* 2#at t#e* +!%'ie& t! )e '!+iall*-&e',!%'i)le i%5e't1e%t'0
• I'la1i+ )a%3'6 Ba%3' t#at t&a%'a+t a++!&i%( t! I'la1i+ ,&i%+i,le'0
T#pes of in"estment +an>s
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t&ae f!& t#ei& !2% a++!$%t'" 1a3e 1a&3et'" a% a5i'e +!&,!&ati!%' !% +a,ital
1a&3et a+ti5itie' '$+# a' 1e&(e&' a% a+A$i'iti!%'0
• Me&+#a%t )a%3' 2e&e t&aiti!%all* )a%3' 2#i+# e%(a(e i% t&ae fi%a%+e0 T#e
1!e&% efi%iti!%" #!2e5e&" &efe&' t! )a%3' 2#i+# ,&!5ie +a,ital t! fi&1' i% t#e
f!&1 !f '#a&e' &at#e& t#a% l!a%'0 U%li3e 5e%t$&e +a,ital fi&1'" t#e* te% %!t t!
i%5e't i% %e2 +!1,a%ie'0
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i% 'e5e&al !f t#e'e a+ti5itie'0 T#e'e )i( )a%3' a&e 5e&* i5e&'ifie (&!$,' t#at"
a1!%( !t#e& 'e&5i+e'" al'! i't&i)$te i%'$&a%+eX #e%+e t#e te&1 )a%+a''$&a%+e" a
,!&t1a%tea$ 2!& +!1)i%i%( O)a%A$e !& )a%3O a% Oa''$&a%+eO" 'i(%if*i%( t#at
)!t# )a%3i%( a% i%'$&a%+e a&e ,&!5ie )* t#e 'a1e +!&,!&ate e%tit*0
Ot,er t#pes of +an>s
• I'la1i+ )a%3' a#e&e t! t#e +!%+e,t' !f I'la1i+ la20 T#i' f!&1 !f )a%3i%(
&e5!l5e' a&!$% 'e5e&al 2ell-e'ta)li'#e ,&i%+i,le' )a'e !% I'la1i+ +a%!%'0 All
)a%3i%( a+ti5itie' 1$'t a5!i i%te&e't" a +!%+e,t t#at i' f!&)ie% i% I'la10
I%'tea" t#e )a%3 ea&%' ,&!fit (1a&3$,) a% fee' !% t#e fi%a%+i%( fa+ilitie' t#at it
e8te%' t! +$'t!1e&'0
- @2 -
C0APTER1I=
COMPAN; PRO:I&E
COMPAN; PRO:I&E
- @< -
I7I7I Ba%3 i' I%ia;' 'e+!%-la&(e't )a%3 2it# t!tal a''et' !f R'0 B"0F20<B )illi!% (USN
>1 )illi!%) at Ma&+# <1" 2011 a% ,&!fit afte& ta8 R'0 @10@1 )illi!% (USN 1"1@@ 1illi!%)
f!& t#e *ea& e%e Ma&+# <1" 20110 T#e Ba%3 #a' a %et2!&3 !f 2"@@F )&a%+#e' a% H"BB0
ATM' i% I%ia" a% #a' a ,&e'e%+e i% 1> +!$%t&ie'" i%+l$i%( I%ia0
I7I7I Ba%3 !ffe&' a 2ie &a%(e !f )a%3i%( ,&!$+t' a% fi%a%+ial 'e&5i+e' t! +!&,!&ate
a% &etail +$'t!1e&' t#&!$(# a 5a&iet* !f eli5e&* +#a%%el' a% t#&!$(# it' ',e+iali'e
'$)'iia&ie' i% t#e a&ea' !f i%5e't1e%t )a%3i%(" life a% %!%-life i%'$&a%+e" 5e%t$&e
+a,ital a% a''et 1a%a(e1e%t0
T#e Ba%3 +$&&e%tl* #a' '$)'iia&ie' i% t#e U%ite =i%(!1" R$''ia a% 7a%aa" )&a%+#e'
i% U%ite State'" Si%(a,!&e" Ba#&ai%" H!%( =!%(" S&i La%3a" Qata& a% D$)ai
I%te&%ati!%al Fi%a%+e 7e%t&e a% &e,&e'e%tati5e !ffi+e' i% U%ite A&a) E1i&ate'" 7#i%a"
S!$t# Af&i+a" Ba%(lae'#" T#aila%" Mala*'ia a% I%!%e'ia0 O$& U= '$)'iia&* #a'
e'ta)li'#e )&a%+#e' i% Bel(i$1 a% :e&1a%*0
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Nati!%al St!+3 E8+#a%(e !f I%ia Li1ite a% it' A1e&i+a% De,!'ita&* Re+ei,t' (ADR')
a&e li'te !% t#e Ne2 D!&3 St!+3 E8+#a%(e (NDSE)0
7!&,!&ate P&!file
I7I7I Ba%3 i' I%ia;' 'e+!%-la&(e't )a%3 2it# t!tal a''et' !f R'0 <"@F202? )illi!% (USN
HH )illi!%) a' !% De+e1)e& <1" 200>0
B!a& Me1)e&'
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M&0 H!1i R0 =#$'&!3#a%
M&0 La3'#1i N0 Mittal
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D&0 A%$, =0 P$-a&i
M&0 A%$,a1 P$&i
M&0 M0S0 Ra1a+#a%&a%
- @B -
M&0 M0=0 S#a&1a
M&0 C0 S&ia&
P&!f0 Ma&ti :0 S$)&a#1a%*a1
M&0 C0 P&e1 Wat'a
M'0 7#a%a D0 =!+##a&"
Ma%a(i%( Di&e+t!& E 7EO
M&0 Sa%ee, Ba3#'#i"
De,$t* Ma%a(i%( Di&e+t!&
M&0 N0 S0 =a%%a%"
E8e+$ti5e Di&e+t!& E 7FO
M&0 =0 Ra13$1a&"
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E8e+$ti5e Di&e+t!&
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I%ia% I%'tit$te !f Ma%a(e1e%t" A#1ea)a0 He -!i%e I7I7I i% 1>H1 a% 2!&3e i% t#e
a&ea' !f ,&!-e+t fi%a%+e" lea'i%(" &e'!$&+e' a% +!&,!&ate ,la%%i%(0 I% 1>??" #e -!i%e t#e
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I7I7I a' it' Ma%a(i%( Di&e+t!& E 7EO i% 1>>F0 He )e+a1e Ma%a(i%( Di&e+t!& E 7EO
!f I7I7I Ba%3 i% 2002 f!ll!2i%( t#e 1e&(e& !f I7I7I 2it# I7I7I Ba%30 U%e& #i'
leae&'#i," t#e I7I7I :&!$, t&a%'f!&1e it'elf i%t! a i5e&'ifie" te+#%!l!(*-&i5e%
fi%a%+ial 'e&5i+e' (&!$," t#at #a' leae&'#i, ,!'iti!%' a+&!'' )a%3i%(" i%'$&a%+e a% a''et
1a%a(e1e%t i% I%ia" a% a% i%te&%ati!%al ,&e'e%+e0 He &eti&e a' Ma%a(i%( Di&e+t!& E
7EO i% A,&il 200>" a% t!!3 $, t#e ,!'iti!% !f %!%-e8e+$ti5e 7#ai&1a% !f I7I7I Ba%3
effe+ti5e Ma* 1" 200>0 He 2a' t#e P&e'ie%t !f t#e 7!%fee&ati!% !f I%ia% I%$'t&* (7II)
f!& 200?-0>0 He 2a' a2a&e t#e Pa1a B#$'#a% )* t#e P&e'ie%t !f I%ia i% Ma* 200?0
He 2a' +!%fe&&e t#e Lifeti1e A+#ie5e1e%t A2a&' at t#e Fi%a%+ial E8,&e'' Be't Ba%3
A2a&' 200? a% t#e NDTC P&!fit B$'i%e'' Leae&'#i, A2a&' 200?M 2a' %a1e
;B$'i%e''1a% !f t#e Dea&; )* F!&)e' A'ia a% T#e E+!%!1i+ Ti1e'; ;B$'i%e'' Leae& !f
t#e Dea&; i% 200HM B$'i%e'' Sta%a&;' OBa%3e& !f t#e Dea&O a% 7NB7-TC1?;'
OO$t'ta%i%( B$'i%e'' Leae& !f t#e Dea&O i% 200FM B$'i%e'' I%ia;' OB$'i%e''1a% !f t#e
Dea&O i% 200@M a% 7NB7;' OA'ia% B$'i%e'' Leae& !f t#e Dea&O i% 20010 He #a' )ee%
- @@ -
+!%fe&&e 2it# a% #!%!&a&* P#D )* t#e Ba%a&a' Hi%$ U%i5e&'it*0 He i' a 1e1)e& !f t#e
B!a& !f t#e I%'tit$te !f I%te&%ati!%al Fi%a%+e" a Di&e+t!& !% t#e B!a& !f I%f!'*'
Te+#%!l!(ie' a% a 1e1)e& !f t#e B!a& !f :!5e&%!&' !f t#e I%ia% I%'tit$te !f
Ma%a(e1e%t" A#1ea)a0
A.ards<
• M'0 7#a%a =!+##a&" Ma%a(i%( Di&e+t!& E 7EO 2a' a2a&e t#e O7NB7 A'ia
I%ia B$'i%e'' Leae& Of T#e Dea& A2a&O0 S#e al'! &e+ei5e t#e O7NB7 A'ia;'
7SR A2a& 2011O
• F!& t#e t#i& *ea& i% a &!2 I7I7I Ba%3 #a' 2!% T#e A''et T&i,le A 7!$%t&*
A2a&' f!& Be't D!1e'ti+ Ba%3 i% I%ia
• I7I7I Ba%3 2!% t#e M!'t A1i&e =%!2le(e E%te&,&i'e' (MA=E) I%ia 200>
A2a&0 I7I7I Ba%3 2!% t#e fi&'t ,la+e i% OMa8i1i9i%( E%te&,&i'e I%telle+t$al
7a,italO +ate(!&*" O+t!)e& 2?" 200>
• M' 7#a%a =!+##a&" MD a% 7EO 2a' a2a&e 2it# t#e I%ia% B$'i%e''
W!1e% Leae&'#i, A2a& at NDTC P&!fit B$'i%e'' Leae&'#i, A2a&' " O+t!)e&
2F" 200>0
• I7I7I Ba%3 &e+ei5e t2! a2a&' i% 7NB7 A2aa9 7!%'$1e& A2a&'M !%e f!& t#e
1!'t ,&efe&&e a$t! l!a% a% t#e !t#e& f!& 1!'t ,&efe&&e +&eit 7a&" !%
Se,te1)e& <0" 200>
• M'0 7#a%a =!+##a&" Ma%a(i%( Di&e+t!& E 7EO &a%3e i% t#e t!, 20 !f t#e
W!&l;' 100 M!'t P!2e&f$l W!1e% li't +!1,ile )* F!&)e'" A$($'t 200>
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=a1at#" 7#ai&1a% 2it# t#e Lifeti1e A+#ie5e1e%t A2a& " W$l* 2@" 200>
• I7I7I Ba%3 2!% A''et T&i,le A I%5e't1e%t A2a&' f!& t#e Be't De&i5ati5e H!$'e"
I%ia0 I% aiti!% I7I7I Ba%3 2e&e Hi(#l* +!11e%e " L!+al 7$&&e%+*
St&$+t$&e ,&!$+t" I%ia f!& 10@ *ea& ADR
R li%3e Ra%(e A++&$al N!te0"
W$l* 200>
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- @F -
200>
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o E8+elle%+e i% P&i5ate Ba%3i%(" APA7 Re(i!%
o E8+elle%+e i% Re1itta%+e B$'i%e''" APA7 Re(i!%
• I7I7I Ba%3 M!)ile Ba%3i%( 2a' a-$(e OBe't Ba%3 A2a& f!& I%itiati5e' i%
M!)ile Pa*1e%t' a% Ba%3i%(O )* IDRBT" !% Ma* 1?" 200> i% H*e&a)a0
• I7I7I Ba%3;' )2 )&a%+#f&ee )a%3i%( 2a' a-$(e OBe't E-Ba%3i%( P&!-e+t
I1,le1e%tati!% A2a& 200?O )* T#e A'ia% Ba%3e&" !% Ma* 11" 200> at t#e 7#i%a
W!&l H!tel i% Bei-i%(0
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• I7I7I Ba%3 NRI 'e&5i+e' 2i%' t#e OE8+elle%+e i% B$'i%e'' M!el I%%!5ati!%
A2a&O i% t#e ei(#t# A'ia% Ba%3e& E8+elle%+e i% Retail Fi%a%+ial Se&5i+e'
A2a&' P&!(&a11e0
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!f t#e *ea&O a% OS1all B$(et O% :&!$% P&!1!ti!% !f t#e Dea&O0 T#e'e a2a&'
2e&e (i5e% f!& 7attle L!a% ;=a1#e%$ 7a1,ai(%; a% OTal3ie' !% t#e 1!5e
+a1,ai(%; &e',e+ti5el*0
• I7I7I Ba%3;' :e&1a%* B&a%+# #a' )ee% +e&tifie )* OStift$%( Wa&&e%te'tO0 I7I7I
Ba%3 i' &a%3e 2% a1!%('t @H 'a5i%(' ,&!$+t' a+&!'' 1> )a%3'
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Z[\$&! i% t#e O+all 1!%e*O+ate(!&*0
• T#e I7I7I Ba%3 2a' a2a&e t#e &$%%e&;' $, ,!'iti!% i% :a&t%e& B$'i%e''
I%telli(e%+e a% E8+elle%+e A2a& f!& A'ia Pa+ifi+ f!& it' B$'i%e'' I%telli(e%+e
f$%+ti!%'0
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>0016200? +e&tifi+ati!% )* TUC N!&0 T#e '+!,e !f +e&tifi+ati!% +!1,&i'e
- @H -
,&!+e''e' a&!$% +!%'$lti%( a% +a,a)ilit* )$ili%( !% 1et#!' !f A$alit* E
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• I7I7I Ba%3 #a' )ee% a2a&e t#e f!ll!2i%( title' $%e& T#e A''et T&i,le A
7!$%t&* A2a&' f!& 200>6
o Be't T&a%'a+ti!% Ba%3 i% I%ia
o Be't T&ae Fi%a%+e Ba%3 i% I%ia
o Be't 7a'# Ma%a(e1e%t Ba%3 i% I%ia
o Be't D!1e'ti+ 7$'t!ia% i% I%ia
I7I7I Ba%3 #a' )a((e t#e Be't 7a'# Ma%a(e1e%t Ba%3 i% I%ia a2a& f!& t#e
'e+!% *ea& i% a &!20 T#e !t#e& a2a&' #a5e )ee% )a((e f!& t#e t#i& *ea& i% a
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• I7I7I Ba%3 7a%aa &e+ei5e t#e ,&e'ti(i!$' 7a%aia% Hele% =elle& A2a& at t#e
7a%aia% Hele% =elle& 7e%t&e;' Fift# A%%$al L$%+#e!% i% T!&!%t!0 T#e a2a&
2a' (i5e% t! I7I7I Ba%3 it' l!%(-'ta%i%( '$,,!&t t! t#i' $%iA$e t&ai%i%( +e%t&e
f!& ,e!,le 2#! a&e eaf-)li%0
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:&!$, i% ea&l* 200? t! (i5e f!+$' t! it' eff!&t' t! ,&!1!te i%+l$'i5e (&!2t# a1!%('t l!2-
i%+!1e I%ia% #!$'e#!l'0
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#a' eA$al !,,!&t$%it* t! e5el!, a% (&!20 T!2a&' t#i' e%" I7I7I F!$%ati!% i'
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t! ,a&ti+i,ate i% a% )e%efit f&!1 t#e (&!2t# ,&!+e''0
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,!2e& t! +&eate a% '$'tai% a -$'t '!+iet* i% 2#i+# t! li5e0
Mi''i!%
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,&!+e''0
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+#a&ita)le t&$'t &e(i'te&e at 7#e%%ai 5ie &e(i't&ati!% !f t#e T&$'t Dee 2it# t#e S$)-
Re(i't&a&G' Offi+e at 7#e%%ai !% Wa%$a&* 0B" 20100
T#e a,,li+ati!% f!& &e(i't&ati!% !f t#e F!$%ati!% $%e& 'e+ti!% 12AA !f t#e I%+!1e ta8
A+t" 1>F1 (.t#e A+t/) 2a' file !% Fe)&$a&* H" 200? a% t#e a,,li+ati!% $%e& 'e+ti!%
?0: !f t#e A+t 2a' file !% Fe)&$a&* 1B" 200?0 S$)'eA$e%tl*" I7I7I F!$%ati!% 2a'
&e(i'te&e a' a .PUBLI7 7HARITABLE TRUST/ $%e& Se+ti!% 12AA !f t#e A+t 2it#
effe+t f&!1 Fe)&$a&* H" 200?0 F$&t#e&" I7I7I F!$%ati!% &e+ei5e a,,&!5al $%e& Se+ti!%
?0
@)(5i) !f t#e A+t !% Ma&+# 1>" 200?0 T#i' a,,&!5al i' 5ali i% &e',e+t !f !%ati!%
&e+ei5e )* I7I7I F!$%ati!% f&!1 Fe)&$a&* 1B" 200? t! Ma&+# <1" 200>0 A++!&i%(l*"
I7I7I Ba%3 a% :&!$, 7!1,a%ie' 2ill )e eli(i)le t! (et a e$+ti!% $%e& 'e+ti!% ?0:
!% !%ati!%' 1ae $&i%( t#i' ,e&i!0
I7I7I F!$%ati!% #a' al'! !)tai%e it' Pe&1a%e%t A++!$%t N$1)e& (PAN) a% Ta8
e$+ti!% A++!$%t N$1)e& (TAN)0
F$%' Fl!2 2010-2011
- @> -
I7I7I F!$%ati!% &e+ei5e R'0F1H0?0 1illi!% f&!1 t#e f!ll!2i%( '!$&+e' a' (&a%t'6
(Wa%$a&* B" 200? t! Ma&+# <1" 2011) (',a%%i%( t2! fi%a%+ial *ea&')
S!$&+e (Wa%$a&* B" 200? L Ma&+# <1" 2011) A1!$%t (R'0 1illi!%)
I7I7I Ba%3 @00000
I7I7I P&$e%tial Life I%'$&a%+e FH0H2
I7I7I L!1)a& :e%e&al I%'$&a%+e 1H012
I7I7I Se+$&itie' 1B0>?
I7I7I Se+$&itie' PD F0>>
I7I7I H!1e Fi%a%+e 10>>
I7I7I Ce%t$&e >000
T!tal F1H0?0
I7I7I F!$%ati!% al'! i%+$&&e t!tal e8,e%'e' !f R'0102@ 1illi!% $&i%( t#i' ,e&i! a%
#a a f$% )ala%+e !f R'0F10@@ 1illi!% a' !% Ma&+# <1" 20110
Di')$&'e1e%t' (Wa%$a&* B" 200? t! Ma&+# <1" 2011)
:&a%t Be%efi+ia&ie' (Wa%$a&* B" 2010 L Ma&+# <1" 2011) A1!$%t (R'0 1illi!%)
I7I7I F!$%ati!% P&!(&a11e'
I7I7I 7e%t&e f!& 7#il Healt# a% N$t&iti!% 1@0000
IFMR Fi%a%+e F!$%ati!% 200000
E%5i&!%1e%tall* S$'tai%a)le Fi%a%+e 20000
7SO Pa&t%e&' @0000
7ARE (P!li+* U%it) @000
St&ate(* a% A5i'!&* :&!$, 20000
I7I7I :&!$, 7!&,!&ate S!+ial Re',!%'i)ilit* P&!(&a11e'
Rea t! Lea 2@000
MITRA (I7I7I Fell!2' P&!(&a11e) @@000
7ARE (Di'a'te& Ma%a(e1e%t U%it) @000
Ra%( De 2@000
T!tal @@@000
- F0 -
:&a%t Be%efi+ia&ie' f!& 2010-2011
I7I7I F!$%ati!% P&!(&a11e&'
I7I7I 7e%t&e f!& 7#il Healt# a% N$t&iti!% (I77HN)
T#e (&a%t !f R'01@0000 1illi!% 2a' ,&!5ie t! I77HN )* 2a* !f +!&,$' '$,,!&t a% f!&
,$&'$i%( 5a&i!$' ,&!-e+t' +!%'i'te%t 2it# it' 1i''i!%0
IFMR Fi%a%+e F!$%ati!% (IFF)
T#e (&a%t !f R'0200000 1illi!% 2a' ,&!5ie t! IFMR Fi%a%+e F!$%ati!% )* 2a* !f
+!&,$' '$,,!&t a% f!& ,$&'$i%( 5a&i!$' ,&!-e+t' +!%'i'te%t 2it# it' 1i''i!%0
E%5i&!%1e%tall* S$'tai%a)le Fi%a%+e (ESF)
T#e (&a%t !f R'020000 1illi!% 2a' ,&!5ie t! ESF f!& t#ei& +!lla)!&ati!% 2!&3 2it#
R$&al E%e&(* Net2!&3 E%te&,&i'e (RENE) !% '$'tai%a)le e%e&(* a% e%5i&!%1e%t
,&!-e+t' )e%efiti%( &e1!te &$&al e% $'e&'0 T#e ,&!,!'e ,&!-e+t' 2ill ,&!1!te
e5el!,i%( t!!l' a% &i5i%( i%%!5ati!% t! '+ale &$&al e%e&(* a++e'' f!& &e1!te &$&al
$'e&'0
7SO Pa&t%e&'
T#e (&a%t !f R'0@0000 1illi!% 2a' ,&!5ie t! 7SO Pa&t%e&' )* 2a* !f +!&,$' '$,,!&t
a% f!& ,$&'$i%( 5a&i!$' ,&!-e+t' +!%'i'te%t 2it# it' 1i''i!%0
7ARE (P!li+* U%it)
A (&a%t !f R'0@000 1illi!% 2a' ,&!5ie t! 7ARE" a% I%ia% N:O t#at i' +l!'el*
affiliate 2it# 7ARE (USA)" t! +&eate a ,!li+* $%it i% Del#i0 Lea&%i%( f&!1 7AREG'
2!&3 i% I%ia a% 2!&l-2ie a' 2ell a' f&!1 t#e 2!&3 !f I7I7I F!$%ati!% a% it'
,a&t%e&'" t#e $%it 2ill 'e&5e a' a ,latf!&1 t! e%(a(e t#e (!5e&%1e%t a% ,!li+*1a3e&' i%
a% eff!&t t! )&i%( a)!$t &eA$i&e ,!li+* +#a%(e' i% a&ea' '$+# a' 1ate&%al a% +#il
#ealt#0
St&ate(* a% A5i'!&* :&!$, (SA
7#a&ita)le f!$%ati!%' i% I%ia a% 2!&l-2ie 't&$((le t! f$ll* e5el!, t#e 't&ate(*
f!&1$lati!%" 3%!2le(e 1a%a(e1e%t a% i1,a+t a''e''1e%t i1e%'i!%' !f t#ei& 2!&30 A
(&a%t !f R'020000 1illi!% 2a' ,&!5ie t! St&ate(* a% A5i'!&* :&!$, (SA" a tea1 at
7e%t&e f!& De5el!,1e%t Fi%a%+e t#at ,&!5ie' 't&ate(i+ a5i'!&* 'e&5i+e' t! +lie%t' i% t#e
e5el!,1e%t 'e+t!&" t! e5el!, t#e'e f$%+ti!%' a% t! !ffe& t#ei& e8,e&ti'e t! f!$%ati!%'
i% (e%e&al" i%+l$i%( I7I7I F!$%ati!%0
- F1 -
I7I7I :&!$, 7!&,!&ate S!+ial Re',!%'i)ilit* P&!(&a11e&'
Rea t! Lea
Rea t! Lea i' a% i%itiati5e !f I7I7I Ba%3 t! fa+ilitate ele1e%ta&* e$+ati!% f!&
i'a5a%ta(e +#il&e% i% t#e a(e (&!$, !f F-1< *ea&'0 A% a1!$%t !f R'02@000 1illi!%
#a' t#$' fa& )ee% i')$&'e t! 100"000 +#il&e% t#&!$(# <0 N:O'0 T#e )ala%+e a1!$%t !f
R'0H@000 1illi!% i' ,la%%e t! )e i')$&'e $&i%( t#e ,e&i! 200>-20100
MITRA (I7I7I Fell!2' P&!(&a11e)
MITRA i' a% affiliate !f 7SO Pa&t%e&' t#at i' f!+$'e !% a&e''i%( t#e +#alle%(e !f
#$1a% &e'!$&+e' f!& +i5il '!+iet* !&(a%i'ati!%' (7SO')0 I% ,a&t%e&'#i, 2it# 7SO Pa&t%e&'
a% MITRA" I7I7I F!$%ati!% ,&!,!'e' t! la$%+# a% I7I7I Fell!2' P&!(&a11e0 A%
a1!$%t !f R'0@@000 1illi!% #a' )ee% i')$&'e t! MITRA f!& e5el!,i%( a% la$%+#i%(
t#e ,&!(&a11e !5e& t#e ,e&i! 200>-20100
7ARE (Di'a'te& Ma%a(e1e%t U%it)
A (&a%t !f R'0@000 1illi!% #a' )ee% (i5e% t! 7ARE i% I%ia t! e%a)le it t! ,&e,a&e f!&
a%* f$t$&e i'a'te&' t#at 1a* 't&i3e a% &e',!% i11eiatel* 2it# t#e &eA$i&e &elief
eff!&t'0
Ra%( De (Mi+&! E%te&,&i'e De5el!,1e%t)
Ra%( De" a% affiliate !f 7SO Pa&t%e&'" #a' ,a&t%e&e 2it# I7I7I Ce%t$&e t! &!ll !$t f$%'
f!& 1i+&! e%te&,&i'e e5el!,1e%t i% &$&al a% 'e1i-$&)a% l!+ati!%'0 T#e a1!$%t !f
R'02@000 1illi!% t#at #a' )ee% i')$&'e t! t#e1 2ill '$,,!&t 1i+&! e%te&,&i'e' t! t#e
e8te%t !f R'01@000 1illi!% a% t#e )ala%+e a1!$%t !f R'010000 1illi!% 2ill (! t!2a&'
1eeti%( t#ei& e8,e%'e' t! )$il t#e ,latf!&10
I7I7I P&$e%tial A''et Ma%a(e1e%t 7!1,a%* Lt0 i' a -!i%t 5e%t$&e )et2ee% I7I7I
Ba%3" I%iaG' 'e+!% la&(e't +!11e&+ial )a%3 E a 2ell-3%!2% a% t&$'te %a1e i% t#e
fi%a%+ial 'e&5i+e' i% I%ia" E P&$e%tial Pl+" !%e !f t#e U%ite =i%(!1G' la&(e't ,la*e&'
i% t#e fi%a%+ial 'e&5i+e' 'e+t!&'0
I% a ',a% !f !5e& 1? *ea&' 'i%+e i%+e,ti!% a% -$'t !5e& 1< *ea&' !f t#e W!i%t Ce%t$&e" t#e
+!1,a%* #a' f!&(e a ,!'iti!% !f ,&ee1i%e%+e a' !%e !f t#e la&(e't A''et Ma%a(e1e%t
7!1,a%*G' i% t#e +!$%t&*" +!%t&i)$ti%( 'i(%ifi+a%tl* t!2a&' t#e (&!2t# !f t#e I%ia%
1$t$al f$% i%$'t&*0
- F2 -
T#e +!1,a%* 1a%a(e' 'i(%ifi+a%t M$t$al F$% A''et' $%e& Ma%a(e1e%t (AUM)" i%
aiti!% t! !$& P!&tf!li! Ma%a(e1e%t Se&5i+e' (PMS) a% I%te&%ati!%al A5i'!&*
Ma%ate' f!& +lie%t' a+&!'' i%te&%ati!%al 1a&3et' i% a''et +la''e' li3e De)t" EA$it* a%
Real E'tate 2it# ,&i1a&* f!+$' !% &i'3 a-$'te &et$&%'0
A' a% A''et Ma%a(e1e%t 7!1,a%*" 2e #a5e !5e& 1? *ea&' !f e8,e&ie%+e a% a&e
+$&&e%tl* 1a%a(i%( a +!1,&e#e%'i5e &a%(e !f '+#e1e' !f 1!&e t#a% BF M$t$al f$%
'+#e1e' a% a 2ie &a%(e !f PMS P&!$+t' f!& !$& i%5e't!&' ',&ea a+&!'' t#e +!$%t&*0
We 'e&5i+e t#i' i%5e't!& )a'e 2it# !$& !2% )&a%+# %et2!&3 !f a&!$% 1F? )&a%+#e' a% a
i't&i)$ti!% &ea+# !f !5e& B2"000 +#a%%el ,a&t%e&'0
- F< -
C0APTER1=
DATA ANA&;SIS AND INTERPRETATION
DI=IDEND DECISIONS IN INDUSTRIA& CREDIT AND IN=ESTMENT
CORPORATION O: INDIA 'ICICI$
T#e 5a&i!$' 1!e' !f i5ie% t#e!&ie'" 2#i+# #a5e )ee% i'+$''e ea&lie&" t#e 'a1,le !f
t#e INDUSTRIAL 7REDIT AND INCESTMENT 7ORPORATION OF INDIA
(I7I7I)0'ele+te0 A% a%al*9e t! e1,i&i+al e5ie%+e f!& t#e t2! t#e!&ie' '$,,!&ti%( t#e
&ele5a%+e !f i5ie% ,!li+ie' Walte&G' 1!el a% :!&!%G' 1!el0
We '#all +la''if* t#e i%$'t&ial +&eit a% i%5e't1e%t +!&,!&ati!% !f I%ia (i+i+i)0i%t!
t#e'e 'i8 +ate(!&ie' )a'i%( !% t#e e8,lai% t#e Di5ie% ,e& '#a&e" Ea&%i%( ,e& '#a&e"
- FB -
Ret$&% ,e& '#a&e" P&i+e Ea&%i%(" P&!fit afte& Ta8" Net 2!&t#0 T#e'e a&e e8,lai%i%( )a'e
!% la't fi5e fi%a%+ial *ea&'G ata0
Si%+e 200F-0H t! 2010-11 +!lle+te t#e ata i% INDUSTRIAL 7REDIT AND
INCESTMENT 7ORPORATION OF INDIA (I7I7I)0
COMPARISION O: DI=IDEND PER S0ARE O: T0E INDUSTRIA&
CREDIT AND IN=ESTMENT CORPORATION O: INDIA 'ICICI$%
;EAR DI=IDEND PERS0ARE
4BB914BB3 2000
4BB314BB5 20@0
4BB514BBC 20@0
4BBC14B2B <000
- F@ -
4B2B14B22 B000
Interpretation<
T#e i5ie% Pe& S#a&e !f I7I7I lt0" i' R' 2000 i% t#e *ea& !f 200F-0H0 T#e i5ie%
,e& '#a&e f!& t#e %e8t t2! fi%a%+ial *ea& i' +!%'ta%t (i0e0 R' 20@0)
W#e% it i' +!1,a&e 2it# t#e *ea& 200F-0H t#e i5ie% ,e& '#a&e i% t#e *ea& 200H-
0? it i' i%+&ea'e at t#e &ate !f @0] a%100] i% t#e *ea& !f 2010-110
COMPARISION O: EARNING PER S0ARE O: T0E :IRM :OR
T0E &AST :I=E ;EARS
;EAR EARNING PER S0ARE
4BB914BB3 F00B
4BB314BB5 1<0HH
4BB514BBC H0<<
4BBC14B2B >0>>
4B2B14B22 @?00?
- FF -
Interpretation<
T#e Ea&%i%( ,e& '#a&e !f t#e fi&1 i' 5e&* l!2 i% t#e *ea& 200F-0H" )$t it i' !$)le i%
t#e %e8t *ea&0 T#e Ea&%i%( ,e& '#a&e fl$+t$ate 'li(#tl* $&i%( t#e fi%a%+ial *ea&'
200?-0> a% 200>-100 H!2e5e&" t#e&e i' 1a''i5e i%+&ea'e &e,!&te (a)!$t > ti1e' t!
t#e 'ta&ti%( *ea& !f 200F-0H) i% t#e *ea& 2010-110 It i%i+ate' t#e i%+&ea'e i% t#e
&e5e%$e !f t#e ,&!fit0
A PRO:I&E O: RETURN PER S0ARE O: T0E :IRM
;EAR RETURN PER S0ARE
4BB914BB3 B00B
4BB314BB5 11020
4BB514BBC @01H
4BBC14B2B F0>>
4B2B14B22 @B00?
- FH -
Interpretation<
Ret$&% ,e& '#a&e !f I7I7I Lt i' l!2 !f i% t#e *ea& 200F-0H a% i% t#e %e8t *ea& it #a'
i%+&ea'e %!&1all* a% afte& %e8t *ea& it i' #i(#l* e+&ea'e0 T#e *ea& !f 2010-11 t#e
&et$&% ,e& '#a&e #i(#l* i%+&ea'e t#at i' @B00?
COMPARISION O: PRICE EARNING O: T0E ICICI
;EAR PRICE EARNING
4BB914BB3 B02?
4BB314BB5 B02F
4BB514BBC 1F0B<
4BBC14B2B 21021
4B2B14B22 @0>0
- F? -
Interpretation<
T#e P&i+e ea&%i%( 5al$e !f t#e fi&1G' '#a&e i' R' B02? i% t#e *ea& 200F-0H" it i' 'a1e i%
t#e %e8t *ea& al'!0 It i' &e,!&te #i(# $&i%( t#e fi%a%+ial *ea&' 200?-0>" a% 200>-100
H!2e5e& t#e ,&i+e ea&%i%( &ate i' 5e&* l!2 i% t#e *ea& !f 2010-110
COMPARISION O: PRO:IT A:TER TA O: T0E ICICI
;EAR PRO:IT A:TER TA 'in Rs$
4BB914BB3
2?01@
4BB314BB5
F<000
4BB514BBC
<<0@1
4BBC14B2B
B@0H1
4B2B14B22
2F@0F?
- F> -
Interpretation<
T#e ,&!fit afte& ta8 !f I7I7I Lt #a l!2 at 200F-0Ha% %e8t *ea& 2a' i%+&ea'e0 Afte&
e+&ea'e at t#e *ea& !f 2010-11 i%+&ea'e #i(#l*0 T#at i' 2F@0F?0 It i%i+ate' t#e
,&!)a)ilit* 't&e%(t# !f t#e fi&10
COMPARISION O: NET *ORT0 O: T0E ICICI
;EAR Net .ort,
4BB914BB3
<<?0H?
4BB314BB5
<B?0B?
4BB514BBC
<HH01@
4BBC14B2B
B1F00@
4B2B14B22
F@B0BF
- H0 -
Interpretation<
T#e&e i' a (&a$al i%+&ea'e i% t#e %et 2!&t# !f t#e fi&1 '$)-e+t t! 5e&* #i(# i% t#e
fi%a%+ial *ea& 2010-110
C0APTER1=I
FINDIN:S
SU::ESTIONS
- H1 -
7ON7LUSIONS
BIBLO:RAPHD
=% :INDINGS AND SUGGESTIONS
6%2 :INDINGS<
F!ll!2i%( a&e t#e fi%i%(' f&!1 t#e i5ie% e+i'i!% a%al*'i' !f t#e I7I7I6
1) P&!fit Afte& Ta8 #a' i%+&ea'e f&!1 R' B@0H@ 7!&e' t! R'0 2F@0F? 7!&e'0
2) Ea&%i%( ,e& '#a&e #a' i1,&!5e f&!1 R' >0>> t! R'0 @?00?
<) Di5ie% #a' )ee% )e%+#e f&!1 R'0 <000 t! B000
B) I%+&ea'e %et 2!&t# f&!1 R'0 B1F00@ 7!&e' t! R'0 F@B0B<
- H2 -
@) T#e i5ie% +a&&ie' '!1e i%f!&1ati!%al +!%te%t0
F) T#e i5ie% ,a* !$t &ati! #a' a% i1,a+t !% t#e fi&10
H) T#e i5ie% ,e& '#a&e i%+&ea'e %!&1all*0
?) T#e&e i' a fl$+t$ati!% i% ea&%i%( ,e& '#a&e
>) T#e Ret$&% ,e& '#a&e #a' )ee% i%+&ea'e (&a$all*0
SUGGESTIONS<
T#e f!ll!2i%( S$((e'ti!%' a&e )ei%( ,&!5ie t!
T#e I7I7I i%$'t&*0
1) I%5e't!&' al2a*' ,&efe& t#e i5ie% ,a*1e%t f!& 7a,ital a,,&e+iati!%0 He%+e
'!1e a1!$%t !f Di5ie% 1$'t )e ,ai &e($la&l*0 U%le'' t#e Pa*1e%t 2ill &e$+e t#e
%et 2!&t# !f t#e i%$'t&*0
2) T#e i%$'t&* '#!$l i1,&!5e t#e i5ie% ,e& '#a&e0
- H< -
<) T#e i%$'t&* '#!$l f!ll!2 'ta)le i5ie% ,!li+*0
B) T#e i%$'t&* '#!$l 1ai%tai% #i(# ,e& '#a&e0
@) T#e i%$'t&* 1$'t i1,&!5e a% 1ai%tai% #i(# &ati!0
F) W#e% t#e i%$'t&* (et' t#e ,&i+e ea&%i%( #i(#l*" t#at i%$'t&* 2ill (&!2
H) I% T#e i%$'t&* Net 2!&t# i' 5e&* (!!0 T#e i%$'t&* #a' t! 1ai%tai% t#i' t*,e
!f Net 2!&t#0
BIB&OGRAP0;<
10 7#a%&a" P&a'a%%a6 JFi%a%+ial Ma%a(e1e%t-T#e!&* a% P&a+ti+eG" @
t#
Eiti!%"
2001" Tata M+ :&a2 Hill P$)li')i%( H!$'e0
20 7!!,e& D!%al E" Pa1ela S S+#i%le&" ?
t#
Eiti!%" 200<" M+ :&a2 Hill
P$)li'#i%( H!$'e0
<0 =#a% M D" P -ai%6 Jfi%a%+ial Ma%a(e1e%t-Te8t a% ,&!)le1'M <
&
Eiti!%" 1>>>"
Tata M+ :&a2 Hill P$)li'#i%(
- HB -
H!$'e0
B0 Pa%* I M6 JFi%a%+ial Ma%a(e1e%tM ?
t#
Eiti!%" 200<" Ci3a' P$)li'#i%(
H!$'e P&i5ate Li1ite0
@0 La2&e%+e W0 :il1a6 P&i%+i,le !f 1a%a(e&ial Fi%a%+e" Ai'a 2e&l*0
2220(!!(lefi%a%+e0+!1
2220i+i+i0+!1
2220fi%aa%+ial&ef!&1'i%ia0+!1
- H@ -
doc_383799519.doc
Project Report on Dividend, Report on Dividend
PROJECT REPORT
ON
DIVIDEND
SUBMITTED IN PARTIAL FULFILLMENT OF THE
REQUIREMENT FOR THE AWARD OF THE
MASTER’S DEGREE IN BUSINESS
ADMINISTRATION
(2010-2011)
Department of Business Administration
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
(Affiliate t! Uni"ersit#$
!!!!!!!!!!!!!!!!!!!!!!!!!%
DEC&ARATION
I" t#e $%e&'i(%e" #e&e)* e+la&e t#at t#e ,&!-e+t &e,!&t e%title
.'Topi( Name$/ +a&&ie !$t at (Compan# Name)0 I' 1* !&i(i%al 2!&3
2&itte% a% '$)1itte )* 1e i% ,a&tial f$lfill1e%t !f Ma'te&4' De(&ee i%
B$'i%e'' A1i%i't&ati!% !f '!!!!!!!!!!!!!!!!!!!!! Uni"ersit#$0 I al'!
e+la&e t#at t#i' ,&!-e+t #a' %!t )ee% '$)1itte ea&lie& i% a%* !t#e&
$%i5e&'it* !& i%'tit$ti!%0
Date6 (7a%iate Na1e)
- 1 -
AC)NO*&EDGEMENT
I ta3e t#i' !,,!&t$%it* t! e8te% 1* ,&!f!$% t#a%3' a% ee, 'e%'e
!f (&atit$e t! t#e a$t#!&itie' !f 'Compan# Name$0 F!& (i5i%( 1e t#e
!,,!&t$%it* t! $%e& ta3e t#i' ,&!-e+t 2!&3 i% t#ei& e'tee1e !&(a%i9ati!%0 I
,&!f$'el* t#a%3 M&0 7!1,a%* :$ie Na1e (De'i(%ati!%)
M* 'i%+e&e t#a%3' t! H!%!&a)le 'e+&eta&* S&i 888888888888"
(7!lle(e Na1e) ,&i%+i,al M&0 88888888888" HOD M&0 88888888888" a%
1* ,&!-e+t ($ie M&0 88888888888880 F!& t#e 3i% e%+!$&a(e1e%t a%
+!%'ta%t '$,,!&t e8te%e i% +!1,leti!% !f t#i' ,&!-e+t 2!&30 F&!1 t#e
)!tt!1 !f 1* #ea&t
I a1 al'! t#a%3f$l t! all t#!'e 2#! #a5e i%+ie%tall* #el,e 1e"
t#&!$(# t#ei& 5al$e ($ia%+e" +!-!,e&ati!% a% $%'ti%te '$,,!&t $&i%( t#e
+!$&'e !f 1* ,&!-e+t0
!!!!!!!!!!!!!!!!!!!!!!!!!!
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A+stra(t
T,e Di"idend De(ision" i% +!&,!&ate fi%a%+e" i' a e+i'i!% 1ae )* t#e i&e+t!&' !f a
+!1,a%*0 It &elate' t! t#e a1!$%t a% ti1i%( !f a%* +a'# ,a*1e%t' 1ae t! t#e
+!1,a%*;' 't!+3#!le&'0 T#e e+i'i!% i' a% i1,!&ta%t !%e f!& t#e fi&1 a' it 1a* i%fl$e%+e
it' +a,ital 't&$+t$&e a% 't!+3 ,&i+e0 I% aiti!%" t#e e+i'i!% 1a* ete&1i%e t#e a1!$%t
!f ta8ati!% t#at 't!+3#!le&' ,a*0
T#e&e a&e t#&ee 1ai% fa+t!&' t#at 1a* i%fl$e%+e a fi&1;' i5ie% e+i'i!%6
• F&ee-+a'# fl!2
• Di5ie% +lie%tele'
• I%f!&1ati!% 'i(%ali%(
T,e free (as, f-o. t,eor# of di"idends
U%e& t#i' t#e!&*" t#e i5ie% e+i'i!% i' 5e&* 'i1,le0 T#e fi&1 'i1,l* ,a*' !$t" a'
i5ie%'" a%* +a'# t#at i' '$&,l$' afte& it i%5e't' i% all a5aila)le ,!'iti5e %et ,&e'e%t
5al$e ,&!-e+t'0
A 3e* +&iti+i'1 !f t#i' t#e!&* i' t#at it !e' %!t e8,lai% t#e !)'e&5e i5ie% ,!li+ie' !f
&eal-2!&l +!1,a%ie'0 M!'t +!1,a%ie' ,a* &elati5el* +!%'i'te%t i5ie%' f&!1 !%e *ea&
t! t#e %e8t a% 1a%a(e&' te% t! ,&efe& t! ,a* a 'teail* i%+&ea'i%( i5ie% &at#e& t#a%
,a*i%( a i5ie% t#at fl$+t$ate' &a1ati+all* f&!1 !%e *ea& t! t#e %e8t0 T#e'e +&iti+i'1'
#a5e le t! t#e e5el!,1e%t !f !t#e& 1!el' t#at 'ee3 t! e8,lai% t#e i5ie% e+i'i!%0
Di"idend (-iente-es
A ,a&ti+$la& ,atte&% !f i5ie% ,a*1e%t' 1a* '$it !%e t*,e !f 't!+3 #!le& 1!&e t#a%
a%!t#e&0 A &eti&ee 1a* ,&efe& t! i%5e't i% a fi&1 t#at ,&!5ie' a +!%'i'te%tl* #i(# i5ie%
*iel" 2#e&ea' a ,e&'!% 2it# a #i(# i%+!1e f&!1 e1,l!*1e%t 1a* ,&efe& t! a5!i
i5ie%' $e t! t#ei& #i(# 1a&(i%al ta8 &ate !% i%+!1e0 If +lie%tele' e8i't f!& ,a&ti+$la&
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,atte&%' !f i5ie% ,a*1e%t'" a fi&1 1a* )e a)le t! 1a8i1i9e it' 't!+3 ,&i+e a%
1i%i1i9e it' +!'t !f +a,ital )* +ate&i%( t! a ,a&ti+$la& +lie%tele0 T#i' 1!el 1a* #el, t!
e8,lai% t#e &elati5el* +!%'i'te%t i5ie% ,!li+ie' f!ll!2e )* 1!'t li'te +!1,a%ie'0
A 3e* +&iti+i'1 !f t#e iea !f i5ie% +lie%tele' i' t#at i%5e't!&' ! %!t %ee t! &el* $,!%
t#e fi&1 t! ,&!5ie t#e ,atte&% !f +a'# fl!2' t#at t#e* e'i&e0 A% i%5e't!& 2#! 2!$l li3e
t! &e+ei5e '!1e +a'# f&!1 t#ei& i%5e't1e%t al2a*' #a' t#e !,ti!% !f 'elli%( a ,!&ti!% !f
t#ei& #!li%(0 T#i' a&($1e%t i' e5e% 1!&e +!(e%t i% &e+e%t ti1e'" 2it# t#e a5e%t !f 5e&*
l!2-+!'t i'+!$%t 't!+3)&!3e&'0 It &e1ai%' ,!''i)le t#at t#e&e a&e ta8ati!%-)a'e
+lie%tele' f!& +e&tai% t*,e' !f i5ie% ,!li+ie'0
Information si/na-in/
A 1!el e5el!,e )* Me&t!% Mille& a% =e5i% R!+3 i% 1>?@ '$((e't' t#at i5ie%
a%%!$%+e1e%t' +!%5e* i%f!&1ati!% t! i%5e't!&' &e(a&i%( t#e fi&1;' f$t$&e ,&!',e+t'0
Ma%* ea&lie& 't$ie' #a '#!2% t#at 't!+3 ,&i+e' te% t! i%+&ea'e 2#e% a% i%+&ea'e i%
i5ie%' i' a%%!$%+e a% te% t! e+&ea'e 2#e% a e+&ea'e !& !1i''i!% i' a%%!$%+e0
Mille& a% R!+3 ,!i%te !$t t#at t#i' i' li3el* $e t! t#e i%f!&1ati!% +!%te%t !f
i5ie%'0
W#e% i%5e't!&' #a5e i%+!1,lete i%f!&1ati!% a)!$t t#e fi&1 (,e&#a,' $e t! !,aA$e
a++!$%ti%( ,&a+ti+e') t#e* 2ill l!!3 f!& !t#e& i%f!&1ati!% t#at 1a* ,&!5ie a +l$e a' t!
t#e fi&1;' f$t$&e ,&!',e+t'0 Ma%a(e&' #a5e 1!&e i%f!&1ati!% t#a% i%5e't!&' a)!$t t#e
fi&1" a% '$+# i%f!&1ati!% 1a* i%f!&1 t#ei& i5ie% e+i'i!%'0 W#e% 1a%a(e&' la+3
+!%fie%+e i% t#e fi&1;' a)ilit* t! (e%e&ate +a'# fl!2' i% t#e f$t$&e t#e* 1a* 3ee,
i5ie%' +!%'ta%t" !& ,!''i)l* e5e% &e$+e t#e a1!$%t !f i5ie%' ,ai !$t0
7!%5e&'el*" 1a%a(e&' t#at #a5e a++e'' t! i%f!&1ati!% t#at i%i+ate' 5e&* (!! f$t$&e
,&!',e+t' f!& t#e fi&1 (e(0 a f$ll !&e& )!!3) a&e 1!&e li3el* t! i%+&ea'e i5ie%'0
I%5e't!&' +a% $'e t#i' 3%!2le(e a)!$t 1a%a(e&'; )e#a5i!& t! i%f!&1 t#ei& e+i'i!% t!
)$* !& 'ell t#e fi&1;' 't!+3" )ii%( t#e ,&i+e $, i% t#e +a'e !f a ,!'iti5e i5ie%
'$&,&i'e" !& 'elli%( it !2% 2#e% i5ie%' ! %!t 1eet e8,e+tati!%'0 T#i'" i% t$&%" 1a*
i%fl$e%+e t#e i5ie% e+i'i!% a' 1a%a(e&' 3%!2 t#at 't!+3 #!le&' +l!'el* 2at+#
i5ie% a%%!$%+e1e%t' l!!3i%( f!& (!! !& )a %e2'0 A' 1a%a(e&' te% t! a5!i
'e%i%( a %e(ati5e 'i(%al t! t#e 1a&3et a)!$t t#e f$t$&e ,&!',e+t' !f t#ei& fi&1" t#i' al'!
te%' t! lea t! a i5ie% ,!li+* !f a 'tea*" (&a$all* i%+&ea'i%( ,a*1e%t0
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INDEX
S0N!6 7ONTENTS PA:E NO0
C0APTER12 213
? INTRODU7TION
S+!,e !f t#e St$*
O)-e+ti5e' !f t#e St$*
Met#!!l!(* !f t#e St$*
Li1itati!%' !f t#e St$*
C0APTER14 5167
? RECIEW OF LITERATURE
C0APTER16 68188
? INDUSTRD PROFILE E
? 7OMPAND PROFILE
C0APTER17 89196
? DATA ANALDSIS AND INTERPRETATION
C0APTER18 97193
? FINDIN:S
? SU::ESTIONS
? BIBLO:RAPHD
- @ -
C0APTER1I
INTRODUCTION
- F -
INTRODUCTION
T#e te&1 Di5ie% &efe&' t! t#at ,a&t !f t#e ,&!fit' !f a +!1,a%* 2#i+# i' i't&i)$te
a1!%('t it' '#a&e#!le&'0 It 1a* t#e&ef!&e )e efi%e a' t#e &et$&% t#at a '#a&e#!le& (et'
f&!1 t#e +!1,a%*" !$t !f it' ,&!fit'" !% #i' '#a&e #!li%('0 .A++!&i%( t! t#e I%'tit$te !f
7#a&te A++!$%t' !f I%ia/ i5ie% i' a .Di't&i)$ti!% t! '#a&e#!le& !$t !f ,&!fit' !&
&e'e&5e' a5aila)le f!& t#i' ,$&,!'e/
T#e Di5ie% ,!li+* #a' t#e effe+t !f i5ii%( it' %et ea&%i%(' i%t! t2! Pa&t'6 Retai%e
ea&%i%(' a% i5ie%'0 T#e &etai%e ea&%i%(' ,&!5ie f$%' t2! fi%a%+e t#e l!%(-te&1
(&!2t#0 It i' t#e 1!'t 'i(%ifi+a%t '!$&+e !f fi%a%+i%( a fi&1G' i%5e't1e%t i% ,&a+ti+e0 A
fi&1" 2#i+# i%te%' t! ,a* i5ie%' a% al'! %ee' f$%' t! fi%a%+e it' i%5e't1e%t
!,,!&t$%itie'" 2ill #a5e t! $'e e8te&%al '!$&+e' !f fi%a%+e0 Di5ie% ,!li+* !f t#e fi&10
T#$' #a' it' effe+t !% )!t# t#e l!%(-te&1 fi%a%+i%( a% t#e 2ealt# !f '#a&e#!le&'0 T#e
1!e&ate 5ie2" 2#i+# a''e&t' t#at )e+a$'e !f t#e i%f!&1ati!% 5al$e !f i5ie%'" '!1e
i5ie%' '#!$l )e ,ai a' it 1a* #a5e fa5!&a)le affe+t !% t#e 5al$e !f t#e '#a&e0
T#e t#e!&* !f e1,i&i+al e5ie%+e a)!$t t#e i5ie% ,!li+* !e' %!t 1atte& if 2e
a''$1e a &eal 2!&l 2it# ,e&fe+t +a,ital 1a&3et' a% %! ta8e'0 T#e 'e+!% t#e!&* !f
i5ie% ,!li+* i' t#at t#e&e 2ill efi%itel* )e l!2 a% #i(# ,a*!$t +lie%t' )e+a$'e !f t#e
iffe&e%tial ,e&'!%al ta8e'0 T#e 1a-!&it* !f t#e #!le&' !f t#i' 5ie2 al'! '#!2 t#at
)ala%+e" t#e&e 2ill )e ,&e,!%e&!$' l!2 ,a*!$t +lie%t' )e+a$'e !f l!2 +a,ital (ai% ta8e'0
T#e t#i& 5ie2 a&($e' t#at t#e&e !e' e8i't a% !,ti1$1 i5ie% ,!li+*0 A% !,ti1$1
i5ie% ,!li+* i' -$'tifie i% te&1' !f t#e i%f!&1ati!% i% a(e%+* +!'t'0
- H -
NEED :OR T0E STUD;<
T#e ,&i%+i,al !)-e+ti5e !f +!&,!&ate fi%a%+ial 1a%a(e1e%t i' t! 1a8i1i9e t#e 1a&3et
5al$e !f t#e eA$it* '#a&e'0 He%+e t#e 3e* A$e'ti!% !f i%te&e't t! $' i% t#i' 't$* i'" .W#at
i' t#e &elati!%'#i, )et2ee% i5ie% ,!li+* a% 1a&3et ,&i+e !f eA$it* '#a&e'I/
M!'t !f t#e i'+$''i!% !% i5ie% !f i5ie% ,!li+* a% fi&1 5al$e a''$1e' t#at t#e
i%5e't1e%t e+i'i!% !f a fi&1 i' i%e,e%e%t !f it' i5ie% e+i'i!%0 T#e %ee f!& t#i'
't$* a&i'e f&!1 t#e a)!5e &ai'e A$e'ti!% a% t#e 1!'t +!%t&!5e&'ial a% $%&e'!l5e
!$)t' a)!$t t#e &ele5a%+e !f i&&ele5a%+e !f t#e i5ie% ,!li+*0
- ? -
SCOPE O: T0E STUD;<
I%5e't1e%t De+i'i!% I%5e't1e%t e+i'i!% &elate' t! 'ele+ti!%' !f a''et i% 2#i+# f$%' 2ill
)e i%5e'te )* a fi&10 T#e a''et t#at +a% )e a+A$i&e )* a fi&1 1a* )e l!%( te&1 a''et
a% '#!&t te&1 a''et0 I%5e't1e%t De+i'i!% 2it# &e(a& t! l!%( te&1 a''et' i' +alle +a,ital
)$(eti%(0 De+i'i!% 2it# &e(a& t! '#!&t te&1 !& +$&&e%t a''et' i' +alle 2!&3i%( +a,ital
1a%a(e1e%t0
Di5ie% De+i'i!% A fi&1 i't&i)$te' all ,&!fit' !& &etai% t#e1 !& i't&i)$te a ,!&ti!% a%
&etai% t#e )ala%+e 2it# it0 W#i+# +!$&'e '#!$l )e all!2eI T#e e+i'i!% e,e%' $,!%
t#e ,&efe&e%+e !f t#e '#a&e#!le&' a% i%5e't1e%t !,,!&t$%itie' a5aila)le t! t#e fi&10
Di5ie% De+i'i!% Di5ie% e+i'i!% #a' a 't&!%( i%fl$e%+e !% t#e 1a&3et ,&i9e !f t#e
'#a&e0 S! t#e i5ie% ,!li+* i' t! )e ete&1i%e i% te&1' !f it' i1,a+t !% '#a&e#!le&G'
5al$e0 T#e !,ti1$1 i5ie% ,!li+* i' !%e 2#i+# 1a8i1i9e' t#e 5al$e !f '#a&e' a%
2ealt# !f t#e '#a&e#!le&'0
Di5ie% De+i'i!% T#e fi%a%+ial 1a%a(e& '#!$l ete&1i%e t#e !,ti1$1 ,a* !$t &ati!
I0e0 t#e ,&!,!&ti!%' !f %et ,&!fit t! )e ,ai !$t t! t#e '#a&e#!le&'0 T#e a)!5e t#&ee
e+i'i!%' a&e i%te& &elate0 T! #a5e a% !,ti1$1 fi%a%+ial e+i'i!% t#e t#&ee '#!$l )e
ta3e% -!i%tl*0
- > -
OBJECTI=Es O: T0E STUD;
T#e )a'i+ !)-e+ti5e !f t#i' 't$* i' a' f!ll!2'6
10 T! $%e&'ta% t#e i1,!&ta%+e !f t#e i5ie% e+i'i!% a% t#ei& i1,a+t !% t#e
fi&1G' +a,ital )$(eti%( e+i'i!%0
20 T! 3%!2 t#e 5a&i!$' i5ie% ,!li+ie' f!ll!2e )* t#e fi&10
<0 T! $%e&'ta% t#e t#e!&eti+al )a+3&!, !f t#e 5a&i!$' i5ie t#e!&ie'0
B0 T! +!1,a&e t#e 5a&i!$' t#e!&ie' !f i5ie% 2it# &efe&e%+e t! t#ei& a''$1,ti!%'
a% +!%+l$'i!%'0
@0 T! 3%!2 2#et#e& t#e i5ie% e+i'i!%' #a5e a% i1,a+t !% t#e 1a&3et 5al$e !f
t#e fi&1G' eA$it*0
F0 T! 'ee t#e 5a&i!$' i5ie% ,!li+ie' !f t#e INDUSTRIAL 7REDIT AND
INCESTMENT 7ORPORATION OF INDIA (I7I7I)0
H0 T! e&i5e t#e e1,i&i+al e5ie%+e f!& t#e &ele5a%+e t#e!&ie' !f i5ie%'
WALTERGS MODEL AND :ORDONGS MODEL
- 10 -
IMPORTANCE O: T0E STUD;
T#e i5ie% ,!li+* !f a fi&1 ete&1i%e' 2#at ,&!,!&ti!% !f ea&%i%(' i' ,ai
t! '#a&e#!le&' )* t#e 2a* !f i5ie%' a% 2#at ,&!,!&ti!% i' ,l!$(#e )a+3 i% t#e fi&1
f!& &ei%5e't1e%t ,$&,!'e'0 If a fi&1J' +a,ital )$(eti%( e+i'i!% i' i%e,e%e%t !f it'
i5ie% !f it' i5ie% ,!li+*" a #i(#e& i5ie% ,a*1e%t 2ill e%tail a (&eate&
e,e%e%+e !% e8te&%al fi%a%+i%(0 O% t#e !t#e& #a%" if a fi&1G ' +a,ital )$(eti%(
e+i'i!% i' e,e%e%t !% it' i5ie% e+i'i!%" a #i(#e& ,a*1e%t 2ill +a$'e '#&i%3a(e !f
it' +a,ital )$(et a% 5i+e 5e&'a0 I% '$+# a +a'e t#e i5ie% ,!li+* #a' a )ea&i%( !% t#e
+a,ital )$(eti%( e+i'i!%0
A%* fi&1" 2#et#e& a ,&!fit 1a3i%( !& %!%-,&!fit !&(a%i9ati!% #a' t! ta3e +e&tai%
+a,ital )$(eti%( e+i'i!%0 T#e i1,!&ta%+e a% '$)'eA$e%t i%i',e%'a)ilit* !f t#e +a,ital
)$(eti%( e+i'i!% #a' le t! t#e i1,!&ta%+e !f t#e i5ie% e+i'i!%' f!& t#e fi&1'0
- 11 -
RESEARC0 MET0DO&OG;<
0;POT0ESIS :OR T0E STUD;<
A ,&!,!'iti!% i' a 'tate1e%t a)!$t +!%+e,t' t#at 1a* )e -$(e a' t&$e
O& fal'e if it &efe&' t! !)'e&5a)le ,#e%!1e%a0 W#e% a ,&!,!'iti!% i' f!&1$late f!&
e1,i&i+al te'ti%(" 2e +all it a #*,!t#e'i'0 H*,!t#e'e' #a5e al'! )ee% e'+&i)e a'
'tate1e%t' i% 2#i+# 2e a''i(% 5a&ia)le' t! +a'e'0 A +a'e i efi%e i% t#i' 'e%'e a' t#e
e%tit* !& t#e t#i%( t#e #*,!t#e'i'0 Tal3' a)!$t T#e 5a&ia)le a&e t#e +#a&a+te&i'ti+" t&ait"
!& att&i)$te t#at" i% t#e #*,!t#e'i'" a&e i1,$te t! t#e +a'e0 I% &e'ea&+#" a #*,!t#e'i'
'e&5e' 'e5e&al i1,!&ta%t f$%+ti!%'0 T#e 1!'t i1,!&ta%t i' t#at it ($ie' t#e i&e+ti!%'
!f t#e 't$*0 It efi%e' fa+t' t#at a&e &ele5a%t a% t#!'e t#at a&e %!t6 i% !i%( '!" it
'$((e't' 2#i+# f!&1 !f &e'ea&+# e'i(% i' li3el* t! )e 1!'t i1,!&ta%t0 A fi%al &!le !f
t#e #*,!t#e'i' i' t! ,&!5ie a f&a1e2!&3 f!& !&(a%i9i%( t#e +!%+l$'i!%' !f t#at &e'$lt0
I% +la''i+al te't' !f 'i(%ifi+a%+e t2! 3i%' !f #*,!t#e'e' a&e $'e0 T#e %$ll
#*,!t#e'i'" 2#i+# i' a 'tate1e%t t#at t#e*G&e %! iffe&e%+e" e8i't' )et2ee% t#e
,a&a1ete& a% t#e 'tati'ti+ )ei%( +!1,a&e t! it0 A 'e+!% !& alte&%ati5e #*,!t#e'i' i'
t#e l!(i+al !,,!'ite !f t#e %$ll #*,!t#e'i'0
T#e %$ll #*,!t#e'i' i% t#i' 't$* i' a' f!ll!2i%(6
JT#e i5ie% e+i'i!%' a&e &ele5a%t t! t#e +a,ital )$(eti%( e+i'i!%' !f
t#e fi&1G' )el!%(i%( t! t#e +e1e%t i%$'t&* a% t#e i% t$&% effe+t t#e 1a&3et 5al$e !f
t#e fi&1'G eA$it*0
T! ,&!5e t#i' #*,!t#e'i' 2e '#all t&* t! ,&!5e t#e t2! t#e!&ie' !f &ele5a%+e
!f i5ie%-Walte&G' 1!el a% :!&!%G' 1!el
T#e alte&%ate #*,!t#e'i' i% t#i' +a'e '#all )e a' fall!2'6
T#e i5ie% e+i'i!%' a&e i&&ele5a%t t! +a,ital )$(eti%( e+i'i!%' !f t#e fi&1
)el!%(i%( t! t#e INDUSTRIAL 7REDIT AND INCESTMENT 7ORPORATION OF
INDIA (I7I7I) a% t#e* i% t$&% #a5e %! effe+t !% t#e 1a&3et 5al$e !f t#e fi&1 eA$it*0
SAMP&E O: T0E STUD;<
- 12 -
A 'a1,le i' a ,a&t !f t#e ta&(et ,!,$lati!%" +a&ef$ll* 'ele+te t! &e,&e'e%t t#at
,!,$lati!%0 W#e% &e'ea&+#e&' $%e&ta3e 'a1,li%( 't$ie'" t#e* a&e i%te&e'te i%
e'ti1ati%( !%e !& 1!&e ,!,$lati!% 5al$e' a%K !& te'ti%( !%e !& 1!&e 'tati'ti+al
#*,!t#e'i'0
T#e 'a1,le !f !$& 't$* +!%'i't' !f t#e fi%a%+ial ata !f INDUSTRIAL 7REDIT
AND INCESTMENT 7ORPORATION OF INDIA (I7I7I) f!& t#e ,a't fi5e fi%a%+ial
*ea&'0
DESIGN AND MET0ODO&OG;
Data+ase for t,e Stud#<
T#e '!$&+e' !f i%f!&1ati!% a&e +la''ifie t! t2!-,&i1a&* ata a% 'e+!%a&* ata0
T#e ata +!lle+te )* t#e &e'ea&+#e& a% a(e%t 3%!2% t! t#e &e'ea&+#e&" e',e+iall* t!
a%'2e& t#e &e'ea&+# A$e'ti!%" i' 3%!2% a' t#e ,&i1a&* ata0 St$ie' 1ae )* !t#e&' f!&
t#ei& !2% ,$&,!'e' &e,&e'e%t 'e+!%a&* ata t! t#e &e'ea&+#e&0
Se+!%a&* '!$&+e' +a% $'$all* )e f!$% 1!&e A$i+3l* a% +#ea,l* t#a% ,&i1a&* ata
e',e+iall* 2#e% %ati!%al a% i%te&%ati!%al 'tati'ti+' a&e %eee0 Si1ila&l*" ata a)!$t
i'ta%t ,la+e' !fte% +a% )e +!lle+te 1!&e +#ea,l* t#&!$(# 'e+!%a&* '!$&+e'0
T#e ata $'e f!& t#i' 't$* i' 1!'tl* 'e+!%a&* ata0 T#e i%f!&1ati!% &e(a&i%( t#e
fi%a%+ial ata !f t#e ,a't fi5e *ea&' #a' )ee% +!lle+te f&!1 t#e 5a&i!$' 2e)'ite li3e t#e
i%iai%f!li%e0+!1" t#e 2e) ,!&tal' !f t#e &e',e+ti5e +!1,a%* a% !t#e& &elate 'ite'0
Period of t,e stud#
T#e ,e&i! !f a%* &e'ea&+# i' t#e ,e&i! 2#i+# t#e ata #a' )ee% +!lle+te a% a%al*9e0
T#e ,e&i! !f t#i' 't$* #a' )ee% li1ite t! fi5e fi%a%+ial *ea&' 'ta&ti%( f&!1 01-0B-200H
t! <1-0<-20110
- 1< -
Samp-in/ Desi/n<
A 5a&iet* !f 'a1,li%( te+#%iA$e' i' a5aila)le0 T#e !%e 'ele+te e,e%' !% t#e
&eA$i&e1e%t' !f t#e ,&!-e+t a% it' !)-e+ti5e'0 T#e 5a&i!$' 1et#!' !f 'a1,li%( #a5e
)ee% +la''ifie )a'i%( !% t#e &e,&e'e%tati!% L ,&!)a)ilit* !& %!% ,&!)a)ilit* a% !%
ele1e%t 'ele+ti!%-&e't&i+te0
T#e 'a1,li%( te+#%iA$e 'ele+te f!& +!%$+ti%( t#i' 't$* i' -$(1e%t 'a1,li%(0 T#i' i'
a &e't&i+te a% %!%- ,&!)a)ili'ti+ 1et#! !f 'a1,li%(M 2#e&e t#e 'a1,le +!%'i'ti%( !f
!%e +!1,a%* #a' )ee% 'ele+te !% )a'i' !f t#e ,a't i5ie% ,a*1e%t 1ae )* t#e
+!1,a%*0
Too-s of Co--e(tin/ Data <
T#e&e a&e 5a&i!$' 2a*' !f +!lle+ti%( t#e ata0 S!1e !f t#e 1!'t +!11!%l* $'e
!%e' a&e tele,#!%e i%te&5ie2" ,e&'!%al i%te&5ie2 a%" A$e'ti!%%ai&e a1i%i'te&i%(0 T#e'e
a&e )a'i+all* t#e 1et#!' f!& +!lle+ti%( t#e ,&i1a&* ata t#e ata &eA$i&e f!& +!%$+ti%(
t#i' 't$* it #a' )ee% +!lle+te f&!1 t#e 5a&i!$' 2e) ,!&tal' a' t#e ata i' )a'i+all*
'e+!%a&* i% %at$&e0
- 1B -
&IMITATIONS<
E5e&* &e'ea&+# +!%$+te #a' +e&tai% li1itati!%'0 T#e'e a&i'e $e t! t#e 1et#! !f
'a1,li%( $'e" t#e 1et#! !f ata +!llati!% $'e a% t#e '!$&+e !f t#e ata a,a&t f&!1
1a%* !t#e& t#i%('0 T#e li1itati!%' !f t#i' 't$* a&e a' f!ll!2'6
T#e ata +!lle+te i' !f 'e+!%a&* %at$&e a% #e%+e it i' iffi+$lt t! a'+e&tai% t#e
&elia)ilit* !f t#e ata0
a) T#e '+!,e !f t#e 't$* #a' )ee% li1ite t! t#e i1,a+t !f t#e i5ie% !%
t#e 1a&3et 5al$e !f t#e fi&1G' eA$it*0 Ot#e&' fa+t!&' affe+ti%( t#e fi&1G'
1a&3et 5al$e #a5e )ee% a''$1e t! #a5e &e1ai%e $%+#a%(e0
)) T#e ,e&i! !f t#e 't$* #a' )ee% li1ite t! !%l* fi5e *ea&'0
+) T#e 1et#! !f 'a1,li%( $'e i' J-$(1e%t 'a1,li%(G #e%+e t#e +#!i+e !f
t#e 'a1,le #a' )ee% left e%ti&el* t! t#e +#!i+e !f t#e &e'ea&+#e&0 T#i' #a'
le t! '!1e a1!$%t )ia' )ei%( i%t&!$+e i%t! t#e &e'ea&+# ,&!+e''0
- 1@ -
C0APTER1II
RE=IE* O: &ITERATURE
DI=IDEND DECISIONS1 T0EORITICA& :RAME *OR)S
DI=IDEND PRACTICES AND MODE&S A CONCEPTUA& :RAME
*OR)<
- 1F -
Di5ie% &efe&' t! t#at ,!&ti!% !f a fi&1G' %et ea&%i%('" 2#i+# a&e ,ai !$t t! t#e
'#a&e#!le&'0 O$& f!+$' #e&e i' !% i5ie%' ,ai t! t#e !&i%a&* '#a&e#!le&' )e+a$'e
#!le&' !f ,&efe&e%+e '#a&e' a&e e%title t! a 'ti,$late &ate !f i5ie%0 M!&e!5e&" t#e
i'+$''i!% i' &ele5a%t t! 2iel* #el ,$)li+ li1ite +!1,a%ie'" a' t#e i5ie% i''$e !e'
%!t ,!'e a 1a-!& ,&!)le1 f!& +l!'el* #el ,&i5ate li1ite +!1,a%ie'" 'i%+e i5ie%' a&e
e't&!*e !$t !f t#e ,&!fit'" t#e alte&%ati5e t! t#e ,a*1e%t !f i5ie%' i' t#e &ete%ti!% !f
ea&%i%( ,&!fit'0 T#e &etai%e ea&%i%( +!%'tit$te' a% a++e''i)le i1,!&ta%t '!$&+e a%
fi%a%+i%( t#e i%5e't1e%t &eA$i&e1e%t' !f fi&1'0 T#e&e i'" t#$' a t*,e !f i%5e&'e
&elati!%'#i, )et2ee% &etai%e ea&%i%(' a% +a'# i5ie%'6 la&(e& &ete%ti!%'" le''e&
i5ie%' '1alle& &ete%ti!%'" la&(e& i5ie%'0 T#$'" t#e alte&%ati5e $'e' !f t#e %!t
ea&%i%('-i5ie%' a% &etai%e ea&%i%(' a&e +!1,etiti5e a% +!%fli+ti%(0
A 1a-!& e+i'i!% !f fi%a%+ial 1a%a(e1e%t i' t#e i5ie% e+i'i!% i% t#e 'e%'e
t#at t#e fi&1 #a' t! +#!!'e )et2ee% i't&i)$ti%( t#e ,&!fit' t! t#e '#a&e#!le&' a%
,l$((i%( t#e1 )a+3 i%t! t#e )$'i%e''0 T#e +#!i+e 2!$l !)5i!$'l* #i%(e !% t#e effe+t !f
t#e e+i'i!% !% t#e 1a8i1i9ati!%' !f '#a&e#!le&' 2ealt#0 :i5e% t#e !)-e+ti5e !f
fi%a%+ial 1a%a(e1e%t !f 1a8i1i9i%( ,&e'e%t 5al$e'" t#e fi&1 '#!$l )e ($ie )* t#e
+!%'ie&ati!%' a' t! 2#i+# alte&%ati5e $'e i' +!%'i'te%t 2it# t#e (!al !f 2ealt#
1a8i1i9ati!%0 T#at i'" t#e fi&1 2!$l )e 2ell a5i'e t! $'e t#e %et ,&!fit' f!& ,a*i%(
i5ie%' t! t#e '#a&e#!le&' if t#at ,a*1e%t 2ill lea t! t#e 1a8i1i9ati!% !f 2ealt# !f
t#e !2%e&'0 If %!t" t#e fi&1 '#!$l &at#e& &etai% t#e1e t! fi%a%+e i%5e't1e%t
,&!(&a11e&'0 T#e &elati!%'#i, )et2ee% i5ie%' a% 5al$e !f t#e fi&1 '#!$l t#e&ef!&e"
)e t#e e+i'i!% +&ite&i!%0
T#e&e a&e #!2e5e&" +!%fli+ti%( !,i%i!%' &e(a&i%( t#e i1,a+t !f i5ie%' !% t#e
5al$ati!% !f a fi&10 A++!&i%( t! !%e '+#!!l !f t#!$(#t" i5ie%' a&e i&&ele5a%t '! t#at
t#e a1!$%t !f i5ie%' ,ai #a' %! effe+t !% t#e" 5al$ati!% !f a fi&10
O% t#e !t#e& #a%" +e&tai% t#e!&ie' +!%'ie& t#e i5ie% e+i'i!% a' &ele5a%t t!
t#e 5al$e !f t#e fi&1 1ea'$&e i% te&1' f t#e 1a&3et ,&i+e !f t#e '#a&e'0
T#e ,$&,!'e !f t#$' &e,!&t i'" t#e&ef!&e" t! ,&e'e%t a +&iti+al a%al*'i' !f '!1e
i1,!&ta%t t#e!&ie' &e,&e'e%ti%( t#e'e t2! '+#!!l' !f t#!$(#t 2it# a 5ie2 t! ill$'t&ati%(
- 1H -
t#e &elati!%'#i, )et2ee% i5ie% ,!li+* a% t#e 5al$ati!% !f a fi&10 T#e t#e!&ie'" 2#i+#
'$,,!&t t#e &ele5a%+e #*,!t#e'i'" a&e e8a1i%e i% t#e &e,!&t0
O"er"ie. of Di"idend De(ision
Di"idend de(ision &efe&' t! t#e ,!li+* t#at t#e 1a%a(e1e%t f!&1$late' i% &e(a& t!
ea&%i%(' f!& i't&i)$ti!% a' i5ie%' a1!%( '#a&e#!le&'0
Di"idend de(ision ete&1i%e' t#e i5i'i!% !f ea&%i%(' )et2ee% ,a*1e%t' t! '#a&e#!le&'
a% &etai%e ea&%i%('
T,e Di"idend De(ision" i% +!&,!&ate fi%a%+e" i' a e+i'i!% 1ae )* t#e i&e+t!&' !f a
+!1,a%* a)!$t t#e a1!$%t a% ti1i%( !f a%* +a'# ,a*1e%t' 1ae t! t#e +!1,a%*;'
't!+3#!le&'0 T,e Di"idend De(ision i' a% i1,!&ta%t ,a&t !f t#e ,&e'e%t a* +!&,!&ate
2!&l0 T#e Di"idend de(ision i' a% i1,!&ta%t !%e f!& t#e fi&1 a' it 1a* i%fl$e%+e it'
+a,ital 't&$+t$&e a% 't!+3 ,&i+e0 I% aiti!%" t#e Di"idend de(ision 1a* ete&1i%e t#e
a1!$%t !f ta8ati!% t#at 't!+3#!le&' ,a*0
:a(tors inf-uen(in/ Di"idend De(isions
T#e&e a&e +e&tai% i''$e' t#at a&e ta3e% i%t! a++!$%t )* t#e i&e+t!&' 2#ile 1a3i%( t#e
di"idend de(isions<
• F&ee 7a'# Fl!2
• Si(%ali%( !f I%f!&1ati!%
• 7lie%t' !f Di5ie%'
:ree Cas, :-o. T,eor#
T#e f&ee +a'# fl!2 t#e!&* i' !%e !f t#e ,&i1e fa+t!&' !f +!%'ie&ati!% 2#e% a di"idend
de(ision i' ta3e%0 A' ,e& t#i' t#e!&* t#e +!1,a%ie' ,&!5ie t#e '#a&e#!le&' 2it# t#e
1!%e* t#at i' left afte& i%5e'ti%( i% all t#e ,&!-e+t' t#at #a5e a ,!'iti5e %et ,&e'e%t 5al$e0
Si/na-in/ of Information
It #a' )ee% !)'e&5e t#at t#e i%+&ea'e !f t#e 2!&t# !f 't!+3' i% t#e '#a&e 1a&3et i'
i&e+tl* ,&!,!&ti!%al t! t#e i5ie% i%f!&1ati!% t#at i' a5aila)le i% t#e 1a&3et a)!$t t#e
+!1,a%*0 W#e%e5e& a +!1,a%* a%%!$%+e' t#at it 2!$l ,&!5ie 1!&e i5ie%' t! it'
'#a&e#!le&'" t#e ,&i+e !f t#e '#a&e' i%+&ea'e'0
- 1? -
C-ients of Di"idends
W#ile ta3i%( di"idend de(isions t#e i&e+t!&' #a5e t! )e a2a&e !f t#e %ee' !f t#e
5a&i!$' t*,e' !f '#a&e#!le&' a' a ,a&ti+$la& t*,e !f i't&i)$ti!% !f '#a&e' 1a* %!t )e
'$ita)le f!& a +e&tai% (&!$, !f '#a&e#!le&'0
It #a' )ee% 'ee% t#at t#e +!1,a%ie' #a5e )ee% 1a3i%( e+e%t ,&!fit' a% al'! &e$+e
t#ei& e8,e%it$&e )* ,&!5ii%( i5ie%' t! !%l* a ,a&ti+$la& (&!$, !f '#a&e#!le&'0
r more information p-ease refer to t,e fo--o.in/ -in>s<
rms of Di"idend • S(rip Di"idend- A% $%$'$al t*,e !f i5ie% i%5!l5i%( t#e i't&i)$ti!% !f
,&!1i''!&* %!te' t#at +all' f!& '!1e t*,e !f ,a*1e%t at a f$t$&e ate0
• Bond Di"idend- A t*,e !f lia)ilit* i5ie% ,ai i% t#e i5ie% ,a*e&;' )!%'0
• Propert# Di"idend- A 't!+3#!le& i5ie% ,ai i% a f!&1 !t#e& t#a% +a'#" '+&i,"
!& t#e fi&1;' !2% 't!+30
• Cas, Di"idend- A i5ie% ,ai i% +a'# t! a +!1,a%*;' '#a&e#!le&' " %!&1all*
!$t !f t#e it' +$&&e%t ea&%i%(' !& a++$1$late ,&!fit'
• De+enture Di"idend
• Optiona- Di"idend- Di5ie% 2#i+# t#e '#a&e#!le& +a% +#!!'e t! ta3e a' eit#e&
+a'# !& 't!+30
Si/nifi(an(e of di"idend de(ision
• T#e fi&1 #a' t! )ala%+e )et2ee% t#e (&!2t# !f t#e +!1,a%* a% t#e i't&i)$ti!%
t! t#e '#a&e#!le&'
• It #a' a +&iti+al i%fl$e%+e !% t#e 5al$e !f t#e fi&1
• It #a' t! al'! t! 't&i3e a )ala%+e )et2ee% t#e l!%( te&1 fi%a%+i%(
e+i'i!%( +!1,a%* i't&i)$ti%( i5ie% i% t#e a)'e%+e !f a%* i%5e't1e%t
!,,!&t$%it*) a% t#e 2ealt# 1a8i1i9ati!%
- 1> -
• T#e 1a&3et ,&i+e (et' affe+te if i5ie%' ,ai a&e le''0
• Retai%e ea&%i%(' #el,' t#e fi&1 t! +!%+e%t&ate !% t#e (&!2t#" e8,a%'i!% a%
1!e&%i9ati!% !f t#e fi&1
• T! '$1 $," it t! a la&(e e8te%t affe+t' t#e fi%a%+ial 't&$+t$&e" fl!2 !f f$%'"
+!&,!&ate liA$iit*" 't!+3 ,&i+e'" a% (&!2t# !f t#e +!1,a%* a% i%5e't!&;'
'ati'fa+ti!%0
:a(tors inf-uen(in/ t,e di"idend de(ision
• LiA$iit* !f f$%'
• Sta)ilit* !f ea&%i%('
• Fi%a%+i%( ,!li+* !f t#e fi&1
• Di5ie% ,!li+* !f +!1,etiti5e fi&1'
• Pa't i5ie% &ate'
• De)t !)li(ati!%
• A)ilit* t! )!&&!2
• :&!2t# %ee' !f t#e +!1,a%*
• P&!fit &ate'
• Le(al &eA$i&e1e%t'
• P!li+* !f +!%t&!l
• 7!&,!&ate ta8ati!% ,!li+*
• Ta8 ,!'iti!% !f '#a&e#!le&'
• Effe+t !f t&ae ,!li+*
• Attit$e !f t#e i%5e't!& (&!$,
- 20 -
Residua- di"idend po-i(#
i' $'e )* +!1,a%ie'" 2#i+# fi%a%+e %e2 ,&!-e+t' t#&!$(# eA$it* t#at i' i%te&%all*
(e%e&ate0 I% t#i' ,!li+*" t#e i5ie% ,a*1e%t' a&e 1ae f&!1 t#e eA$it* t#at &e1ai%'
afte& all t#e ,&!-e+t +a,ital %ee' a&e 1et0 T#i' eA$it* i' al'! 3%!2% a' &e'i$al eA$it*0 It
i' a5i'a)le t#at t#!'e +!1,a%ie'" 2#i+# f!ll!2 t#e po-i(# of residua- di"idend" '#!$l
1ai%tai% a )ala%+e e)tKeA$it* &ati!0 If a +e&tai% a1!$%t !f 1!%e* i' left afte& all f!&1'
!f )$'i%e'' e8,e%'e' t#e% t#e +!&,!&ate #!$'e' i't&i)$te t#at 1!%e* a1!%( it'
'#a&e#!le&' a' i5ie%'0
T#e +!1,a%ie' t#at f!ll!2 a &e'i$al i5ie% ,!li+* ,a* i5ie%' !%l* if !t#e&
'ati'fa+t!&* !,,!&t$%itie' a% '!$&+e' !f i%5e't1e%t !f f$%' a&e %!t a5aila)le0 T#e 1ai%
a5a%ta(e !f a residua- di"idend po-i(# i' t#at it &e$+e' t! t#e i''$e' !f %e2 't!+3' a%
fl!tati!% +!'t'0 T#e &a2)a+3 !f t#i' ,!li+* 1ai%l* lie' i% t#e fa+t' t#at '$+# a ,!li+*
!e' %!t #a5e a%* ',e+ifi+ ta&(et +lie%t'0 M!&e!5e&" it i%5!l5e' t#e &i'3 !f 5a&ia)le
i5ie%'0 T#i' ,!li+* #el,' t! 'et a ta&(et ,a*!$t0
Bef!&e !,ti%( f!& t#e po-i(# of residua- di"idend" t#e ea&%i%(' t#at %ee t! )e &etai%e t!
)a+3 $, t#e +a,ital )$(et #a5e t! )e +al+$late0 T#e%" t#e ea&%i%(' t#at a&e left +a% )e
,ai !$t i% t#e f!&1 !f i5ie%' t! t#e '#a&e#!le&'0 T#$'" t#e i''$e !f %e2 eA$itie' (et'
+!%'ie&a)l* &e$+e a% t#i' i% t$&% lea' t! &e$+ti!% i% 'i(%ali%( a% fl!tati!% +!'t'0
T#e a1!$%t ,a*a)le a' i5ie% fl$+t$ate' #ea5il* if t#i' ,!li+* i' ,&a+ti+e0 W#e% t#e
t!tal 5al$e !f ,&!$+ti5e i%5e't1e%t' i' i% e8+e'' !f t#e t!tal 5al$e !f &etai%e ea&%i%('
a% '$'tai%a)le e)t" t#e +!1,a%ie' feel t#e $&(e t! e8,l!it t#e !,,!&t$%itie' t#$' +&eate
t! ,!'t,!%e a fe2 i%5e't1e%t '+#e1e'0
Ca-(u-ation of Residua- di"idend po-i(#<
- 21 -
Let;' '$,,!'e t#at a +!1,a%* %a1e 7B7 #a' &e+e%tl* ea&%e N1"000 a% #a' a 't&i+t
,!li+* t! 1ai%tai% a e)tKeA$it* &ati! !f 00@ (!%e ,a&t e)t t! e5e&* t2! ,a&t' !f eA$it*)0
N!2" '$,,!'e t#i' +!1,a%* #a' a ,&!-e+t 2it# a +a,ital &eA$i&e1e%t !f N>000 I% !&e& t!
1ai%tai% t#e e)tKeA$it* &ati! !f 00@" 7B7 2!$l #a5e t! ,a* f!& !%e-t#i& !f t#i' ,&!-e+t
)* $'i%( e)t (N<00) a% t2!-t#i&' (NF00) )* $'i%( eA$it*0 I% !t#e& 2!&'" t#e +!1,a%*
2!$l #a5e t! )!&&!2 N<00 a% $'e NF00 !f it' eA$it* t! 1ai%tai% t#e 00@ &ati!" lea5i%( a
&e'i$al a1!$%t !f NB00 (N1"000 - NF00) f!& i5ie%'0 O% t#e !t#e& #a%" if t#e ,&!-e+t
#a a +a,ital &eA$i&e1e%t !f N1"@00" t#e e)t &eA$i&e1e%t 2!$l )e N@00 a% t#e eA$it*
&eA$i&e1e%t 2!$l )e N1"000" lea5i%( 9e&! (N1"000 - N1"000) f!& i5ie%'0 If a%* ,&!-e+t
&eA$i&e a% eA$it* ,!&ti!% t#at 2a' (&eate& t#a% t#e +!1,a%*;' a5aila)le le5el'" t#e
+!1,a%* 2!$l i''$e %e2 't!+3
Ar/uments a/ainst Di"idends
Fi&'t" '!1e fi%a%+ial a%al*'t' feel t#at t#e +!%'ie&ati!% !f a i5ie% ,!li+* i' i&&ele5a%t
)e+a$'e i%5e't!&' #a5e t#e a)ilit* t! +&eate O#!1e1aeO i5ie%'0 T#e'e a%al*'t' +lai1
t#at t#i' i%+!1e i' a+#ie5e )* i%i5i$al' a-$'ti%( t#ei& ,e&'!%al ,!&tf!li!' t! &efle+t
t#ei& !2% ,&efe&e%+e'0 F!& e8a1,le" i%5e't!&' l!!3i%( f!& a 'tea* 't&ea1 !f i%+!1e a&e
1!&e li3el* t! i%5e't i% )!%' (i% 2#i+# i%te&e't ,a*1e%t' !%;t +#a%(e)" &at#e& t#a% a
i5ie%-,a*i%( 't!+3 (i% 2#i+# 5al$e +a% fl$+t$ate)0 Be+a$'e t#ei& i%te&e't ,a*1e%t'
2!%;t +#a%(e" t#!'e 2#! !2% )!%' !%;t +a&e a)!$t a ,a&ti+$la& +!1,a%*;' di"idend
po-i(#0
T#e 'e+!% a&($1e%t +lai1' t#at little t! %! i5ie% ,a*!$t i' 1!&e fa5!&a)le f!&
i%5e't!&'0 S$,,!&te&' !f t#i' ,!li+* ,!i%t !$t t#at ta8ati!% !% a i5ie% a&e #i(#e& t#a%
!% a +a,ital (ai%0 T#e a&($1e%t a(ai%'t i5ie%' i' )a'e !% t#e )elief t#at a fi&1 t#at
&ei%5e't' f$%' (&at#e& t#a% ,a*i%( t#e1 !$t a' i5ie%') 2ill i%+&ea'e t#e 5al$e !f t#e
fi&1 a' a 2#!le a% +!%'eA$e%tl* i%+&ea'e t#e 1a&3et 5al$e !f t#e 't!+30 A++!&i%( t! t#e
,&!,!%e%t' !f t#e %! di"idend po-i(#" a +!1,a%*;' alte&%ati5e' t! ,a*i%( !$t e8+e'' +a'#
a' i5ie%' a&e t#e f!ll!2i%(6 $%e&ta3i%( 1!&e ,&!-e+t'" &e,$&+#a'i%( t#e +!1,a%*;'
!2% '#a&e'" a+A$i&i%( %e2 +!1,a%ie' a% ,&!fita)le a''et'" a% &ei%5e'ti%( i% fi%a%+ial
a''et'
- 22 -
Ar/uments for Di"idends
I% !,,!'iti!% t! t#e'e t2! a&($1e%t' i' t#e iea t#at a #i(# di"idend pa#out i' i1,!&ta%t
f!& i%5e't!&' )e+a$'e i5ie%' ,&!5ie +e&tai%t* a)!$t t#e +!1,a%*;' fi%a%+ial 2ell-
)ei%(M i5ie%' a&e al'! att&a+ti5e f!& i%5e't!&' l!!3i%( t! 'e+$&e +$&&e%t i%+!1e0 I%
aiti!%" t#e&e a&e 1a%* e8a1,le' !f #!2 t#e e+&ea'e a% i%+&ea'e !f a i5ie%
i't&i)$ti!% +a% affe+t t#e ,&i+e !f a 'e+$&it*0 7!1,a%ie' t#at #a5e a l!%(-'ta%i%(
#i't!&* !f 'ta)le di"idend pa#outs 2!$l )e %e(ati5el* affe+te )* l!2e&i%( !& !1itti%(
i5ie% i't&i)$ti!%'M t#e'e +!1,a%ie' 2!$l )e ,!'iti5el* affe+te )* i%+&ea'i%(
i5ie% ,a*!$t' !& 1a3i%( aiti!%al ,a*!$t' !f t#e 'a1e i5ie%'0 F$&t#e&1!&e"
+!1,a%ie' 2it#!$t a i5ie% #i't!&* a&e (e%e&all* 5ie2e fa5!&a)l* 2#e% t#e* e+la&e
%e2 i5ie%'0
T#e residua- di"idend po-i(# i' 1!&e '$ita)le f!& t#e (!5e&%1e%t +!%+e&%' )e+a$'e t#e*
1ai%l* ai1 f!& +&eati!% !f 5al$e a% 1a8i1i9ati!% !f 2ealt# a% t#e&ef!&e t#e* #a5e t!
1a3e $'e !f e5e&* 5al$e ae i%5e't1e%t !,,!&t$%it* t#at +!1e' !% t#ei& 2a*0 A little
+#a%(e i% t#e )a'i+ ,!'t$late' !f t#e ,!li+* $'$all* !++$&' 2#e% it i' a,,lie t! t#e
(!5e&%1e%t 'e+t!& )e+a$'e it ta3e' i%t! it' ,$&5ie2 t#e (!5e&%1e%t;' li3i%( f!& i5ie%'
&at#e& t#a% +a,ital (ai%'0
T#e di"idend dis(ount mode- i' $'e f!& t#e ,$&,!'e !f eA$it* 5al$ati!%0 T#e&e a&e
iffe&e%t t*,e' !f i5ie% i'+!$%t 1!el a% all t#e'e 1!el' a&e 5e&* $'ef$l0 T#e
$'ef$l%e'' !f t#e DDM (i5ie% i'+!$%t 1!el) e,e%' !% t#e a,,li+ati!% !f t#e
'a1e0
A 'e%'iti5it* a%al*'i' !f t#e i5ie% i'+!$%t 1!el i' 5e&* %e+e''a&* )e+a$'e t#e 1!el
it'elf i' #i(#l* 'e%'iti5e t!2a&' t#e ,&e'$1,ti!%' &e(a&i%( t#e (&!2t# a% i'+!$%t
&ate'0
T#e i%5e't!& +a% )e )e%efite )* t#e 'e%'iti5it* a%al*'i' )e+a$'e t#i' ,a&ti+$la& a%al*'i'
+a% ,&!5ie a% iea a)!$t #!2 5a&i!$' ,&e'$1,ti!%' +a% +&eate iffe&e%t 5al$e'0 T#e
i5ie% i'+!$%t 1!el +!1,el' t#e i%5e't!& t! t#i%3 a)!$t iffe&e%t 'it$ati!%'
- 2< -
&e(a&i%( t#e 1a&3et ,&i+e !f t#e 't!+30
T#e i5ie% i'+!$%t 1!el i' $'e )* #$(e %$1)e& !f ,&!fe''i!%al' )e+a$'e t#e 1!el
i' a)le t! ill$'t&ate t#e iffe&e%+e )et2ee% &ealit* a% t#e!&ie' t#&!$(# iffe&e%t e8a1,le'0
B$t at t#e 'a1e ti1e it '#!$l al'! )e &e1e1)e&e t#at t#e&e a&e '!1e i1,!&ta%t fa+t!&'
li3e t#e &eali'ti+ t&a%'iti!% ,#a'e' a% '!1e !t#e&'" 2#i+# a&e 1i''i%( f&!1 t#e DDM0
T#e DDM %ee' 5a&i!$' ata t! )&i%( !$t t#e 5al$e !f a% eA$it*0 DPS(1)" 2#i+#
&e,&e'e%t' t#e a1!$%t !f e8,e+te i5ie%" i' 5e&* i1,!&ta%t f!& DDM0 T#e (&!2t# &ate
i% i5ie% i' al'! a% i1,!&ta%t fa+t!& i% t#e $'e !f i5ie% i'+!$%t 1!el0 A%!t#e&
i1,!&ta%t ata i' ;=';0 ;='; &e,&e'e%t' t#e e8,e+te &ate !f &et$&% a% t#i' +a% )e e'ti1ate
t#&!$(# t#e f!ll!2i%( f!&1$la6
Ri'3-f&ee &ate P (1a&3et &i'3 ,&e1i$1)Q Beta
T#e&e a&e 'e5e&al t*,e' !f i5ie% i'+!$%t 1!el0 F!ll!2i%( a&e t#e t2! 1!'t ,&efe&&e
t*,e' !f DDM6
• Sta+-e Mode-< A++!&i%( t! t#i' 1!el" 5al$e !f 't!+3 i' eA$al t! DPS(1) K =' -
(0 T#i' 1!el i' a,,&!,&iate f!& t#e fi&1' 2it# l!%( te&1 'tea* (&!2t#0 T#e'e
t*,e' !f fi&1' ,&ete% t! (&!2 'i1$lta%e!$'l* 2it# t#e l!%( te&1 %!1i%al
e5el!,1e%t &ate !f t#e e+!%!1*0
• T.o1Sta/e Mode-< T#i' ,a&ti+$la& 1!el t&ie' t! )&i%( !$t t#e iffe&e%+e )et2ee%
t#e t#e!&* a% t#e &ealit*0 It 'i1,l* ,&ete%' t#at t#e +!1,a%* 2!$l (! t#&!$(#
'e5e&al (!! a% )a ,e&i!'0 A++!&i%( t! t#i' 1!el" t#e +!1,a%* t#at i' (!i%(
t#&!$(# a #i(#-(&!2t# ,e&i! i' )!$% t! fa+e a e+li%e i% t#e (&!2t# &ate0 Afte&
t#at !2%fall t#e +!1,a%* i' e8,e+te t! e8,e&ie%+e a 'ta)le (&!2t# ,#a'e0
IRRE&E=ANCE O: DI=IDEDS<
MODIG&IANI AND MI&&ER MODE&<
- 2B -
T#e +&$8 !f t#e a&($1e%t '$,,!&ti%( t#e i&&ele5a%+e !f i5ie%' t! Cal$ati!% i' t#at t#e
i5ie% ,!li+* !f a fi&1 i' a ,a&t !f it' fi%a%+i%( e+i'i!%0 A' a ,a&t !f t#e fi%a%+i%(
e+i'i!%" t#e i5ie% ,!li+* !f t#e fi&1 i' a &e'i$al e+i'i!% a% i5ie%' a&e ,a''i5e
&e'i$al'
Cru! of t,e Ar/ument<
T#e +&$8 !f t#e MM ,!'iti!% !% t#e i&&ele5a%+e !f i5ie% i' t#e a&)it&a(e
a&($1e%t0 T#e a&)it&a(e ,&!+e''" i%5!l5e' a '2at#i%( a% )ala%+i%( !,e&ati!%0 I% !t#e&
2!&'" a&)it&a(e &efe&' t! e%te&i%( 'i1$lta%e!$'l* * i%t! t2! t&a%'a+ti!%' #e&e a&e t#e a+t'
!f ,a*i%( !$t i5ie%' a% &ai'i%( e8te&%al f$%' eit#e& t#&!$(# t#e 'ale !f %e2 '#a&e'
!& &ai'i%( aiti!%al l!a%'-t! fi%a%+e i%5e't1e%t ,&!(&a11e'0 A''$1e t#at a fi&1 #a'
'!1e i%5e't1e%t !,,!&t$%it*0
:i5e% it' i%5e't1e%t e+i'i!%" t#e fi&1 #a' t2! alte&%ati5e'6 (i) it +a% ,a''i+e&etai% i'
ea&%i%(' t! fi%a%+e t#e i%5e't1e%t ,&!(&a11eM (ii) !& i't&i)$te t#e ea&%i%(' t! #e
'#a&e#!le&' a' i5ie% a% &ai'e a% eA$al a1!$%t e8te&%all* t#&!$(# t#e 'ale !f %e2
'#a&e'K)!%' f!& t#e ,$&,!'e0 If t#e fi&1 'ele+t' t#e 'e+!% alte&%ati5e" a&)it&a(e ,&!+e''
i' i%5!l5e" i% t#at ,a*1e%t !f i5ie%' i' a''!+iate 2it# &ai'i%( f$%' t#&!$(# !t#e&
1ea%' !f fi%a%+i%(" t#e effe+t !f i5ie% ,a*1e%t !%
S#a&e#!le&'G 2ealt# 2ill )e e8a+tl* !ff'et )* t#e effe+t !f &ai'i%( aiti!%al '#a&e
+a,ital0
W#e% i5ie%' a&e ,ai t! t#e '#a&e#!le&'" t#e 1a&3et ,&i+e !f t#e '#a&e' 2ill
e+&ea'e0 W#at t#e i%5e't!&' a' a &e'$lt !f i%+&ea'e i5ie%' (ai% 2ill )e %e$t&ali9e
+!1,letel* 5ie t#e &e$+ti!% i% t#e te&1i%al 5al$e !f t#e '#a&e'0 T#e 1a&3et ,&i+e )ef!&e
a% afte& t#e ,a*1e%t !f i5ie% 2!$l )e ie%ti+al0 T#e i%5e't!&' a++!&i%( t!
M!i(lia%i a% Mille&" 2!$l" t#e&ef!&e" )e i%iffe&e%t )et2ee% i5ie% a% &ete%ti!% !f
ea&%i%('0 Si%+e t#e '#a&e#!le&' a&e i%iffe&e%t" t#e 2ealt# 2!$l %!t )e affe+t )* +$&&e%t
a% f$t$&e i5ie% e+i'i!%' !f t#e fi&10 It 2!$l e,e% e%ti&el* $,!% t#e e8,e+te
f$t$&e ea&%i%(' !f t#e fi&10
- 2@ -
T#e&e 2!$l )e %! iffe&e%+e t! t#e 5aliit* !f t#e 11 ,&e1i'e" if e8te&%al f$%' 2e&e
&ai'e i% t#e f!&1 !f e)t i%'tea !f eA$it* +a,ital0 T#i' i' )e+a$'e !f t#ei& i%iffe&e%+e
)et2ee% e)t a% eA$it* 2itt* &ete't t! le5e&a(e0 T#e +!'t !f +a,ital i' i%e,e%e%t !f
le5e&a(e a% t#e +!'t !f e)t i' t#e 'a1e a' t#e &eal +!'t !f eA$it*0
T#!'e i%5e't!&' a&e i%iffe&e%t )et2ee% i5ie% a% &etai%e ea&%i%(' i1,l* t#at t#e
i5ie% e+i'i!% i' i&&ele5a%t0 T#e a&)it&a(e ,&!+e'' al'! i1,lie' t#at t#e t!tal 1a&3et
5al$e ,l$' +$&&e%t i5ie%' !f t2! fi&1'" 2#i+# a&e ali3e i% all &e',e+t' e8+e,t DKP &ati!"
2ill )e ie%ti+al0 T#e i%i5i$al '#a&e#!le& +a% &etai% a% i%5e't #i' !2% ea&%i%(' a'
2eMM a' t#e fi&1 2!$l0 Wit# i5ie%' )ei%( i&&ele5a%t" a fi&1G' +!'t !f +a,ital 2!$l )e
i%e,e%e%t !f it' DKP &ati!0
Fi%all*" t#e a&)it&a(e ,&!+e'' 2ill e%'$&e t#at-$%e& +!%iti!%' !f $%+e&tai%t* al'! t#e
i5ie% ,!li+* 2!$l )e i&&ele5a%t0 W#e% t2! fi&1' a&e 'i1ila& i% &e',e+t !f )$'i%e''
&i'3" ,&!',e+ti5e f$t$&e ea&%i%(' a% i%5e't1e%t ,!li+ie'" t#e 1a&3et ,&i+e !f t#ei& '#a&e'
1$'t )e t#e 'a1e0 T#i'" 11 a&($e'" i' 2ealt# t! le'' 2ealt#0 Diffe&e%+e' i% +$&&e%t a%
f$t$&e i5ie% ,!li+ie' +a%%!t affe+t t#e 1a&3et 5al$e !f t#e t2! fi&1' a' t#e ,&e'e%t
5al$e !f ,&!',e+ti5e i5ie%' ,l$' te&1i%al 5al$e i' t#e 'a1e0
A Criti?ue<
M!i(lia%i a% Mille& a&($e t#at t#e i5ie% e+i'i!% !f t#e fi&1 i' i&&ele5a%t i%
t#e 'e%'e t#at t#e 5ale t#e fi&1 i' i%e,e%e%t !f it0 T#e +&$8 !f t#ei& a&($1e%t i' t#at t#e
i%5e't!&' a&e i%iffe&e%t )et2ee% i5ie% a% &ete%ti!% !f ea&%i%('0 T#i' i' 1ai%l*
)e+a$'e !f t#e )ala%+i%( %at$&e' i%te&%al fi%a%+i%( (&etai%e ea&%i%(') a% e8te&%al
fi%a%+i%( (&ai'i%( !f f$%' e8te&%all*) +!%'eA$e%t $,!% i't&i)$ti!% ea&%i%(' t! fi%a%+e
i%5e't1e%t ,&!(&a1G'0 W#et#e& t#e 11 #*,!t#e'e' ,&!5ie' a 'ati'fa+t!&* f&a1e2!&3 f!&
t#e t#e!&eti+al &elati!%'#i, )et2ee% i5ie% e+i'i!% a% 5al$ati!% 2ill e,e%" i% t#e
$lti1ate a%al*'i' !% 2#et#e& e8te&%al a% i%te&%al fi%a%+i%( &eall* )ala%+e ea+# !t#e&0
T#i' i% t$&%" e,e%' $,!% t#e +&iti+al a''$1,ti!%' 'ti,$late )* t#e10 T#ei& +!%+l$'i!%'"
it 1a* )e %!te" $%e& t#e &e't&i+ti5e a''$1,ti!%'" a l!(i+all* +!%'i'te%t a% i%t$iti5el*
a,,eali%(0 B$t t#e'e a''$1,ti!%' a&e $%&eali'ti+ a% $%te%a)le i% ,&a+ti+e A' a &e'$lt" t#e
- 2F -
+!%+l$'i!% t#at i5ie% ,a*1e%t a% !t#e& 1et#!' !f fi%a%+i%( e8a+tl* !ff'et ea+#
!t#e& a%" #e%+e" t#e i&&ele5a%+e !f i5ie%' i' %!t a ,&a+ti+al ,&!,!'iti!%G it i' 1e&el* !f
t#e!&eti+al &ele5a%+e0
T#e 5aliit* !f t#e MM A,,&!a+# i' !,e% t! A$e'ti!% !% t2! 7!$tt'6(i)
I1,e&fe+ti!% !f +a,ital 1a&3et" a% (ii) Re'!l$ti!% !f $%+e&tai%t*
Ma&3et I1,e&fe+ti!%6 M!i(lia%i a% Mille& a''$1e t#at +a,ital 1a&3et'
A&e ,e&fe+t0 T#i' i1,lie' t#at t#e&e a&e %! ta8e'M fl!tati!% +!'t' ! %!t e8i't a% t#e&e i'
a)'e%+e !f t&a%'a+ti!% +!'t'0 T#e'e a''$1,ti!%' ate $%te%a)le i% a+t$al 'it$ati!%'0
A% Ta! Effe(t<
A% a''$1,ti!% !f t#e 11 #*,!t#e'i' i' t#at t#e&e a&e %! ta8e'0 It i1,lie' t#at &ete%ti!% !f
ea&%i%(' (i%te&%al fi%a%+i%() a% ,a*1e%t !f i5ie%' (e8te&%al fi%a%+i%() a&e" f&!1 t#e
5ie2,!i%t !f la2 t&eat1e%t" !% a% eA$al f!!ti%( t#e i%5e't!&' 2!$l fi% )!t# f!&1' !f
fi%a%+i%( eA$all* e'i&a)le0 T#e ta8 lia)ilit* !f t#e i%5e't!&'" )&!al* ',ea3i%(" i' !f t2!
t*,e'6 (i) ta8 !% i5ie% i%+!1e" a% (ii0 +a,ital (ai%'0 W#ile t#e fi&'t t*,e !f ta8 i'
,a*a)le )* t#e i%5e't!&' 2#e% t#e fi&1 ,a*' i5ie%'" t#e +a,ital (ai%' ta8 i' &elate t!
&ete%ti!% !f ea&%i%('0 F&!1 a% !,e&ati!%al 5ie2,!i%t" +a,ital (ai%' ta8 i' (i) l!2e& t#e)e
t#e ta8 !& i5ie% i%+!1e a% (ii) it )e+!1e' ,a*a)le !%l* '#ee% '#a&e' a&e a+t$all*
'!l" t#a% i'" it i' a iffe&e till t#e a+t$al 'ale !f t#e '#a&e'0 T#e t*,e' !f ta8e'" MM
,!'iti!% 2!$l i1,l* !t#e&2i'e0 T#e iffe&e%t ta8 t&eat1e%t !f i5 i%e a% +a,ital (ai%'
1ea%' t#at 2it# t#e &ete%ti!% !f ea&%i%(' t#e '#a&e#!le&'0 F!& e8a1,le" a fi&1 ,a*'
i5ie%' t! t#e '#a&e#!le&' !$t !f t#e &etai%e ea&%i%('M t! fi%a%+e it' i%5e't1e%t
,&!(&a1G' it i''$e' &i(#t' '#a&e'0 T#e '#a&e#!le&' 2!$l #a5e t! ,a* ta8 !% t#e i5ie%
i%+!1e at &ate' a,,&!,&iate t! t#ei& i%+!1e )&a+3et0 S$)'eA$e%tl*" t#e* 2!$l ,$&+#a'e
t#e '#a&e' !f t#e fi&10 7lea&l*" t#a% ta8 +!$l #a5e )ee% a5!ie if" i%'tea !f ,a*i%(
i5ie%" t#e ea&%i%(' 2e&e &etai%e if" #!2e5e& t#e i%5e't!&' &eA$i&e f$%'" t#e* +!$l
'ell a ,a&t !f t#ei& i%5e't1e%t'" i% 2#i+# +a'e t#e* 2ill ,a* ta8 (+a,ital (ai%') at a l!2e&
&ate0 T#e&e i' a efi%ite a5a%ta(e t! t#e i%5e't!&' O2i%( t! t#e ta8 iffe&e%tial i%
i5ie% a% +a,ital (ai%' ta8 a% " t#e&ef!&e" t#e* +a% )e e8,e+te t! ,&efe& &ete%ti!% !f
ea&%i%('0
- 2H -
B% :-otation (osts<
A%!t#e& a''$1,ti!% !f a ,e&fe+t +a,ital 1a&3et $%e&l*i%( t#e MM
H*,!t#e'i' i' i5ie% i&&ele5a%+e i' t#e a)'e%+e !f fl!tati!% +!'t'0 T#e te&1 Jfl!tati!%
+!'tG &efe&' t! t#e +!'t i%5!l5e i% &ai'i%( +a,ital f&!1 t#e 1a&3et f!& i%'ta%+e"
$%e&2&iti%( +!11i''i!%" )&!3e&a(e a% !t#e& e8,e%'e'0 T#e ,&e'e%+e !f fl!tati!% +!'t'
affe+t' t#e )ala%+i%( %at$&e !f i%te&%al (&etai%e ea&%i%(') a% e8te&%al (i5ie%
,a*1e%t') fi%a%+i%(0 T#e MM ,!'iti!%" it 1a* )e &e+alle" a($e' t#at (i5e% t#e
i%5e't1e%t e+i'i!% !f t#e fi&1" e8te&%al f$%' 2!$l #a5e t! )e &ai'e" eA$al t! t#e
a1!$%t !f i5ie%" t#&!$(# t#e 'ale !f %e2 '#a&e t! fi%a%+e t#e i%5e't1e%t
,&!(&a11e0 T#e t2! 1et#!' !f fi%a%+i%( a&e %!t ,e&fe+t '$)'tit$te' )e+a$'e !f
fl!tati!% +!'t'0 T#e i%t&!$+ti!% !f '$+# +!'t' i1,lie' t#at t#e %et ,&!+ee f&!1 t#e 'ale
!f %e2 '#a&e' 2!$l )e le'' t#a% t#e fa+e 5ali !f t#e '#a&e'" e,e%i%( $,!% t#ei& 'i9e0?
it 1ea%' tat t! )e a)le t! 1a3e $'e !f e8te&%al f$%'" eA$i5ale%t t! t#e i5ie%
,a*1e%t'" t#e fi&1' 2!$l #a5e t! 'ell '#a&e' f!& a% a1!$%t i% e8+e'' !f &etai%e
ea&%i%('0 I% !t#e& 2!&'" e8te&%al fi%a%+i%( t#&!$(# 'ale !f '#a&e' 2!$l )e +!'tlie& t#a%
i%te&%al fi%a%+i%( 5ia &etai%e ea&%i%('0 T#e '1alle& t#e 'i9e !f t#e i''$e" t#e (&eate& i'
t#e ,e&+e%ta(e fl!tati!% +!'t0 > T! ill$'t&ate '$,,!'e t#e +!'t !f fl!tati!% i' 10,e& +e%t a%
t#e &etai%e ea&%i%(' a&e R'0>00" I% +a'e i5ie%' a&e ,ai" t#e fi&1 2ill #a5e t! 'ell
'#a&e' 2!&t# R'0100K- t! &ai'e f$%' a&e ,ai" t#e fi&1 2ill #a5e t! 'ell '#a&e' 2!&t#
R'01000K- t! &ai'e f$%' eA$i5ale%t !& t#e &etai%e ea&%i%('0 T#at e8te&%al fi%a%+i%( i'
+!'tlie& i' a%!t#e& 2a* !f 'a*i%( t#at fi&1' 2!$l ,&efe& t! &etai% ea&%i%(' &at#e& ta) ,a*
i5ie%' a% t#e% &ai'e f$%' e8te&%all*0
C% transa(tion and in(on"enien(e Costs <
- 2? -
Det a%!t#e& a''$1,ti!%" 2#i+# i' !,e% t! A$e'ti!%" i' t#at t#e&e a&e %! t&a%'a+ti!%
+!'t' i% t#e +a,ital 1a&3et0 T&a%'a+ti!% +!'t' &efe& t! +!'t' a''!+iate 2it# t#e 'ale !f
'e+$&itie' )* t#e '#a&e#!le&-i%5e't!&'0 T#e %!-t&a%'a+ti!% +!'t' ,!'t$late i1,lie' t#at if
i5ie%' a&e %!t ,ai (!& ea&%i%(' a&e &etai%e)" t#e i%5e't!&' e'i&!$' !f +$&&e%t i%+!1e
t! 1eet +!%'$1,ti!% %ee' +a% 'ell a ,a&t !f t#ei& #!li%(' 2it#!$t i%+$&&i%( a%* +!'t"
li3e )&!3e&a(e a% '! !%0 T#i' i' !)5i!$'l* a% $%&eali'ti+ a''$1,ti!%0 Si%+e t#e 'ale !f
'e+$&itie' i%5!l5e' +!'t" t! (et +$&&e%t i%!1e eA$i5ale%t t! t#e i5ie%" if ,ai" t#e
i%5e't!&' 2!$l #a5e t! 'ell 'e+$&itie' i% e8+e'' !f t#e i%+!1e t#at t#e* 2ill &e+ei5e0 A,at
f&!1 t#e t&a%'a+ti!% +!'t" t#e 'ale !f 'e+$&itie'" a' a% alte&%ati5e t! +$&&e%t i%+!1e" i'
i%+!%5e%ie%t t! t#e i%5e't!&'0 M!&e!5e&" $%+e&tai%t* i' a''!+iate 2it# t#e 'ale !f
'e+$&itie'0 F!& all t#e'e &ea'!%' a% i%5e't!& +a%%!t )e e8,e+te" a' MM a''$1e" t! )e
i%iffe&e%t )et2ee% i5ie% a% &etai%e ea&%i%('0 T#e i%5e't!&' i%te&e'te i% +$&&e%t
i%+!1e 2!$l +e&tai%l* ,&efe& i5ie% ,a*1e%t t! ,l$((i%( )a+3 !f ,&!fit' )* t#e fi&10
D% Institutiona- Restri(tions <
T#e i5ie% alte&%ati5e i' al'! '$,,!&te )* le(al &e't&i+ti!%' a' t! t#e t*,e
!f !&i%a&* '#a&e' i% 2#i+# +e&tai% i%5e't!&' +a% i%5e't f!& i%'ta%+e" t#e Life I%'$&a%+e
7!&,!&ati!% !f I%ia i' ,e&1itte i% te&1' !f +la$'e' I(a) t! I(() !f 'e+ti!% 2H-A !f t#e
I%'$&a%+e A+t" 1><?" t! i%5e't i% !%l* '$+# eA$it* '#a&e' !% 2#i+# a i5ie% !f %!t le''
t#a% B ,e& +e%t i%+l$i%( )!%$' #a' )ee% ,ai f!& @ *ea&' !$t !f H *ea&' i11eiatel*
,&e+ei%(0 T! )e eli(i)le f!& i%'tit$ti!%al i%5e't1e%t" t#e +!1,a%ie' '#!$l ,a*
i5ie%'0 T#e'e le(al i1,ei1e%t' t#e&ef!&e" fa5!& i5ie%' t! &ete%ti!% !f ea&%i%(0 A
5a&iati!% !f t#e le(al &eA$i&e1e%t t! ,a* i5ie%' i' t! )e f!$% i% t#e +a'e !f t#e U%it
T&$'t !f I%ia (UTI)0 T#e UTI i' &eA$i&e i% te&1' !f t#e 'ti,$lati!%' (!5e&%i%( it'
!,e&ati!%" t! i't&i)$te at lea't >0 ,e&+e%t !f it' %et i%+!1e t! $%it #!le&0 It +a%%!t i%5e't
1!&e t#a% @ ,e& +e%t !f it' i%5e%ti)le f$% $%e& t#e $%it '+#e1e' 1>FB a%
1>H1" i% t#e '#a&e' !f %e2 i%$'t&ial $%e&ta3i%('0 T#e ,!i%t i' t#at t#e
eli(i)le 'e+$&itie' f!& i%5e't1e%t )* t#e UTI a&e a''$1e t! )e t#!'e t#at a&e !% t#e
i5ie% ,a*1e%t li't0
- 2> -
T! +!%+l$e t#e i'+$''i!% !f 1a&3et i1,e&fe+ti!%' t#e&e a&e f!$& fa+t!&'"
2#i+# il$te t#e iffe&e%+e !f i%5e't!&' )et2ee% i5ie%' a% &etai%e ea&%i%('0 Of
t#e'e" fl!tati!% +!'t' 'ee1 t! fa5!& &ete%ti!% !f ea&%i%(' !% t#e !t#e& #a%" t#e e'i&e f!&
+$&&e%t i%+!1e a%" t#e &elate t&a%'a+ti!% a% i%+!%5e%ie%+e +!'t'" le(al &e't&i+ti!%' a'
a,,li+a)le t! t#e eli(i)le 'e+$&itie' f!& i%'tit$ti!%al i%5e't1e%t a% ta8 e8a1,le !f
i5ie% i%+!1e i1,l* a ,&efe&e%+e !f ,a*1e%t !f i5ie%'0 I% '$1" t#e&ef!&e" 1a&3et
i1,!&te& i1,lie' t#at i%5e't!&' 2!$l li3e t#e +!1,a%* t! &etai% ea&%i%(' t! fi%a%+e
i%5e't1e%t ,&!(&a1'0 T#e i5ie% ,!li+* i' %!t i&&ele5a%t0
Reso-ution of Un(ertaint#<
A ,a&t f&!1 t#e 1a&3et i1,e&fe+ti!%" t#e 5aliit* !f t#e 11 #*,!t#e'i'"
i%'!fa& a' it a&($e' t#at i5ie%' a&e i&&ele5a%t" i' A$e'ti!%a)le $%e& +!%iti!%' !f
$%+e&tai%t*0 MM #!l" it 2!$l )e &e+alle" t#e at i5ie% ,!li+* i' a' i&&ele5a%t $%e&
+!%iti!%' !f $%+e&tai%t* a'" it i' 2#e% ,&efe+t +e&tai%t* i' a''$1e0 T#e MM #*,!t#e'i'"
#!2e5e&" %!t te%a)le a' i%5e't!&' +a%%!t )et2ee% i5ie% a% &etai%e ea&%i%(' $%e&
+!%iti!%' !f $%+e&tai%t*0 T#i' +a% )e ill$'t&ate 2it# &efe&e%+e t! f!$& a',e+t'6 (i) %ea&
5'0 i'ta%t i5ie%M (ii) i%f!&1ati!%al +!%te%t !f i5ie%'M (i%) ,&efe&e%+e f!& +$&&e%t
i%+!1eM a% (i5) 'ale !f 't!+3 at $%+e&tai% ,&i+eK$%e& ,&i+i%(0
i Near =s Distant Di"idend<
O%e a',e+t !f t#e $%+e&tai%t* 'it$ati!% i' t#e ,a*1e%t !f i5ie% %!2 !& at a late&
ata0 If t#e ea&%i%(' a&e $'e t! ,a* i5ie%' t! t#e i%5e't!&'" t#e* (et i11eiate !& %eat
i5ie% if #!2e5e&" t#e %et ea&%i%(' a&e &etai%e" a% t#e '#a&e#!le&' 2!$l )e e%title
t! &e+ei5e a &et$&% afte& '!1e ti1e i% t#e f!&1 !f a% i%+&ea'e i% t#e ,&i+e !f '#a&e'
(7a,ital (ai%') !& )!%$' '#a&e' a% '! !%0 T#e i5ie%' 1a*" t#e%" )e &efe&&e t! a'
Ji'ta%t-!&-f$t$&eG i5ie%'0 T#e +&$8 !f t#e ,&!)le1 i'6 a&e i%5e't!&' i%iffe&e%t
)et2ee% i11eiate a% f$t$&e i5ie%'0 A++!&i%( t! :!&!%/ i%5e't!&' a&e %!t
i%iffe&e%tM &at#e&" t#e* 2!$l ,&efe& %ea& i5ie% t! i'ta%t i5ie% t#e 2#e% it 2!$l
)e ,a*1e%t !f t#e i%5e't!&' +a%%!t )e ,&e+i'el* f!&e+a't0 T#e l!%(e& t#e i'ta%+e i% f$t$&e
i5ie% ,a*1e%t" t#e #i(#e& i' t#e $%+e&tai%t* t! t#e '#a&e#!le&'
- <0 -
T#e $%+e&tai%t* i%+&ea'e' t#e &i'3 !f t#e i%5e't!&'0 T#e ,a*1e%t !f i11eiate i5ie%
&e'!l5e' $%+e&tai%t*0 T#e a&($1e%t t#at %ea& i5ie% i' ,&efe&&e !5e& t#e i'ta%t
i5ie%' i%5!l5e' t#e .)i&-i%-#a%G a&($1e%t0 T#i' a&($1e%t i' e5el!,e i% '!1e
etail i% t#e late& ,a&t !f t#i' &e,!&t" 'i%+e +$&&e%t i5ie%' a&e le'' &i'3* t#a%
f$t$&eKi'ta%t i5ie%'" '#a&e#!le&' 2!$l fa5!&' i5ie%' t! &etai%e ea&%i%('0
ii% Informationa- Content of Di"idends<
A%!t#e& a',e+t !f $%+e&tai%t*" 5e&* +l!'el* &elate t! t#e fi&'t (i0e0
Re'!l$ti!% !f $%+e&tai%t* !& t#e L)i&-i%-#a%G a&($1e%t) i' t#e i%f!&1ati!%al +!%te%t !f
i5ie% a&($1e%t0 A++!&i%( t! t#e latte& a&($1e%t" a' t#e %a1e '$((e't'" t#e i5ie%
+!%tai%' '!1e i%f!&1ati!% 5ital t! t#e i%5e't!&'0 T#e ,a*1e%t !f i5ie% +!%5e*' t! t#e
'#a&e#!le&' i%f!&1ati!% &elati%( t! ,&!fita)ilit* !f t#e fi&10
T#e i%te&%ati!%al +!%te%t a&($1e%t fi%' '$,,!&t i% '!1e e1,i&i+al e5ie%+e0 IT i
+!%te%e t#at +#a%(e' i% i5ie%' +!%5e* 1!&e 'i(%ifi+a%t i%f!&1ati!% t#a% 2#at
ea&%i%(' a%%!$%+e1e%t' !0 F$&t#e&" t#e 1a&3et &ea+t' t! i5ie% +#a%(e'-,&i+e' &i'e i%
&e',!%'e t! a 'i(%ifi+a%t i%+&ea'e i% i5ie%' a% fall 2#e% t#e&e i' a 'i(%ifi+a%t
e+&ea'e !& !1i''i!%0
iii% Preferen(e for Current In(ome<
T#e T#i& a',e+t !f t#e $%+e&tai%t* A$e'ti!% t! i5ie%' i' )a'e !% t#e e'i&e !f
i%5e't!&' f!& +$&&e%t i%+!1e t! 1eet + +!%'$1,ti!% &eA$i&e1e%t'0 T#e MM #*,!t#e'i' !f
i&&ele5a%+e !f i5ie%' i1,lie' t#at i% +a'e i5ie%' a&e %!t ,ai" i%5e't!&' 2#! ,&efe&
+$&&e%t i%+!1e +a% 'ell a ,a&t !f t#ei& #!li%(' i% t#e fi&1 f!& t#e ,$&,!'e0 B$t" $%e&
$%+e&tai%t* +!%iti!%'" t#e t2! alte&%ati5e' a&e %!t !% t#e 'a1e f!!ti%( )e+a$'e (i) 'elli%(
a '1all f&a+ti!% !f #!li%(' ,e&i!i+all* i' i%+!%5e%ie%t0 t#at 'elli%( '#a&e' t! !)tai%
i%+!1e" a' a% alte&ati5e t! i5ie%" i%5!l5e' $%+e&tai% ,&i+e a% i%+!%5e%ie%+e" i1,lie'
t#at i%5e't!&' a&e li3el* t! ,&efe& +$&&e%t i5ie%0 T#e MM ,&!,!'iti!% 2!$l" t#e&ef!&e"
%!t )e 5ali )e+a$'e i%5e't!&' a&e %!t i%iffe&e%t0
- <1 -
i"% Under pri(in/
fi%all* t#e MM #*,!t#e'i' 2!$l al'! %!t )e 5ali 2#e% +!%iti!%' a&e a''$1e t! )e
$%+e&tai% )e+a$'e !f t#e ,&i+e' at 2#i+# t#e fi&1' +a% 'ell '#a&e' t! &ai'e f$%' t! fi%a%+e
i%5e't1e%t ,&!(&a1G' +!%'eA$e%t $,!% t#e i't&i)$ti!% !f ea&%i%(' t! t#e '#a&e#!le&'
T#e i&&ele5a%+e a&($1e%t 2!$l 5ali ,&!5ie t#e fi&1 i' a)le t! 'ell '#a&e' t! &e,la+e
i5ie%' at t#e +$&&e%t ,&i+e0 Si%+e t#e '#a&e' 2!$l #a5e t! )e !ffe&e t! )ee2
i%5e't!&'" t#e fi&1 +a% 'ell t#e '#a&e' !%l* at a ,&i+e )el!2 t#e ,&e5aili%( ,&i+e0
RE&E=ANCE O: DI=IDENDS
I% '#a&, +!%t&a't t! t#e MM ,!'iti!%" t#e&e a&e '!1e t#e!&ie' t#at +!%'ie& i5ie%
e+i'i!%' t! )e a% a+ti5e 5a&ia)le i% ete&1i%i%( t#e 5al$e !f a fi&10 T#e i5ie%
e+i'i!% i'" t#e&ef!&e" &ele5a%t0 We +&iti+all* e8a1i%e )el!2 t2! t#e!&ie' &e,&e'e%ti%(
t#i' %!ti!%6
i) WALTERGS MODEL
ii) :ORDONGS MODEL
*A&TER’S MODE&
P&!,!'iti!% Walte&G' 1!el' '$,,!&t t#e !+t&i%e t#at i5ie%' a&e &ele5a%t0 T#e
i%5e't1e%t ,!li+* !f a fi&1 +a%%!t )e 'e,a&ate f&!1 it' i5ie%' ,!li+* a% )!t# a&e"
a++!&i%( t! Walte&" i%te&li%3e0 T#e +#!i+e !f a% a,,&!,&iate i5ie% ,!li+* affe+t' t#e
5al$e !f a% e%te&,&i'e0
T#e 3e* a&($1e%t i% '$,,!&t !f t#e &ele5a%+e ,&!,!'iti!% !f Walte&G' 1!el i' t#e
&elati!%'#i, )et2ee% t#e &et$&% !% a fi&1G' i%5e't1e%t !& it' i%te&%al &ate !f &et$&% (&) a%
it' +!'t !f +a,ital !& t#e &eA$i&e &ate !f &et$&% (=e) T#e fi&1 2!$l #a5e a% !,ti1$1
i5ie% ,!li+*" 2#i+# 2ill )e ete&1i%e * t#e &elati!%'#i, !f & a% 30 I% !t#e& 2!&'" if
t#e &et$&% !% i%5e't1e%t' e8+ee' t#e +!'t !f +a,ital" t#e fi&1 '#!$l &ef&ai% t#e ea&%i%('"
2#e&ea' it '#!$l i't&i)$te t#e ea&%i%(' t! t#e '#a&e#!le&' i% +a'e t#e &eA$i&e &ate !f
&et$&% e8+ee' t#e e8,e+te &et$%e !% t#e fi&1G' i%5e't1e%t'0 T#e &ati!%ale i' t#at if & R
3e" t#e fi&1 i' a)le t! ea&% 1!&e t#a% 2#at t#e '#a&e#!le&' +!$l )* &ei%5e'ti%(" if t#e
- <2 -
ea&%i%(' a&e ,ai t! t#e10 T#e i1,li+ati!% !f & S 3e i' t#at '#a&e#!le&' +a% ea&% a #i(#e&
&et$&% )* i%5e'ti%( el'e2#e&e0
Walte&G' 1!el" t#$'" &elate' t#e i't&i)$ti!% !f i5ie%' (&ete%ti!% !f ea&%i%() t!
a5aila)le i%5e't1e%t !,,!&t$%itie'0 If a fi&1 #a' aeA$ate ,&!fita)le i%5e't1e%t
!,,!&t$%itie'0 It 2ill )e a)le t! ea&% 1!&e t#a% 2#at t#e i%5e't!&' e8,e+t '! t#at &R3e0
S$+# fi&1' 1a* )e +alle (&!2t# fi&1'0 F!& (&!2t# fi&1'" t#e !,ti1$1 i5ie% ,!li+*
2!$l )e (i5e% )* a DKP &ati! !f 9e&!0
T#at i' t! 'a* t#e fi&1 '#!$l ,l!$(# )a+3 t#e e%ti&e ea&%i%(' 2it#i% t#e fi&10 T#e 1a&3et
5al$e !f t#e '#a&e' 2ill )e 1a8i1i9e a' a &e'$lt0 I% +!%t&a't" if a fi&1 !e' %!t #a5e
,&!fita)le i%5e't1e%t !,,!&t$%itie' (2#e% & S 3e") t#e '#a&e#!le&' 2ill )e )ette& !ff if
ea&%i%(' a&e ,ai !$t t! t#e1 '! a' t! e%a)le t#e1 t! ea&% a #i(#e& &et$&% )* $'i%( t#e
f$%' el'e2#e&e0 I% '$+# a +a'e" t#e 1a&3et ,&i+e !f '#a&e' 2ill )e 1a8i1i9e )* t#e
i't&i)$ti!% !f t#e e%ti&e ea&%i%(' a' i5ie%'0 A DTP &ati! !f 100 2!$l (i5e a%
!,ti1$1 i5ie%' ,!li+*0
Fi%all*" 2#e% &U 3 (%!&1al fi&1')" it i' a 1atte& !f i%iffe&e%+e 2#et#e& ea&%i%(' a&e
&etai%e !& i't&i)$te0 T#i' i' '! )e+a$'e f!& all DKP &ati!' (&a%(i%( )et2ee% 9e&! a%
100) t#e 1a&3et ,&i+e !f '#a&e' 2ill &e1ai% +!%'ta%t0 F!& '$+# fi&1'" t#e&e i' %! !,ti1$1
i5ie% ,!li+* (DKP &a&i!0)
Assumptions<
T#e +&iti+al a''$1,ti!%' !f Walte&G' M!el a&e a' f!ll!26
10 All fi%a%+i%( i' !%e t#&!$(# &etai%e ea&%i%('6 e8te&%al '!$&+e' !f f$%'
li3e e)t !& %e2 eA$it* +a,ital a&e %!t $'e0
20 Wit# aiti!%al i%5e't1e%t' $%e&ta3e%" t#e fi&1G' )$'i%e''
&i'3 !e' %!t +#a%(e0 It i1,lie' t#at & a% 3 a&e +!%'ta%t0
< T#e&e i' %! +#a%(e i% t#e 3e* 5a&ia)le" %a1el*" )e(i%%i%( ea&%i%(' ,e&
'#a&e" E0 A% i5ie%' ,e& '#a&e" D0 T#e 5al$e' !f D a% E 1a* )e +#a%(e
i% t#e 1!el t! ete&1i%e &e'$lt'" )$t a%* (i5e% 5al$e !f E a% D a&e a''$1e
- << -
t! &e1ai% +!%'ta%t i% ete&%$)$)( &e'$lt'" )$t a%* (i5e% 5al$e !f E a% D a&e
a''$1e t! &e1ai% +!%'ta%t i% ete&1i%i%( a (i5e% 5al$e0
B0 T#e fi&1 #a' ,e&,et$al (!& 5e&* l!%() life0
&imitations<
T#e Walte&G' 1!el" !%e !f t#e ea&lie't t#e!&eti+al 1!el'" e8,lai%' t#e &elati!%'#i,
)et2ee% i5ie% ,!li+* a% 5al$e !f t#e fi&1 $%e& +e&tai% 'i1,lifie a''$1,ti!%'0
S!1e !f t#e a''$1,ti!%' ! %!t 'ta% +&iti+al e5al$ati!%0 IN t#e fi&'t ,la+e" t#e Walte&G'
1!el a''$1e' t#at e8+l$'i5el* &etai%e ea&%i%(' fi%a%+e t#e fi&1G' i%5e't1e%tM %!
e8te&%al fi%a%+i%( i' $'e0 T#e 1!el 2!$l )e !%l* a,,li+a)le t! all- eA$it* fi&1'0
Se+!%l*" t#e 1!el a''$1e' t#at & i' +!%'ta%t0 T#i' i' %!t a &eali'ti+ a''$1,ti!% )e+a$'e
2#e% t#e fi&1 1a3e' i%+&ea'e i%5e't1e%t'" & al'! +#a%(e'0 Fi%all* a' &e(a&' t#e
a''$1,ti!% !f +!%'ta%t &i'3 +!1,le8i!% !f fi&1 #a' a i&e+t )ea&i%( !% it0 B* a''$1i%( a
+!%'ta%t =e0 Walte&G' 1!el i(%!&e' t#e effe+t !f &i'3 !% t#e 5al$e !f t#e fi&10
GPRDON’S MODE&
A%!t#e& t#e!&*" 2#i+# +!%te%' t#at i5ie%' a&e &ele5a%t" i' :!&!%G' 1!el0 T#i'
1!el" 2#i+# !,i%e' t#at i5ie% ,!li+* !f a fi&1 affe+t' it' 5al$e" i' )a'e !% t#e
f!ll!2i%( a''$1,ti!%'6
Assumptions<
10 T#e fi&1 i' a% all-eA$it* fi&10 N! e8te&%al fi%a%+i%( i' $'e a% e8+l$'i5el*
&etai%e ea&%i%(' fi%a%+e i%5e't1e%t ,&!(&a1G'0
20 & a% 3e a&e +!%'ta%t0
<0 T#e fi&1 #a' ,e&,et$al life0
B0 T#e &ete%ti!% &ati!" !%+e e+ie $,!%" i' +!%'ta%t0 T#$'" t#e (&!2t# &ate" ((U)&)
i' al'! +!%'ta%t0
@0 =+R)&0
- <B -
Ar/uments<
It +a% )e 'ee f&!1 t#e a''$1,ti!% !f :!&!%G' 1!el t#at t#e* a&e 'i1ila& t! t#!'e !f
Walte&G' 1!el0 A' a &e'$lt" :!&!%G' 1!el" li3e Walte&G' +!%te%' t#at i5ie% ,!li+*
!f t#e fi&1 i' &ele5a%t a% t#at i%5e't!&' ,$t a ,!'iti5e ,&e1i$1 !% +$&&e%t
i%+!1e'Ki5ie%'0 T#e +&$8 !f :!&!%G' a&($1e%t' i' a t2!-f!l a''$1,ti!%6 (i)
i%5e't!&' a&e &i'3 a5e&'e" a% (ii) t#e* ,$t a ,&e1i$1 !% a +e&tai% &et$&% a% i'+!$%tK
,e%ali9e $%+e&tai% &et$&%'0
A' i%5e't!&' a&e &ati!%al" t#e* 2a%t t! a5!i &i'30 T#e te&1 &i'3 &efe&' t! t#e ,!''i)ilit*
!f %!t (etti%( a &et$&% !% i%5e't1e%t0 T#e ,a*1e%t !f +$&&e%t i5ie%' i,'! fa+t!
+!1,letel* &e1!5e' a%* +#a%+e !f &i'30 If" #!2e5e&" t#e fi&1 &etai%' t#e ea&%i%(' (i0e0
+$&&e%t i5ie%' i' $%+e&tai%" )!t# 2it# &e',e+t t! t#e a1!$%t a' 2ell a' t#e ti1i%(0 T#e
&ati!%al i%5e't!&' +a% &ea'!%a)l* )e e8,e+te t! ,&efe& +$&&e%t i5ie%0 I% !t#e& 2!&'"
t#e* 2!$l i'+!$%t f$t$&e i5ie%' t#at a&e t#e* 2!$l ,la+ele'' i1,!&ta%+e !% it a'
+!1,a&e t! +$&&e%t i5ie%0 T#e i%5e't!&' e5al$ate t#e &etai%e ea&%i%(' a' a &i'3*
,&!1i'e0 I% +a'e t#e ea&%i%(' a&e &etai%e" t#e&ef!&e t#e 1a&3et ,&i+e !f t#e '#a&e' 2!$l
)e a5e&'el* affe+te0
T#e a)!5e a&($1e%t $%e&l*i%( :!&!%G' 1!el !f i5ie% &ele5a%+e i' al'!
e'+&i)e a' a )i&-i%-t#e-#a% a&($1e%t0 .T#at a )i& i% #a% i' )ette& t#a% t2! i% t#e
)$'# i' )a'e t! t#e l!(i+ t#at 2#at i' a5aila)le at ,&e'e%t i' ,&efe&a)le t! 2#at 1a* )e
a5aila)le i% t#e f$t$&e0 Ba'i%( #i' 1!el !% t#i' a&($1e%t" :!&!% a&($e' t#at t#e f$t$&e'
a&e $%+e&tai% a% t#e 1!&e i'ta%t t#e f$t$&e i'" t#e 1!&e $%+e&tai% i% it i' li3el* t! )e0 If"
t#e&ef!&e" +$&&e%t i5ie%' a&e 2it##el t! &etai% ,&!fit'" 2#et#e& t#e i%5e't!&' 2!$l at
all &e+ei5e t#e1 late& i' $%+e&tai%0 I%5e't!&' 2!$l %at$&all* li3e t! a5!i $%+e&tai%t*0 I%
fa+t" t#e* 2!$l )e i%+li%e t! ,a* a #i(#e& ,&i+e f!& '#a&e' !% 2#i+# +$&&e%t i5ie%'
a&e ,ai0 7!%5e&'el*" t#e* 2!$l i'+!$%t t#e 5al$e !f '#a&e' !f a fi&1" 2#i+#
P!'t,!%e' i5ie%'0 T#e i'+!$%t &ate 2!$l 5a&*" a' '#!2% if fi($&e 2it# t#e &ete%ti!%
&ate !& le5el !f &etai%e ea&%i%('0 T#e te&1 &ete%ti!% &ati! 1ea%' t#e ,e&+e%ta(e !f
ea&%i%(' &etai%e0 It i' t#e i%5e&' !f DKP &ati!0 T#e !1i''i!% !f i5ie%'" !& ,a*1e%t !f
l!2 i5ie%'" 2!$l l!2e& t#e 5al$e !f t#e '#a&e'0
- <@ -
Di"idend Capita-i@ation Mode-6 A++!&i%( t! :!&!%" t#e 1a&3et 5al$e !f a '#a&e
i' eA$al t! t#e ,&e'e%t 5al$e !f f$t$&e 't&ea1' !f i5ie%'0 A 'i1,lifie 5e&'i!% !f
:!&!%G' 1!el +a% )e '*1)!li+all* 1? e8,&e''e a'
E ( 1-) )
=+-)&
W#e&e , U ,&i+e !f a '#a&e
EU Ea&%i%(' ,e& '#a&e
)U Rete%ti!% &ati! !& ,e&+e%ta(e !f ea&%i%(' &etai%e0
1-)UDKP &ati!" i0e0 ,e&+e%ta(e !f ea&%i%(' i't&i)$te' a' i5ie%'
=+U 7a,itali9ati!% &ateK+!'t !f +a,ital
B&U(U:&!2t# &ateU &ate !f &et$&% !% i%5e't1e%t !f a% all-eA$it* fi&1
- <F -
DI=IDEND PO&ICIES<
I% t#e li(#t !f t#e +!%fli+ti%( a% +!%t&ai+t!&* 5ie2,!i%t' a' al'! t#e a5aila)le
e1,i&i+al e5ie%+e" t#e&e a,,ea&' t! )e a +a'e f!& t#e ,&!,!'iti!% t#at i5ie% e+i'i!%'
a&e &ele5a%t i% t#e 'e%'e t#at i%5e't!&' ,&efe& t#e1 !5e& &etai%e ea&%i%(' a% t#e* #a5e a
)ea&i%( !% t#e fi&1G' !)-e+ti5e !f 1a8i1i9i%( t#e '#a&e#!le&G' 2ealt#0
:ACTORS DETERMINIG T0E DI=IDEND PO&ICIES<
T#e fa+t!&' ete&1i%i%( t#e i5ie% ,!li+* !f a fi&1 1a*" f!& ,$&,!'e !f
e8,!'iti!%" )e +la''ifie i%t!6 (a) Di5ie% ,a*!$t (DKP) &ati!" ()) Sta)ilit* !f i5ie%'"
(+) Le(al" +!%t&a+t$al a% i%te&%al +!%'t&ai%t' a% &e't&i+ti!%'" () O2%e&G'
+!%'ie&ati!%'" (e) 7a,ital 1a&3et +!%'ie&ati!%'" a% (f) I%flati!%0
A% Di"idend Pa#out 'DAP$ Ratio <
A 1a-!& a',e+t !f t#e i5ie% ,!li+* !f a fi&1 i' it' i5ie% ,a*!$t (DKP)
&ati!" t#at i'" t#e ,e&+e%ta(e '#a&e !f t#e %et ea&%i%(' i't&i)$te t! t#e '#a&e#!le&'
a' i5ie%'0 T#e &ele5a%+e !f t#e DKP &ati!" a' a ete&1i%a%t !f t#e i5ie% ,!li+*
!f a fi&1" #a' )ee% e8a1i%e at '!1e le%(t# i% t#e ,&e+ei%( +#a,te&0 It i' )&iefl*
&e+a,it$late #e&e0
Di5ie% ,!li+* i%5!l5e' t#e e+i'i!% t! ,a* !$t ea&%i%(' !& t! &etai% t#e1 f!&
&ei%5e't1e%t i% t#e fi&10 T#e &etai%e ea&%i%(' +!%'tit$te a '!$&+e !f fi%a%+i%(0 T#e
,a*1e%t !f i5ie%' &e'$lt i% t#e &e$+ti!% !f +a'# a'" t#e&ef!&e" i% a e,leti!% !f
t!tal a''et'0 I% !&e& t! 1ai%tai% t#e a''et le5el" a' 2ell a' fi%a%+e i%5e't1e%t
!,,!&t$%itie'" t#e fi&1 1$'t !)tai% f$%' f&!1 t#e i''$e !f aiti!%al eA$it* !& e)t0 If
t#e fi&1 i' $%a)le t! &ai'e e8te&%al f$%'" it' (&!2t# 2!$l )e affe+te0 T#$'" i5ie%
i1,l* !$tfl!2 !f +a'# a% l!2e& f$t$&e (&!2t#0 I% !t#e& 2!&'" t#e i5ie% ,!li+* !f t#e
fi&1 affe+t' )!t# t#e '#a&e#!le&'G 2ealt# a% t#e l!%(-te&1 (&!2t# !f t#e fi&10 T#e
!,ti1$1 i5ie% ,!li+* '#!$l 't&i3e t#e )ala%+e )et2ee% +$&&e%t i5ie%' a% f$t$&e
(&!2t# 2#i+# 1a8i1i9e' t#e ,&i+e !f t#e fi&1G' '#a&e'0 T#e DKP &ati! !f a fi&1 '#!$l )e
ete&1i%e 2it# &efe&e%+e t! t2! )a'i+ !)-e+ti5e'-1a8i1i9i%( t#e 2ealt# !f t#e fi&1G'
- <H -
!2%e&' a% ,&!5ii%( '$ffi+ie%t f$%' t! fi%a%+e (&!2t#0 T#e'e !)-e+ti5e' a&e %!t
1$t$all* e8+l$'i5e" )$t i%te&&elate0
:i5e% t#e !)-e+ti5e !f 2ealt# 1a8i1i9ati!%" t#e fi&1G' i5ie% ,!li+* (DKP
&ati! ) '#!$l )e !%e" 2#i+# +a% 1a8i1i9e t#e 2ealt# !f it' !2%e&' i% t#e Jl!%( &$%G0
I% t#e!&*" it +a% )e e8,e+te t#at t#e '#a&e#!le&' ta3e i%t! a++!$%t t#e l!%(-&$%
effe+t' !f DKP &ati! t#at i'" if t#e fi&1 i' ,a*i%( l!2 i5ie%' a% #a5i%( #i(#
&ete%ti!%'" t#e* &e+!(%i9e t#e ele1e%t !f (&!2t# i% t#e le5el !f f$t$&e ea&%i%(' !f t#e
fi&10 H!2e5e&" i% ,&a+ti+e" t#e* #a5e a +lea&-+$t ,&efe&e%+e f!& i5ie%' )e+a$'e !f
$%+e&tai%t* a% i1,e&fe+t +a,ital 1a&3et'0 T#e ,a*1e%t !f i5ie%' +a% t#e&ef!&e"
)e e8,e+te t! affe+t t#e ,&i+e !f '#a&e'6 a l!2 DKP &ati! 1a* +a$'e a e+li%e i% '#a&e
,&i+e'" 2#ile a #i(# &ati! 1a* lea t! &i'e i% t#e 1a&3et ,&i+e !f t#e '#a&e'0
Ma3i%( a '$ffi+ie%t ,&!5i'i!% f!& fi%a%+i%( (&!2t# +a% )e +!%'ie&e a
'e+!%a&* !)-e+ti5e !f i5ie% ,!li+*0 Wit#!$t aeA$ate f$%' t! i1,le1e%t
a++e,ta)le ,&!-e+t'" t#e !)-e+ti5e !f 2ealt# 1a8i1i9ati!% +a%%!t )e a+#ie5e0 T#e
fi&1 1$'t f!&e+a't it' f$t$&e %ee' f!& f$%'" a% ta3i%( i%t! a++!$%t t#e e8te&%al
a5aila)ilit* !f f$%' a% +e&tai% 1a&3et +!%'ie&ati!%'" ete&1i%e )!t#
T#e a1!$%t !f &etai%e ea&%i%(' %eee a% t#e a1!$%t !f &etai%e ea&%i%(' a5aila)le
afte& t#e 1i%i1$1 i5ie%' #a5e )ee% ,ai0 T#$'" i5ie% ,a*1e%t' '#!$l %!t )e
5ie2e a' a &e'i$al" )$t &at#e& a &eA$i&e !$tla* afte& 2#i+# a%* &e1ai%i%( f$%' +a% )e
&ei%5e'te i% t#e fi&10
B% Sta+i-it# of Di"idends<
T#e 'e+!% 1a-!& a',e+t !f t#e i5ie% ,!li+* !f a fi&1 i' t#e 'ta)ilit* !f
i5ie%'0 T#e i%5e't!&' fa5!&' 'ta)le i5ie% a' 1$+# a' t#e* fa5!&' t#e ,a*1e%t !f
i5ie%' (DKP &ati!)0
T#e te&1 i5ie% 'ta)ilit* &efe&' t! t#e +!%'i'te%+* !& la+3 !f 5a&ia)ilit* i% t#e
't&ea1 !f i5ie%'0 I% 1!&e ,&e+i'e te&1'" it 1ea%' t#at a +e&tai% 1i%i1$1 a1!$%t
!f i5ie% i' ,ai !$t &e($la&l*0 T#e 'ta)ilit* !f i5ie%' +a% ta3e a%* !f t#e
- <? -
f!ll!2i%( t#&ee f!&1'6 (i) +!%'ta%t i5ie% ,e& '#a&e" (ii) +!%'ta%tK'ta)le KP &ati!" a%
(iii) +!%'ta%t i5ie% ,e& '#a&e ,l$' e8t&a i5ie%0
i% Constant di"idend per S,are<
A++!&i%( t! t#i' f!&1 !f 'ta)le i5ie% ,!li+*" a +!1,a%* f!ll!2' a ,!li+* !f
+e&tai% fi8e a1!$%t ,e& '#a&e a' i5ie%0 F!& i%'ta%+e" !% a '#a&e !f fa+e 5al$e !f R'
10" fi&1 1a* ,a* a fi8e a1!$%t !f" 'a* R' 2-@0 a' i5ie%0 T#i' a1!$%t 2!$l )e ,ai
*ea& afte& *ea&" i&&e',e+ti5e !f #t le5el !f ea&%i%('0 !I% !t#e& 2!&'" fl$+t$ati!%' i%
ea&%i%(' 2!$l %!t affe+t t#e i5ie% ,a*1e%t'0 I% fa+t" 2#e% a +!1,a%* f!ll!2' '$+# a
i5ie% ,!li+*" it 2ill ,a* i5ie%' t! t#e '#a&e#!le& e5e% 2#e% it '$ffe&' l!''e'0 A
'ta)le i5ie% ,!li+* i% te&1' !f fi8e a1!$%t !f i5ie% ,e& '#a&e !e' %!t" #!2e5e&"
1ea% t#at t#e a1!$%t !f i5ie% i' fi8e f!& all ti1e' t! +!1e0 T#e i5ie%' ,e& '#a&e
a&e i%+&ea'e !5e& t#e *ea&' 2#e% t#e ea&%i%(' !f t#e fi&1 i%+&ea'e a% it i'
E8,e+te t#at t#e %e2 le5el !f ea&%i%(' +a% )e 1ai%tai%e0 Of +!$&'e" if t#e i%+&ea'e t!
)e te1,!&a&*" t#e a%%$al i5ie% &e1ai%' at t#e e8i'ti%( le5el0
It +a%" t#$'" )e 'ee% t#at 2#ile t#e ea&%i%(' 1a* fl$+t$ate f&!1 *ea& t! *ea&" t#e
i5ie% ,e& '#a&e i' +!%'ta%t L T! )e a)le t! ,$&'$e '$+# a ,!li+*" a fi&1 2#!'e ea&%i%('
a&e %!t 'ta)le 2!$l #a5e t! 1a3e ,&!5i'i!%' i% *ea&' 2#e% ea&%i%(' a&e #i(#e& f!&
,a*1e%t !f i5ie%' i% lea% *ea&'0 S$+# fi&1' $'$all* +&eate a &e'e&5e f!& i5ie%'
eA$ali9ati!%0 T#e )ala%+e 'ta%i%( i% t#i' f$% i' %!&1all* i%5e'te i% '$+# a''et' a' +a%
)e &eail* +!%5e&te i%t! +a'#0
ii% Constant Pa#out Ratio<
Wit# +!%'ta%tKta&(et ,a*!$t &ati!" a fi&1 ,a*' a +!%'ta%t ,e&+e%ta(e !f %et ea&%i%('
a' i5ie% t! t#e '#a&e#!le&'0 I% !t#e& 2!&'" a 'ta)le i5ie% ,a*!$t &ati! i1,lie'
t#at t#e ,e&+e%ta(e !f ea&%i%(' ,ai !$t ea+# *ea& i' fi8e0 A++!&i%(l*" i5ie%' 2!$l
fl$+t$ate ,&!,!&ti!%atel* 2it# ea&%i%(' a% a&e li3el* t! )e #i(#l* 5!latile i% t#e 2a3e !f
2ie fl$+t$ati!%' i% t#e ea&%i%(' !f t#e +!1,a%*0 A' a &e'$lt" 2#e% t#e ea&%i%(' !f a fi&1
e+li%e '$)'ta%tiall* !& t#e&e i' a l!'' i% a (i5e% ,e&i!" t#e i5ie%'" a++!&i%( t! t#e
ta&(et ,a*!$t &ati!" 2!$l )e l!2 !& %il0 T! ill$'t&ate" if affi&1 #a' a ,!li+* !f @0 ,e&+e%t
- <> -
ta&(et ,a*!$t &ati!'" it' i5ie%' 2ill &a%(e )et2ee% R' @a% 9e&! ,e& '#a&e !% t#e
a''$1,ti!% t#at t#e ea&%i%(' ,e& '#a&e a&e R' 10 a% 9e&! &e',e+ti5el*0 T#e &elati!%'#i,
)et2ee% t#e ea&%i%(' ,e& '#a&e (EPS) a% i5ie% ,e& '#a&e (DPS) $%e& t#e ,!li+* !f
+!%'ta%t ,a*!$t &ati!0
ii% Sta+-e Rupee Di"idend p-us E!tra Di"idend<
U%e& t#i' ,!li+*" a fi&1 $'$all* ,a*' a fi8e i5ie% t! t#e '#a&e#!le&' a% i% *ea&'
!f 1a&3e ,&!',e&it*M aiti!%al !& e8t&a i5ie% i' ,ai !5e& a% a)!5e t#e &e($la&
i5ie%0 A' '!!% a %!&1al +!%iti!%' &et$&%" t#e fi&1 +$t' e8t&a i5ie% a% ,a*' t#e
%!&1al i5ie% ,e& '#a&e0 T#e ,!li+* !f ,a*i%( ',!&ai+ i5ie%' 1a* %!t fi% fa5!&
2it# t#e10 T#e alte&%ati5e t! t#e +!1)i%ati!% !f a '1all &e($la& i5ie% a% a% e8t&a
i5ie% i' '$ita)le f!& +!1,a%ie' 2#!'e ea&%i%(' fl$+t$ate 2iel*0 Wit# t#i' 1et#!" a
fi&1 +a% &e($la&l* ,a* a fi8e" t#!$(# '1all" a1!$%t !f i5ie% '! t#at t#e&e i' %! &i'3
!f )ei%( a)le t! ,a* i5ie% t! t#e '#a&e#!le&'0 At t#e 'a1e ti1e" t#e i%5e't!&' +a%
,a&ti+i,ate i% t#e ,&!',e&it* !f t#e fi&10 B* +alli%( t#e a1!$%t )* 2#i+# t#e i5ie%'
e8+ee t#e %!&1al ,a*1e%t' a' e8t&a0 T#e fi&1" i% effe+t" +a$ti!%' t#e i%5e't!&'-)!t#
e8i'te%t a' 2ell a' ,&!',e+ti5e- t#e* '#!$l %!t +!%'ie& it a' a ,e&1a%e%t i%+&ea'e i%
i5ie%'0 It 1a*" t#e&ef!&e" )e %!te t#at f&!1 t#e i%5e't!&G' 5ie2,!i%t" t#e e8t&a
i5ie% i' !f a ',!&ai+ %at$&e0 W#at t#e i%5e't!&' e8,e+t i' t#at t#e* '#!$l (et a%
a''$&e fi8e a1!$%t a' i5ie%'" 2#i+# '#!$l (&a$all* a% +!%'i'te%tl* i%+&ea'e !5e&
t#e *ea&'0 T#e 1!'t +!11e%a)le f&!1 !f 'ta)le i5ie% ,!li+* i' t#e +!%'ta%t i5ie%
,e& '#a&e ,!li+*0 T#e&e a&e 'e5e&al &ea'!%' 2#* i%5e't!&' 2#* i%5e't!&' 2!$l ,&efe& a
'ta)le i5ie% ,!li+*0 T#e&e ate 'e5e&al &ea'!%' 2#* i%5e't!&' 2!$l ,&efe& a 'ta)le
i5ie% ,!li+* a% ,a* a #i(#e& ,&i+e f!& a fi&1G' '#a&e' 2#i+# !)'e&5e 'ta)ilit* i%
i5ie% ,a*1e%t'0
Desire for Current In(ome<
A fa+t!& fa5!&i%( a 'ta)le ,!li+* i' t#e e'i&e f!& +$&&e%t i%+!1e )* '!1e i%5e't!&'0
I%5e't!&' '$+# a' &eti&e ,e&'!%' a% 2i%!2'" f!& e8a1,le" 5ie2 i5ie%' a' a '!$&+e
!f f$%' t! 1eet t#ei& +$&&e%t li5i%( e8,e%'e'0 S$+# e8,e%'e' a&e fai&l* +!%'ta%t f&!1
,e&i! t! ,e&i!0 T#e&ef!&e" a fall i% i5ie% 2ill %e+e''itate 'elli%( '#a&e' t! !)tai%
f$%' t! 1eet +$&&e%t e8,e%'e' a%" +!%5e&'e" &ei%5e't1e%t !f '!1e !f t#e i5ie%
i%+!1e if i5ie%' &i'e 'i(%ifi+a%tl*0 F!& !%e t#i%(" 1a%* !f t#e i%+!1e-+!%'+i!$'
- B0 -
i%5e't!&' 1a* %!t li3e t! Ji, i%t! t#ei& ,&i%+i,alG f!& +$&&e%t +!%'$1,ti!%0 M!&e!5e&"
eit#e& !f t#e alte&%ati5e' i%5!l5e'" i%+!%5e%ie%+e a,a&t" t&a%'a+ti!% +!'t' i% te&1' !f
)&!3e&a(e" a% !t#e& e8,e%'e'0 T#e'e +!'t' a&e a5!ie if t#e i5ie% 't&ea1 i' 'ta)le
a% ,&ei+ta)le0 O)5i!$'l*" '$+# a (&!$, !f i%5e't!&' 1a* 5e 2illi%( t! ,a* a #i(#e&
'#a&e ,&i+e t! a5!i t#e i%+!%5e%ie%+e !f e&&ati+ i5ie%0 Pa*1e%t'" 2#i+# i'&$,t t#ei&
)$(eti%(0 T#e* 2!$l ,la+e ,!'iti5e $tilit* !% 'ta)le i5ie%'0
Information (ontent
A%!t#e& &ea'!% f!& ,$&'i%( a 'ta)le i5ie% ,!li+* i' t#at i%5e't!&G' a&e t#!$(#t t!
$'e i5ie%' a% +#a%(e' i% i5ie%' a' a '!$&+e !f i%f!&1ati!% a)!$t t#e fi&1G'
,&!fita)ilit*0 If i%5e't!&' 3%!2 t#at t#e fi&1 2ill +#a%(e i5ie%' !%l* if t#e
1a%a(e1e%t f!&e'ee' a ,e&1a%e%t ea&%i%(' +#a%(e" t#e% t#e le5el !f i5ie%' i%f!&1'
i%5e't!&' a)!$t t#e +!1,a+t' e8,e+te ea&%i%('0 A++!&i%(l*" t#e 1a&3et 5ie2' t#e
+#a%(e' i% t#e i5ie%' !f '$+# a +!1,a%* a' !f a 'e1i-,e&1a%e%t %at$&e0 A +$t i%
i5ie% i1,lie' ,!!& ea&%i%(' e8,e+tati!%M %! +#a%(e" i1,lie' ea&%i%(' 'ta)ilit*M a% a
i5ie% i%+&ea'e" 'i(%ifie' t#e 1a%a(e1e%t' !,ti1i'1 a)!$t ea&%i%('0 O% t#e !t#e&
#a%" a +!1,a%* t#at ,$&'$e' a% e&&ati+ i5ie% ,a*!$t ,!li+* !e' %!t ,&!5ie a%*
'$+# i%f!&1ati!%" t#e&e)* i%+&ea'i%( t#e &i'3 a''!+iate 2it# t#e '#a&e'0 Sta)ilit* !f
i5ie%'" 2#e&e '$+# i5ie%' a&e )a'e $,!% l!%(-&$% ea&%i%( ,!2e& !f t#e +!1,a%*"
i'" t#e&ef!&e" a 1ea%' !f &e$+i%( '#a&e-&i'3i%e'' a% +!%'eA$e%tl* i%+&ea'i%( '#a&e 5al$e
t! i%5e't!&'0
Re?uirements of Institutiona- In"estors<
A t#i& fa+t!& e%+!$&a(i%( 'ta)le i5ie% ,!li+* i' t#e ReA$i&e1e%t !f i%'tit$ti!%al
i%5e't!&' li3e Life I%'$&a%+e 7!&,!&ati!% !f I%ia a% :e%e&al I%'$&a%+e 7!&,!&ati!% !f
I%ia (i%'$&a%+e +!1,a%ie') a% U%it T&$'t !f I%ia (1$t$al f$%') a% '! !%" t! i%5e't i%
+!1,a%ie' 2#i+# #a5e a &e+!& !f +!%ti%$!$' a% 'ta)le i5ie%0 T#e'e fi%a%+ial
i%'tit$ti!%' !2i%( t! t#e la&(e 'i9e !f t#ei& i%5e%ti)le f$%'" &eV&e'e%t a 'i(%ifi+a%t f!&+e
i% t#e fi%a%+ial 1a&3et' a% t#ei& e1a% f!& t#e +!1,a%*G' 'e+$&itie' +a% #a5e a%
fi%a%+ial 1a&3et' a% t#ei& e1a% f!& t#e +!1,a%*G' 'e+$&itie' +#a #a5e a% e%#a%+i%(
- B1 -
Effe+t !% it' ,&i+e a%" t#e&e )* !% t#e '#a&e#!le&G' 2ealt#0 A 'tale i5ie% ,!li+* i' a
,&e&eA$i'ite t! att&a+t t#e i%5e%ti5e f$%' !f t#e'e i%'tit$ti!%'0 O%e +!%'eA$e%tial i1,a+t
!f t#e ,$&+#a'e !f '#a&e' %a* t#e1 i' t#at t#e&e 1a* )e a% i%+&ea'e' i% t#e (e%e&al
e1a% f!& t#e +!1,a%*G' '#a&e'0 De+&ea'e 1a&3eta)ilit* &i'3" +!$,le 2it# e+&ea'e
fi%a%+ial &i'3" 2ill #a5e a ,!'iti5e effe+t !% t#e 5al$e !f t#e fi&1G' '#a&e'0
A ,a&t f&!1 t#e!&eti+al ,!'t$late' f!& t#e e'i&a)ilit* !f 'ta)le i5ie%'" t#e&e a&e al'!
Ma%$ e1,i&i+al 't$ie' +la''i+ a1!%( t#e1 )ei%( t#at !f li1%e&@0 T! '$,,!&t t#e
5ie2,!i%t t#at +!1,a%ie' ,$&'e& a 'ta)le i5ie% ,!li+*0 I% !t#e& 2!&'" +!1,a%ie'"
2#ile ta3i%( e+i'i!%' !% t#e ,a*1e%t !f i5ie%" )ea& 1i% t#e i5ie% )el!2 t#e
a1!$%t ,ai i% ,&e5i!$' *ea&'0 A+t$all*" 1!'t fi&1' 'ee1 t! fa5!& a ,!li+* !f e'ta)li'#i%(
a %!%-e+&ea'i%( i5ie% ,e& '#a&e a)!5e a le5el t#a% +a% 'afel* )e '$'tai%e i% t#e
f$t$&e0 T#e'e +a$ti!$' +&ee, $, !f i5ie%' ,e& '#a&e &e'$lt' i% 'ta)le i5ie% ,e& '#a&e
,atte&% $&i%( fl$+t$a%t ea&%i%(' ,e& '#a&e ,e&i!'" a% a &i'i%( 'teV f$%+ti!% ,atte&% !f
i5ie%' ,e& '#a&e $&i%( i%+&ea'i%( ea&%i%( ,e& '#a&e ,e&i!'0
- B2 -
C0APTER1III
INDUSTR; PRO:I&E
- B< -
A +an> i' a fi%a%+ial i%'tit$ti!% t#at a++e,t' e,!'it' a% +#a%%el' t#!'e e,!'it' i%t!
le%i%( a+ti5itie'0 Ba%3' ,&i1a&il* ,&!5ie fi%a%+ial 'e&5i+e' t! +$'t!1e&' 2#ile
e%&i+#i%( i%5e't!&'0 :!5e&%1e%t &e't&i+ti!%' !% fi%a%+ial a+ti5itie' )* )a%3' 5a&* !5e&
ti1e a% l!+ati!%0 Ba%3' a&e i1,!&ta%t ,la*e&' i% fi%a%+ial 1a&3et' a% !ffe& 'e&5i+e'
'$+# a' i%5e't1e%t f$%' a% l!a%'0 I% '!1e +!$%t&ie' '$+# a' :e&1a%*" )a%3' #a5e
#i't!&i+all* !2%e 1a-!& 'ta3e' i% i%$'t&ial +!&,!&ati!%' 2#ile i% !t#e& +!$%t&ie' '$+# a'
t#e U%ite State' )a%3' a&e ,&!#i)ite f&!1 !2%i%( %!%-fi%a%+ial +!1,a%ie'0 I% Wa,a%"
)a%3' a&e $'$all* t#e %e8$' !f a +&!''-'#a&e #!li%( e%tit* 3%!2% a' t#e 3ei&et'$0 I%
F&a%+e" )a%+a''$&a%+e i' ,&e5ale%t" a' 1!'t )a%3' !ffe& i%'$&a%+e 'e&5i+e' (a% %!2 &eal
e'tate 'e&5i+e') t! t#ei& +lie%t'0
T#e le5el !f (!5e&%1e%t &e($lati!% !f t#e )a%3i%( i%$'t&* 5a&ie' 2iel*" 2it# +!$%t&ie'
'$+# a' I+ela%" #a5i%( &elati5el* li(#t &e($lati!% !f t#e )a%3i%( 'e+t!&" a% +!$%t&ie'
'$+# a' 7#i%a #a5i%( a 2ie 5a&iet* !f &e($lati!%' )$t %! '*'te1ati+ ,&!+e'' t#at +a% )e
f!ll!2e t*,i+al !f a +!11$%i't '*'te10
T#e !le't )a%3 'till i% e8i'te%+e i' M!%te ei Pa'+#i i Sie%a" #eaA$a&te&e i% Sie%a"
Ital*" 2#i+# #a' )ee% !,e&ati%( +!%ti%$!$'l* 'i%+e 1BH20
0istor#
Ori/in of t,e .ord
T#e %a1e bank e&i5e' f&!1 t#e Italia% 2!& banco Oe'3K)e%+#O" $'e $&i%( t#e
Re%ai''a%+e )* We2i'# Fl!&e%ti%e )a%3e&'" 2#! $'e t! 1a3e t#ei& t&a%'a+ti!%' a)!5e a
e'3 +!5e&e )* a (&ee% ta)le+l!t#0 H!2e5e&" t#e&e a&e t&a+e' !f )a%3i%( a+ti5it* e5e% i%
a%+ie%t ti1e'" 2#i+# i%i+ate' t#at t#e 2!&
a%3; 1i(#t %!t %e+e''a&il* +!1e f&!1 t#e 2!&
a%+!;0I% fa+t" t#e 2!& t&a+e' it' !&i(i%' )a+3 t! t#e A%+ie%t R!1a% E1,i&e" 2#e&e
1!%e*le%e&' 2!$l 'et $, t#ei& 'tall' i% t#e 1ile !f e%+l!'e +!$&t*a&' +alle
macella !% a l!%( )e%+# +alle a bancu" f&!1 2#i+# t#e 2!&' banco a% bank a&e
e&i5e0 A' a 1!%e*+#a%(e&" t#e 1e&+#a%t at t#e bancu i %!t '! 1$+# i%5e't 1!%e* a'
1e&el* +!%5e&t t#e f!&ei(% +$&&e%+* i%t! t#e !%l* le(al te%e& i% R!1eXt#at !f t#e
I1,e&ial Mi%t0
- BB -
T#e ea&lie't e5ie%+e !f 1!%e*-+#a%(i%( a+ti5it* i' e,i+te !% a 'il5e& &a+#1 +!i%
f&!1 a%+ie%t Helle%i+ +!l!%* T&a,e9$' !% t#e Bla+3 Sea" 1!e&% T&a)9!%" +0 <@0L<2@
B7" ,&e'e%te i% t#e B&iti'# M$'e$1 i% L!%!%0 T#e +!i% '#!2' a )a%3e&;' ta)le
(trapeza) lae% 2it# +!i%'" a ,$% !% t#e %a1e !f t#e +it*0
I% fa+t" e5e% t!a* i% M!e&% :&ee3 t#e 2!& T&a,e9a (???????) 1ea%' )!t# a ta)le a%
a )a%30
Traditiona- +an>in/ a(ti"ities
Ba%3' a+t a' ,a*1e%t a(e%t' )* +!%$+ti%( +#e+3i%( !& +$&&e%t a++!$%t' f!& +$'t!1e&'"
,a*i%( +#eA$e' &a2% )* +$'t!1e&' !% t#e )a%3" a% +!lle+ti%( +#eA$e' e,!'ite t!
+$'t!1e&'; +$&&e%t a++!$%t'0 Ba%3' al'! e%a)le +$'t!1e& ,a*1e%t' 5ia !t#e& ,a*1e%t
1et#!' '$+# a' tele(&a,#i+ t&a%'fe&" EFTPOS" a% ATM0
Ba%3' )!&&!2 1!%e* )* a++e,ti%( f$%' e,!'ite !% +$&&e%t a++!$%t'" )* a++e,ti%(
te&1 e,!'it'" a% )* i''$i%( e)t 'e+$&itie' '$+# a' )a%3%!te' a% )!%'0 Ba%3' le%
1!%e* )* 1a3i%( a5a%+e' t! +$'t!1e&' !% +$&&e%t a++!$%t'" )* 1a3i%( i%'tall1e%t
l!a%'" a% )* i%5e'ti%( i% 1a&3eta)le e)t 'e+$&itie' a% !t#e& f!&1' !f 1!%e* le%i%(0
Ba%3' ,&!5ie al1!'t all ,a*1e%t 'e&5i+e'" a% a )a%3 a++!$%t i' +!%'ie&e
i%i',e%'a)le )* 1!'t )$'i%e''e'" i%i5i$al' a% (!5e&%1e%t'0 N!%-)a%3' t#at ,&!5ie
,a*1e%t 'e&5i+e' '$+# a' &e1itta%+e +!1,a%ie' a&e %!t %!&1all* +!%'ie&e a% aeA$ate
'$)'tit$te f!& #a5i%( a )a%3 a++!$%t0
Ba%3' )!&&!2 1!'t f$%' f&!1 #!$'e#!l' a% %!%-fi%a%+ial )$'i%e''e'" a% le% 1!'t
f$%' t! #!$'e#!l' a% %!%-fi%a%+ial )$'i%e''e'" )$t %!%-)a%3 le%e&' ,&!5ie a
'i(%ifi+a%t a% i% 1a%* +a'e' aeA$ate '$)'tit$te f!& )a%3 l!a%'" a% 1!%e* 1a&3et
f$%'" +a'# 1a%a(e1e%t t&$'t' a% !t#e& %!%-)a%3 fi%a%+ial i%'tit$ti!%' i% 1a%* +a'e'
,&!5ie a% aeA$ate '$)'tit$te t! )a%3' f!& le%i%( 'a5i%(' t!0
Entr# re/u-ation
7$&&e%tl* i% 1!'t -$&i'i+ti!%' +!11e&+ial )a%3' a&e &e($late )* (!5e&%1e%t e%titie'
a% &eA$i&e a ',e+ial )a%3 li+e%+e t! !,e&ate0
- B@ -
U'$all* t#e efi%iti!% !f t#e )$'i%e'' !f )a%3i%( f!& t#e ,$&,!'e' !f &e($lati!% i'
e8te%e t! i%+l$e a++e,ta%+e !f e,!'it'" e5e% if t#e* a&e %!t &e,a*a)le t! t#e
+$'t!1e&;' !&e&Xalt#!$(# 1!%e* le%i%(" )* it'elf" i' (e%e&all* %!t i%+l$e i% t#e
efi%iti!%0
U%li3e 1!'t !t#e& &e($late i%$'t&ie'" t#e &e($lat!& i' t*,i+all* al'! a ,a&ti+i,a%t i% t#e
1a&3et" i0e0 a (!5e&%1e%t-!2%e (+e%t&al) )a%30 7e%t&al )a%3' al'! t*,i+all* #a5e a
1!%!,!l* !% t#e )$'i%e'' !f i''$i%( )a%3%!te'0 H!2e5e&" i% '!1e +!$%t&ie' t#i' i' %!t
t#e +a'e0 I% t#e U=" f!& e8a1,le" t#e Fi%a%+ial Se&5i+e' A$t#!&it* li+e%+e' )a%3'" a%
'!1e +!11e&+ial )a%3' ('$+# a' t#e Ba%3 !f S+!tla%) i''$e t#ei& !2% )a%3%!te' i%
aiti!% t! t#!'e i''$e )* t#e Ba%3 !f E%(la%" t#e U= (!5e&%1e%t;' +e%t&al )a%30
Definition
T#e efi%iti!% !f a )a%3 5a&ie' f&!1 +!$%t&* t! +!$%t&*0
U%e& E%(li'# +!11!% la2" a )a%3e& i' efi%e a' a ,e&'!% 2#! +a&&ie' !% t#e )$'i%e''
!f )a%3i%(" 2#i+# i' ',e+ifie a'6
• +!%$+ti%( +$&&e%t a++!$%t' f!& #i' +$'t!1e&'
• ,a*i%( +#eA$e' &a2% !% #i1" a%
• +!lle+ti%( +#eA$e' f!& #i' +$'t!1e&'0
I% 1!'t E%(li'# +!11!% la2 -$&i'i+ti!%' t#e&e i' a Bill' !f E8+#a%(e A+t t#at +!ifie'
t#e la2 i% &elati!% t! %e(!tia)le i%'t&$1e%t'" i%+l$i%( +#eA$e'" a% t#i' A+t +!%tai%' a
'tat$t!&* efi%iti!% !f t#e te&1 banker6 banker i%+l$e' a )!* !f ,e&'!%'" 2#et#e&
i%+!&,!&ate !& %!t" 2#! +a&&* !% t#e )$'i%e'' !f )a%3i%(; (Se+ti!% 2" I%te&,&etati!%)0
Alt#!$(# t#i' efi%iti!% 'ee1' +i&+$la&" it i' a+t$all* f$%+ti!%al" )e+a$'e it e%'$&e' t#at
t#e le(al )a'i' f!& )a%3 t&a%'a+ti!%' '$+# a' +#eA$e' ! %!t e,e% !% #!2 t#e )a%3 i'
!&(a%i'e !& &e($late0
T#e )$'i%e'' !f )a%3i%( i' i% 1a%* E%(li'# +!11!% la2 +!$%t&ie' %!t efi%e )* 'tat$te
)$t )* +!11!% la2" t#e efi%iti!% a)!5e0 I% !t#e& E%(li'# +!11!% la2 -$&i'i+ti!%'
t#e&e a&e 'tat$t!&* efi%iti!%' !f t#e business of banking !& banking business0 W#e%
l!!3i%( at t#e'e efi%iti!%' it i' i1,!&ta%t t! 3ee, i% 1i% t#at t#e* a&e efi%i%( t#e
)$'i%e'' !f )a%3i%( f!& t#e ,$&,!'e' !f t#e le(i'lati!%" a% %!t %e+e''a&il* i% (e%e&al0 I%
- BF -
,a&ti+$la&" 1!'t !f t#e efi%iti!%' a&e f&!1 le(i'lati!% t#at #a' t#e ,$&,!'e' !f e%t&*
&e($lati%( a% '$,e&5i'i%( )a%3' &at#e& t#a% &e($lati%( t#e a+t$al )$'i%e'' !f )a%3i%(0
H!2e5e&" i% 1a%* +a'e' t#e 'tat$t!&* efi%iti!% +l!'el* 1i&&!&' t#e +!11!% la2 !%e0
E8a1,le' !f 'tat$t!&* efi%iti!%'6
• O)a%3i%( )$'i%e''O 1ea%' t#e )$'i%e'' !f &e+ei5i%( 1!%e* !% +$&&e%t !& e,!'it
a++!$%t" ,a*i%( a% +!lle+ti%( +#eA$e' &a2% )* !& ,ai i% )* +$'t!1e&'" t#e
1a3i%( !f a5a%+e' t! +$'t!1e&'" a% i%+l$e' '$+# !t#e& )$'i%e'' a' t#e
A$t#!&it* 1a* ,&e'+&i)e f!& t#e ,$&,!'e' !f t#i' A+tM (Ba%3i%( A+t (Si%(a,!&e)"
Se+ti!% 2" I%te&,&etati!%)0
• O)a%3i%( )$'i%e''O 1ea%' t#e )$'i%e'' !f eit#e& !& )!t# !f t#e f!ll!2i%(6
10 &e+ei5i%( f&!1 t#e (e%e&al ,$)li+ 1!%e* !% +$&&e%t" e,!'it" 'a5i%(' !& !t#e&
'i1ila& a++!$%t &e,a*a)le !% e1a% !& 2it#i% le'' t#a% V< 1!%t#'Y 000 !& 2it# a
,e&i! !f +all !& %!ti+e !f le'' t#a% t#at ,e&i!M
20 ,a*i%( !& +!lle+ti%( +#eA$e' &a2% )* !& ,ai i% )* +$'t!1e&'
VFY
Si%+e t#e a5e%t !f EFTPOS (Ele+t&!%i+ F$%' T&a%'fe& at P!i%t Of Sale)" i&e+t +&eit"
i&e+t e)it a% i%te&%et )a%3i%(" t#e +#eA$e #a' l!'t it' ,&i1a+* i% 1!'t )a%3i%( '*'te1'
a' a ,a*1e%t i%'t&$1e%t0 T#i' #a' le le(al t#e!&i't' t! '$((e't t#at t#e +#eA$e )a'e
efi%iti!% '#!$l )e )&!ae%e t! i%+l$e fi%a%+ial i%'tit$ti!%' t#at +!%$+t +$&&e%t
a++!$%t' f!& +$'t!1e&' a% e%a)le +$'t!1e&' t! ,a* a% )e ,ai )* t#i& ,a&tie'" e5e% if
t#e* ! %!t ,a* a% +!lle+t +#eA$e'0
A((ountin/ for +an> a((ounts
Ba%3 'tate1e%t' a&e a++!$%ti%( &e+!&' ,&!$+e )* )a%3' $%e& t#e 5a&i!$' a++!$%ti%(
'ta%a&' !f t#e 2!&l0 U%e& :AAP a% IFRS t#e&e a&e t2! 3i%' !f a++!$%t'6 e)it a%
+&eit0 7&eit a++!$%t' a&e Re5e%$e" EA$it* a% Lia)ilitie'0 De)it A++!$%t' a&e A''et'
a% E8,e%'e'0 T#i' 1ea%' *!$ +&eit a credit account t! i%+&ea'e it' )ala%+e" a% *!$
e)it a debit account t! e+&ea'e it' )ala%+e0
T#i' al'! 1ea%' *!$ e)it *!$& 'a5i%(' a++!$%t e5e&* ti1e *!$ e,!'it 1!%e* i%t! it
(a% t#e a++!$%t i' %!&1all* i% efi+it)" 2#ile *!$ +&eit *!$& +&eit +a& a++!$%t e5e&*
ti1e *!$ ',e% 1!%e* f&!1 it (a% t#e a++!$%t i' %!&1all* i% +&eit)0
- BH -
H!2e5e&" if *!$ &ea *!$& )a%3 'tate1e%t" it 2ill 'a* t#e !,,!'iteXt#at *!$ +&eit *!$&
a++!$%t 2#e% *!$ e,!'it 1!%e*" a% *!$ e)it it 2#e% *!$ 2it#&a2 f$%'0 If *!$ #a5e
+a'# i% *!$& a++!$%t" *!$ #a5e a ,!'iti5e (!& +&eit) )ala%+eM if *!$ a&e !5e&&a2%" *!$
#a5e a %e(ati5e (!& efi+it) )ala%+e0
T#e &ea'!% f!& t#i' i' t#at t#e )a%3" a% %!t *!$" #a' ,&!$+e t#e )a%3 'tate1e%t0 D!$&
'a5i%(' 1i(#t )e your a''et'" )$t the bank's lia)ilit*" '! t#e* a&e +&eit a++!$%t' (2#i+#
'#!$l #a5e a ,!'iti5e )ala%+e)0 7!%5e&'el*" *!$& l!a%' a&e your lia)ilitie' )$t the bank's
a''et'" '! t#e* a&e e)it a++!$%t' (2#i+# '#!$l al'! #a5e a ,!'iti5e )ala%+e)0
W#e&e )a%3 t&a%'a+ti!%'" )ala%+e'" +&eit' a% e)it' a&e i'+$''e )el!2" t#e* a&e !%e
'! f&!1 t#e 5ie2,!i%t !f t#e a++!$%t #!le&X2#i+# i' t&aiti!%all* 2#at 1!'t ,e!,le a&e
$'e t! 'eei%(0
E(onomi( fun(tions
10 i''$e !f 1!%e*" i% t#e f!&1 !f )a%3%!te' a% +$&&e%t a++!$%t' '$)-e+t t! +#eA$e
!& ,a*1e%t at t#e +$'t!1e&;' !&e&0 T#e'e +lai1' !% )a%3' +a% a+t a' 1!%e*
)e+a$'e t#e* a&e %e(!tia)le a%K!& &e,a*a)le !% e1a%" a% #e%+e 5al$e at ,a&0
T#e* a&e effe+ti5el* t&a%'fe&a)le )* 1e&e eli5e&*" i% t#e +a'e !f )a%3%!te'" !& )*
&a2i%( a +#eA$e t#at t#e ,a*ee 1a* )a%3 !& +a'#0
20 %etti%( a% 'ettle1e%t !f ,a*1e%t' L )a%3' a+t a' )!t# +!lle+ti!% a% ,a*i%(
a(e%t' f!& +$'t!1e&'" ,a&ti+i,ati%( i% i%te&)a%3 +lea&i%( a% 'ettle1e%t '*'te1' t!
+!lle+t" ,&e'e%t" )e ,&e'e%te 2it#" a% ,a* ,a*1e%t i%'t&$1e%t'0 T#i' e%a)le'
)a%3' t! e+!%!1i'e !% &e'e&5e' #el f!& 'ettle1e%t !f ,a*1e%t'" 'i%+e i%2a& a%
!$t2a& ,a*1e%t' !ff'et ea+# !t#e&0 It al'! e%a)le' t#e !ff'etti%( !f ,a*1e%t
fl!2' )et2ee% (e!(&a,#i+al a&ea'" &e$+i%( t#e +!'t !f 'ettle1e%t )et2ee% t#e10
<0 +&eit i%te&1eiati!% L )a%3' )!&&!2 a% le% )a+3-t!-)a+3 !% t#ei& !2% a++!$%t
a' 1ile 1e%0
B0 +&eit A$alit* i1,&!5e1e%t L )a%3' le% 1!%e* t! !&i%a&* +!11e&+ial a%
,e&'!%al )!&&!2e&' (!&i%a&* +&eit A$alit*)" )$t a&e #i(# A$alit* )!&&!2e&'0 T#e
i1,&!5e1e%t +!1e' f&!1 i5e&'ifi+ati!% !f t#e )a%3;' a''et' a% +a,ital 2#i+#
,&!5ie' a )$ffe& t! a)'!&) l!''e' 2it#!$t efa$lti%( !% it' !)li(ati!%'0 H!2e5e&"
)a%3%!te' a% e,!'it' a&e (e%e&all* $%'e+$&eM if t#e )a%3 (et' i%t! iffi+$lt*
- B? -
a% ,le(e' a''et' a' 'e+$&it*" t! &ai'e t#e f$%i%( it %ee' t! +!%ti%$e t! !,e&ate"
t#i' ,$t' t#e %!te #!le&' a% e,!'it!&' i% a% e+!%!1i+all* '$)!&i%ate
,!'iti!%0
@0 1at$&it* t&a%'f!&1ati!% L )a%3' )!&&!2 1!&e !% e1a% e)t a% '#!&t te&1
e)t" )$t ,&!5ie 1!&e l!%( te&1 l!a%'0 I% !t#e& 2!&'" t#e* )!&&!2 '#!&t a%
le% l!%(0 Wit# a 't&!%(e& +&eit A$alit* t#a% 1!'t !t#e& )!&&!2e&'" )a%3' +a% !
t#i' )* a((&e(ati%( i''$e' (e0(0 a++e,ti%( e,!'it' a% i''$i%( )a%3%!te') a%
&ee1,ti!%' (e0(0 2it#&a2al' a% &ee1,ti!%' !f )a%3%!te')" 1ai%tai%i%(
&e'e&5e' !f +a'#" i%5e'ti%( i% 1a&3eta)le 'e+$&itie' t#at +a% )e &eail* +!%5e&te
t! +a'# if %eee" a% &ai'i%( &e,la+e1e%t f$%i%( a' %eee f&!1 5a&i!$' '!$&+e'
(e0(0 2#!le'ale +a'# 1a&3et' a% 'e+$&itie' 1a&3et')0
&a. of +an>in/
Ba%3i%( la2 i' )a'e !% a +!%t&a+t$al a%al*'i' !f t#e &elati!%'#i, )et2ee% t#e bank
(efi%e a)!5e) a% t#e customerXefi%e a' a%* e%tit* f!& 2#i+# t#e )a%3 a(&ee' t!
+!%$+t a% a++!$%t0
T#e la2 i1,lie' &i(#t' a% !)li(ati!%' i%t! t#i' &elati!%'#i, a' f!ll!2'6
10 T#e )a%3 a++!$%t )ala%+e i' t#e fi%a%+ial ,!'iti!% )et2ee% t#e )a%3 a% t#e
+$'t!1e&6 2#e% t#e a++!$%t i' i% +&eit" t#e )a%3 !2e' t#e )ala%+e t! t#e
+$'t!1e&M 2#e% t#e a++!$%t i' !5e&&a2%" t#e +$'t!1e& !2e' t#e )ala%+e t! t#e
)a%30
20 T#e )a%3 a(&ee' t! ,a* t#e +$'t!1e&;' +#eA$e' $, t! t#e a1!$%t 'ta%i%( t! t#e
+&eit !f t#e +$'t!1e&;' a++!$%t" ,l$' a%* a(&ee !5e&&aft li1it0
<0 T#e )a%3 1a* %!t ,a* f&!1 t#e +$'t!1e&;' a++!$%t 2it#!$t a 1a%ate f&!1 t#e
+$'t!1e&" e0(0 a +#eA$e &a2% )* t#e +$'t!1e&0
B0 T#e )a%3 a(&ee' t! ,&!1,tl* +!lle+t t#e +#eA$e' e,!'ite t! t#e +$'t!1e&;'
a++!$%t a' t#e +$'t!1e&;' a(e%t" a% t! +&eit t#e ,&!+ee' t! t#e +$'t!1e&;'
a++!$%t0
@0 T#e )a%3 #a' a &i(#t t! +!1)i%e t#e +$'t!1e&;' a++!$%t'" 'i%+e ea+# a++!$%t i'
-$'t a% a',e+t !f t#e 'a1e +&eit &elati!%'#i,0
- B> -
F0 T#e )a%3 #a' a lie% !% +#eA$e' e,!'ite t! t#e +$'t!1e&;' a++!$%t" t! t#e e8te%t
t#at t#e +$'t!1e& i' i%e)te t! t#e )a%30
H0 T#e )a%3 1$'t %!t i'+l!'e etail' !f t&a%'a+ti!%' t#&!$(# t#e +$'t!1e&;' a++!$%t
X$%le'' t#e +$'t!1e& +!%'e%t'" t#e&e i' a ,$)li+ $t* t! i'+l!'e" t#e )a%3;'
i%te&e't' &eA$i&e it" !& t#e la2 e1a%' it0
?0 T#e )a%3 1$'t %!t +l!'e a +$'t!1e&;' a++!$%t 2it#!$t &ea'!%a)le %!ti+e" 'i%+e
+#eA$e' a&e !$t'ta%i%( i% t#e !&i%a&* +!$&'e !f )$'i%e'' f!& 'e5e&al a*'0
T#e'e i1,lie +!%t&a+t$al te&1' 1a* )e 1!ifie )* e8,&e'' a(&ee1e%t )et2ee% t#e
+$'t!1e& a% t#e )a%30 T#e 'tat$te' a% &e($lati!%' i% f!&+e 2it#i% a ,a&ti+$la&
-$&i'i+ti!% 1a* al'! 1!if* t#e a)!5e te&1' a%K!& +&eate %e2 &i(#t'" !)li(ati!%' !&
li1itati!%' &ele5a%t t! t#e )a%3-+$'t!1e& &elati!%'#i,0
S!1e t*,e' !f fi%a%+ial i%'tit$ti!%" '$+# a' )$ili%( '!+ietie' a% +&eit $%i!%'" 1a* )e
,a&tl* !& 2#!ll* e8e1,t f&!1 )a%3 li+e%+e &eA$i&e1e%t'" a% t#e&ef!&e &e($late $%e&
'e,a&ate &$le'0
T#e &eA$i&e1e%t' f!& t#e i''$e !f a )a%3 li+e%+e 5a&* )et2ee% -$&i'i+ti!%' )$t t*,i+all*
i%+l$e6
10 Mi%i1$1 +a,ital
20 Mi%i1$1 +a,ital &ati!
<0 ;Fit a% P&!,e&; &eA$i&e1e%t' f!& t#e )a%3;' +!%t&!lle&'" !2%e&'" i&e+t!&'" a%K!&
'e%i!& !ffi+e&'
B0 A,,&!5al !f t#e )a%3;' )$'i%e'' ,la% a' )ei%( '$ffi+ie%tl* ,&$e%t a% ,la$'i)le0
T#pes of +an>s
Ba%3'; a+ti5itie' +a% )e i5ie i%t! &etail )a%3i%(" eali%( i&e+tl* 2it# i%i5i$al' a%
'1all )$'i%e''e'M )$'i%e'' )a%3i%(" ,&!5ii%( 'e&5i+e' t! 1i-1a&3et )$'i%e''M +!&,!&ate
)a%3i%(" i&e+te at la&(e )$'i%e'' e%titie'M ,&i5ate )a%3i%(" ,&!5ii%( 2ealt#
1a%a(e1e%t 'e&5i+e' t! #i(# %et 2!&t# i%i5i$al' a% fa1ilie'M a% i%5e't1e%t )a%3i%("
&elati%( t! a+ti5itie' !% t#e fi%a%+ial 1a&3et'0 M!'t )a%3' a&e ,&!fit-1a3i%(" ,&i5ate
e%te&,&i'e'0 H!2e5e&" '!1e a&e !2%e )* (!5e&%1e%t" !& a&e %!%-,&!fit !&(a%i9ati!%'0
- @0 -
7e%t&al )a%3' a&e %!&1all* (!5e&%1e%t-!2%e a% +#a&(e 2it# A$a'i-&e($lat!&*
&e',!%'i)ilitie'" '$+# a' '$,e&5i'i%( +!11e&+ial )a%3'" !& +!%t&!lli%( t#e +a'# i%te&e't
&ate0 T#e* (e%e&all* ,&!5ie liA$iit* t! t#e )a%3i%( '*'te1 a% a+t a' t#e le%e& !f la't
&e'!&t i% e5e%t !f a +&i'i'0
T#pes of retai- +an>s
• 7!11e&+ial )a%36 t#e te&1 $'e f!& a %!&1al )a%3 t! i'ti%($i'# it f&!1 a%
i%5e't1e%t )a%30 Afte& t#e :&eat De,&e''i!%" t#e U0S0 7!%(&e'' &eA$i&e t#at
)a%3' !%l* e%(a(e i% )a%3i%( a+ti5itie'" 2#e&ea' i%5e't1e%t )a%3' 2e&e li1ite
t! +a,ital 1a&3et a+ti5itie'0 Si%+e t#e t2! %! l!%(e& #a5e t! )e $%e& 'e,a&ate
!2%e&'#i," '!1e $'e t#e te&1 O+!11e&+ial )a%3O t! &efe& t! a )a%3 !& a i5i'i!%
!f a )a%3 t#at 1!'tl* eal' 2it# e,!'it' a% l!a%' f&!1 +!&,!&ati!%' !& la&(e
)$'i%e''e'0
• 7!11$%it* Ba%3'6 l!+all* !,e&ate fi%a%+ial i%'tit$ti!%' t#at e1,!2e&
e1,l!*ee' t! 1a3e l!+al e+i'i!%' t! 'e&5e t#ei& +$'t!1e&' a% t#e ,a&t%e&'0
• 7!11$%it* e5el!,1e%t )a%3'6 &e($late )a%3' t#at ,&!5ie fi%a%+ial 'e&5i+e'
a% +&eit t! $%e&-'e&5e 1a&3et' !& ,!,$lati!%'0
• P!'tal 'a5i%(' )a%3'6 'a5i%(' )a%3' a''!+iate 2it# %ati!%al ,!'tal '*'te1'0
• P&i5ate )a%3'6 )a%3' t#at 1a%a(e t#e a''et' !f #i(# %et 2!&t# i%i5i$al'0
• Off'#!&e )a%3'6 )a%3' l!+ate i% -$&i'i+ti!%' 2it# l!2 ta8ati!% a% &e($lati!%0
Ma%* !ff'#!&e )a%3' a&e e''e%tiall* ,&i5ate )a%3'0
• Sa5i%(' )a%36 i% E$&!,e" 'a5i%(' )a%3' ta3e t#ei& &!!t' i% t#e 1>t# !& '!1eti1e'
e5e% 1?t# +e%t$&*0 T#ei& !&i(i%al !)-e+ti5e 2a' t! ,&!5ie ea'il* a++e''i)le
'a5i%(' ,&!$+t' t! all 't&ata !f t#e ,!,$lati!%0 I% '!1e +!$%t&ie'" 'a5i%(' )a%3'
2e&e +&eate !% ,$)li+ i%itiati5eM i% !t#e&'" '!+iall* +!11itte i%i5i$al' +&eate
f!$%ati!%' t! ,$t i% ,la+e t#e %e+e''a&* i%f&a't&$+t$&e0 N!2aa*'" E$&!,ea%
'a5i%(' )a%3' #a5e 3e,t t#ei& f!+$' !% &etail )a%3i%(6 ,a*1e%t'" 'a5i%('
,&!$+t'" +&eit' a% i%'$&a%+e' f!& i%i5i$al' !& '1all a% 1ei$1-'i9e
e%te&,&i'e'0 A,a&t f&!1 t#i' &etail f!+$'" t#e* al'! iffe& f&!1 +!11e&+ial )a%3'
)* t#ei& )&!al* e+e%t&ali'e i't&i)$ti!% %et2!&3" ,&!5ii%( l!+al a% &e(i!%al
!$t&ea+#Xa% )* t#ei& '!+iall* &e',!%'i)le a,,&!a+# t! )$'i%e'' a% '!+iet*0
- @1 -
• B$ili%( '!+ietie' a% La%e')a%3'6 i%'tit$ti!%' t#at +!%$+t &etail )a%3i%(0
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!%l* 2#at t#e* +!%'ie& t! )e '!+iall*-&e',!%'i)le i%5e't1e%t'0
• I'la1i+ )a%3'6 Ba%3' t#at t&a%'a+t a++!&i%( t! I'la1i+ ,&i%+i,le'0
T#pes of in"estment +an>s
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t&ae f!& t#ei& !2% a++!$%t'" 1a3e 1a&3et'" a% a5i'e +!&,!&ati!%' !% +a,ital
1a&3et a+ti5itie' '$+# a' 1e&(e&' a% a+A$i'iti!%'0
• Me&+#a%t )a%3' 2e&e t&aiti!%all* )a%3' 2#i+# e%(a(e i% t&ae fi%a%+e0 T#e
1!e&% efi%iti!%" #!2e5e&" &efe&' t! )a%3' 2#i+# ,&!5ie +a,ital t! fi&1' i% t#e
f!&1 !f '#a&e' &at#e& t#a% l!a%'0 U%li3e 5e%t$&e +a,ital fi&1'" t#e* te% %!t t!
i%5e't i% %e2 +!1,a%ie'0
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i% 'e5e&al !f t#e'e a+ti5itie'0 T#e'e )i( )a%3' a&e 5e&* i5e&'ifie (&!$,' t#at"
a1!%( !t#e& 'e&5i+e'" al'! i't&i)$te i%'$&a%+eX #e%+e t#e te&1 )a%+a''$&a%+e" a
,!&t1a%tea$ 2!& +!1)i%i%( O)a%A$e !& )a%3O a% Oa''$&a%+eO" 'i(%if*i%( t#at
)!t# )a%3i%( a% i%'$&a%+e a&e ,&!5ie )* t#e 'a1e +!&,!&ate e%tit*0
Ot,er t#pes of +an>s
• I'la1i+ )a%3' a#e&e t! t#e +!%+e,t' !f I'la1i+ la20 T#i' f!&1 !f )a%3i%(
&e5!l5e' a&!$% 'e5e&al 2ell-e'ta)li'#e ,&i%+i,le' )a'e !% I'la1i+ +a%!%'0 All
)a%3i%( a+ti5itie' 1$'t a5!i i%te&e't" a +!%+e,t t#at i' f!&)ie% i% I'la10
I%'tea" t#e )a%3 ea&%' ,&!fit (1a&3$,) a% fee' !% t#e fi%a%+i%( fa+ilitie' t#at it
e8te%' t! +$'t!1e&'0
- @2 -
C0APTER1I=
COMPAN; PRO:I&E
COMPAN; PRO:I&E
- @< -
I7I7I Ba%3 i' I%ia;' 'e+!%-la&(e't )a%3 2it# t!tal a''et' !f R'0 B"0F20<B )illi!% (USN
>1 )illi!%) at Ma&+# <1" 2011 a% ,&!fit afte& ta8 R'0 @10@1 )illi!% (USN 1"1@@ 1illi!%)
f!& t#e *ea& e%e Ma&+# <1" 20110 T#e Ba%3 #a' a %et2!&3 !f 2"@@F )&a%+#e' a% H"BB0
ATM' i% I%ia" a% #a' a ,&e'e%+e i% 1> +!$%t&ie'" i%+l$i%( I%ia0
I7I7I Ba%3 !ffe&' a 2ie &a%(e !f )a%3i%( ,&!$+t' a% fi%a%+ial 'e&5i+e' t! +!&,!&ate
a% &etail +$'t!1e&' t#&!$(# a 5a&iet* !f eli5e&* +#a%%el' a% t#&!$(# it' ',e+iali'e
'$)'iia&ie' i% t#e a&ea' !f i%5e't1e%t )a%3i%(" life a% %!%-life i%'$&a%+e" 5e%t$&e
+a,ital a% a''et 1a%a(e1e%t0
T#e Ba%3 +$&&e%tl* #a' '$)'iia&ie' i% t#e U%ite =i%(!1" R$''ia a% 7a%aa" )&a%+#e'
i% U%ite State'" Si%(a,!&e" Ba#&ai%" H!%( =!%(" S&i La%3a" Qata& a% D$)ai
I%te&%ati!%al Fi%a%+e 7e%t&e a% &e,&e'e%tati5e !ffi+e' i% U%ite A&a) E1i&ate'" 7#i%a"
S!$t# Af&i+a" Ba%(lae'#" T#aila%" Mala*'ia a% I%!%e'ia0 O$& U= '$)'iia&* #a'
e'ta)li'#e )&a%+#e' i% Bel(i$1 a% :e&1a%*0
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Nati!%al St!+3 E8+#a%(e !f I%ia Li1ite a% it' A1e&i+a% De,!'ita&* Re+ei,t' (ADR')
a&e li'te !% t#e Ne2 D!&3 St!+3 E8+#a%(e (NDSE)0
7!&,!&ate P&!file
I7I7I Ba%3 i' I%ia;' 'e+!%-la&(e't )a%3 2it# t!tal a''et' !f R'0 <"@F202? )illi!% (USN
HH )illi!%) a' !% De+e1)e& <1" 200>0
B!a& Me1)e&'
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M&0 H!1i R0 =#$'&!3#a%
M&0 La3'#1i N0 Mittal
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D&0 A%$, =0 P$-a&i
M&0 A%$,a1 P$&i
M&0 M0S0 Ra1a+#a%&a%
- @B -
M&0 M0=0 S#a&1a
M&0 C0 S&ia&
P&!f0 Ma&ti :0 S$)&a#1a%*a1
M&0 C0 P&e1 Wat'a
M'0 7#a%a D0 =!+##a&"
Ma%a(i%( Di&e+t!& E 7EO
M&0 Sa%ee, Ba3#'#i"
De,$t* Ma%a(i%( Di&e+t!&
M&0 N0 S0 =a%%a%"
E8e+$ti5e Di&e+t!& E 7FO
M&0 =0 Ra13$1a&"
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E8e+$ti5e Di&e+t!&
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I%ia% I%'tit$te !f Ma%a(e1e%t" A#1ea)a0 He -!i%e I7I7I i% 1>H1 a% 2!&3e i% t#e
a&ea' !f ,&!-e+t fi%a%+e" lea'i%(" &e'!$&+e' a% +!&,!&ate ,la%%i%(0 I% 1>??" #e -!i%e t#e
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I7I7I a' it' Ma%a(i%( Di&e+t!& E 7EO i% 1>>F0 He )e+a1e Ma%a(i%( Di&e+t!& E 7EO
!f I7I7I Ba%3 i% 2002 f!ll!2i%( t#e 1e&(e& !f I7I7I 2it# I7I7I Ba%30 U%e& #i'
leae&'#i," t#e I7I7I :&!$, t&a%'f!&1e it'elf i%t! a i5e&'ifie" te+#%!l!(*-&i5e%
fi%a%+ial 'e&5i+e' (&!$," t#at #a' leae&'#i, ,!'iti!%' a+&!'' )a%3i%(" i%'$&a%+e a% a''et
1a%a(e1e%t i% I%ia" a% a% i%te&%ati!%al ,&e'e%+e0 He &eti&e a' Ma%a(i%( Di&e+t!& E
7EO i% A,&il 200>" a% t!!3 $, t#e ,!'iti!% !f %!%-e8e+$ti5e 7#ai&1a% !f I7I7I Ba%3
effe+ti5e Ma* 1" 200>0 He 2a' t#e P&e'ie%t !f t#e 7!%fee&ati!% !f I%ia% I%$'t&* (7II)
f!& 200?-0>0 He 2a' a2a&e t#e Pa1a B#$'#a% )* t#e P&e'ie%t !f I%ia i% Ma* 200?0
He 2a' +!%fe&&e t#e Lifeti1e A+#ie5e1e%t A2a&' at t#e Fi%a%+ial E8,&e'' Be't Ba%3
A2a&' 200? a% t#e NDTC P&!fit B$'i%e'' Leae&'#i, A2a&' 200?M 2a' %a1e
;B$'i%e''1a% !f t#e Dea&; )* F!&)e' A'ia a% T#e E+!%!1i+ Ti1e'; ;B$'i%e'' Leae& !f
t#e Dea&; i% 200HM B$'i%e'' Sta%a&;' OBa%3e& !f t#e Dea&O a% 7NB7-TC1?;'
OO$t'ta%i%( B$'i%e'' Leae& !f t#e Dea&O i% 200FM B$'i%e'' I%ia;' OB$'i%e''1a% !f t#e
Dea&O i% 200@M a% 7NB7;' OA'ia% B$'i%e'' Leae& !f t#e Dea&O i% 20010 He #a' )ee%
- @@ -
+!%fe&&e 2it# a% #!%!&a&* P#D )* t#e Ba%a&a' Hi%$ U%i5e&'it*0 He i' a 1e1)e& !f t#e
B!a& !f t#e I%'tit$te !f I%te&%ati!%al Fi%a%+e" a Di&e+t!& !% t#e B!a& !f I%f!'*'
Te+#%!l!(ie' a% a 1e1)e& !f t#e B!a& !f :!5e&%!&' !f t#e I%ia% I%'tit$te !f
Ma%a(e1e%t" A#1ea)a0
A.ards<
• M'0 7#a%a =!+##a&" Ma%a(i%( Di&e+t!& E 7EO 2a' a2a&e t#e O7NB7 A'ia
I%ia B$'i%e'' Leae& Of T#e Dea& A2a&O0 S#e al'! &e+ei5e t#e O7NB7 A'ia;'
7SR A2a& 2011O
• F!& t#e t#i& *ea& i% a &!2 I7I7I Ba%3 #a' 2!% T#e A''et T&i,le A 7!$%t&*
A2a&' f!& Be't D!1e'ti+ Ba%3 i% I%ia
• I7I7I Ba%3 2!% t#e M!'t A1i&e =%!2le(e E%te&,&i'e' (MA=E) I%ia 200>
A2a&0 I7I7I Ba%3 2!% t#e fi&'t ,la+e i% OMa8i1i9i%( E%te&,&i'e I%telle+t$al
7a,italO +ate(!&*" O+t!)e& 2?" 200>
• M' 7#a%a =!+##a&" MD a% 7EO 2a' a2a&e 2it# t#e I%ia% B$'i%e''
W!1e% Leae&'#i, A2a& at NDTC P&!fit B$'i%e'' Leae&'#i, A2a&' " O+t!)e&
2F" 200>0
• I7I7I Ba%3 &e+ei5e t2! a2a&' i% 7NB7 A2aa9 7!%'$1e& A2a&'M !%e f!& t#e
1!'t ,&efe&&e a$t! l!a% a% t#e !t#e& f!& 1!'t ,&efe&&e +&eit 7a&" !%
Se,te1)e& <0" 200>
• M'0 7#a%a =!+##a&" Ma%a(i%( Di&e+t!& E 7EO &a%3e i% t#e t!, 20 !f t#e
W!&l;' 100 M!'t P!2e&f$l W!1e% li't +!1,ile )* F!&)e'" A$($'t 200>
• Fi%a%+ial E8,&e'' at it' FE I%ia;' Be't Ba%3' A2a&'" #!%!$&e M&0 =0C0
=a1at#" 7#ai&1a% 2it# t#e Lifeti1e A+#ie5e1e%t A2a& " W$l* 2@" 200>
• I7I7I Ba%3 2!% A''et T&i,le A I%5e't1e%t A2a&' f!& t#e Be't De&i5ati5e H!$'e"
I%ia0 I% aiti!% I7I7I Ba%3 2e&e Hi(#l* +!11e%e " L!+al 7$&&e%+*
St&$+t$&e ,&!$+t" I%ia f!& 10@ *ea& ADR
R li%3e Ra%(e A++&$al N!te0" W$l* 200>
• I7I7I )a%3 2!% i% t#&ee +ate(!&ie' at W!&l fi%a%+e Ba%3i%( a2a&' !% W$%e 1F"
- @F -
200>
o Be't NRI Se&5i+e' )a%3
o E8+elle%+e i% P&i5ate Ba%3i%(" APA7 Re(i!%
o E8+elle%+e i% Re1itta%+e B$'i%e''" APA7 Re(i!%
• I7I7I Ba%3 M!)ile Ba%3i%( 2a' a-$(e OBe't Ba%3 A2a& f!& I%itiati5e' i%
M!)ile Pa*1e%t' a% Ba%3i%(O )* IDRBT" !% Ma* 1?" 200> i% H*e&a)a0
• I7I7I Ba%3;' )2 )&a%+#f&ee )a%3i%( 2a' a-$(e OBe't E-Ba%3i%( P&!-e+t
I1,le1e%tati!% A2a& 200?O )* T#e A'ia% Ba%3e&" !% Ma* 11" 200> at t#e 7#i%a
W!&l H!tel i% Bei-i%(0
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• I7I7I Ba%3 NRI 'e&5i+e' 2i%' t#e OE8+elle%+e i% B$'i%e'' M!el I%%!5ati!%
A2a&O i% t#e ei(#t# A'ia% Ba%3e& E8+elle%+e i% Retail Fi%a%+ial Se&5i+e'
A2a&' P&!(&a11e0
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E E8,e&ie%tial Ma&3eti%( A2a& i% t2! +ate(!&ie' - OR$&al Ma&3eti%( ,&!(&a11e
!f t#e *ea&O a% OS1all B$(et O% :&!$% P&!1!ti!% !f t#e Dea&O0 T#e'e a2a&'
2e&e (i5e% f!& 7attle L!a% ;=a1#e%$ 7a1,ai(%; a% OTal3ie' !% t#e 1!5e
+a1,ai(%; &e',e+ti5el*0
• I7I7I Ba%3;' :e&1a%* B&a%+# #a' )ee% +e&tifie )* OStift$%( Wa&&e%te'tO0 I7I7I
Ba%3 i' &a%3e 2% a1!%('t @H 'a5i%(' ,&!$+t' a+&!'' 1> )a%3'
• I7I7I Ba%3 :e&1a%* 2!% t#e *ea&l* )a%3i%( te't !f t#e i%5e't!& 1a(a9i%e
Z[\$&! i% t#e O+all 1!%e*O+ate(!&*0
• T#e I7I7I Ba%3 2a' a2a&e t#e &$%%e&;' $, ,!'iti!% i% :a&t%e& B$'i%e''
I%telli(e%+e a% E8+elle%+e A2a& f!& A'ia Pa+ifi+ f!& it' B$'i%e'' I%telli(e%+e
f$%+ti!%'0
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>0016200? +e&tifi+ati!% )* TUC N!&0 T#e '+!,e !f +e&tifi+ati!% +!1,&i'e
- @H -
,&!+e''e' a&!$% +!%'$lti%( a% +a,a)ilit* )$ili%( !% 1et#!' !f A$alit* E
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• I7I7I Ba%3 #a' )ee% a2a&e t#e f!ll!2i%( title' $%e& T#e A''et T&i,le A
7!$%t&* A2a&' f!& 200>6
o Be't T&a%'a+ti!% Ba%3 i% I%ia
o Be't T&ae Fi%a%+e Ba%3 i% I%ia
o Be't 7a'# Ma%a(e1e%t Ba%3 i% I%ia
o Be't D!1e'ti+ 7$'t!ia% i% I%ia
I7I7I Ba%3 #a' )a((e t#e Be't 7a'# Ma%a(e1e%t Ba%3 i% I%ia a2a& f!& t#e
'e+!% *ea& i% a &!20 T#e !t#e& a2a&' #a5e )ee% )a((e f!& t#e t#i& *ea& i% a
&!20
• I7I7I Ba%3 7a%aa &e+ei5e t#e ,&e'ti(i!$' 7a%aia% Hele% =elle& A2a& at t#e
7a%aia% Hele% =elle& 7e%t&e;' Fift# A%%$al L$%+#e!% i% T!&!%t!0 T#e a2a&
2a' (i5e% t! I7I7I Ba%3 it' l!%(-'ta%i%( '$,,!&t t! t#i' $%iA$e t&ai%i%( +e%t&e
f!& ,e!,le 2#! a&e eaf-)li%0
I7I7I F!$%ati!% f!& I%+l$'i5e :&!2t# (I7I7I F!$%ati!%) 2a' f!$%e )* t#e I7I7I
:&!$, i% ea&l* 200? t! (i5e f!+$' t! it' eff!&t' t! ,&!1!te i%+l$'i5e (&!2t# a1!%('t l!2-
i%+!1e I%ia% #!$'e#!l'0
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#a' eA$al !,,!&t$%it* t! e5el!, a% (&!20 T!2a&' t#i' e%" I7I7I F!$%ati!% i'
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t! ,a&ti+i,ate i% a% )e%efit f&!1 t#e (&!2t# ,&!+e''0
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,!2e& t! +&eate a% '$'tai% a -$'t '!+iet* i% 2#i+# t! li5e0
Mi''i!%
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,&!+e''0
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e%ea5!$&' t! ,&!1!te (&!2t# i% all 'e+t!&' !f t#e %ati!% G' e+!%!1*0 T! (i5e f!+$' t! it'
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:&!$, f!$%e I7I7I F!$%ati!% f!& I%+l$'i5e :&!2t# i% Wa%$a&* 20100
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+#a&ita)le t&$'t &e(i'te&e at 7#e%%ai 5ie &e(i't&ati!% !f t#e T&$'t Dee 2it# t#e S$)-
Re(i't&a&G' Offi+e at 7#e%%ai !% Wa%$a&* 0B" 20100
T#e a,,li+ati!% f!& &e(i't&ati!% !f t#e F!$%ati!% $%e& 'e+ti!% 12AA !f t#e I%+!1e ta8
A+t" 1>F1 (.t#e A+t/) 2a' file !% Fe)&$a&* H" 200? a% t#e a,,li+ati!% $%e& 'e+ti!%
?0: !f t#e A+t 2a' file !% Fe)&$a&* 1B" 200?0 S$)'eA$e%tl*" I7I7I F!$%ati!% 2a'
&e(i'te&e a' a .PUBLI7 7HARITABLE TRUST/ $%e& Se+ti!% 12AA !f t#e A+t 2it#
effe+t f&!1 Fe)&$a&* H" 200?0 F$&t#e&" I7I7I F!$%ati!% &e+ei5e a,,&!5al $%e& Se+ti!%
?0
@)(5i) !f t#e A+t !% Ma&+# 1>" 200?0 T#i' a,,&!5al i' 5ali i% &e',e+t !f !%ati!% &e+ei5e )* I7I7I F!$%ati!% f&!1 Fe)&$a&* 1B" 200? t! Ma&+# <1" 200>0 A++!&i%(l*"
I7I7I Ba%3 a% :&!$, 7!1,a%ie' 2ill )e eli(i)le t! (et a e$+ti!% $%e& 'e+ti!% ?0:
!% !%ati!%' 1ae $&i%( t#i' ,e&i!0
I7I7I F!$%ati!% #a' al'! !)tai%e it' Pe&1a%e%t A++!$%t N$1)e& (PAN) a% Ta8
e$+ti!% A++!$%t N$1)e& (TAN)0
F$%' Fl!2 2010-2011
- @> -
I7I7I F!$%ati!% &e+ei5e R'0F1H0?0 1illi!% f&!1 t#e f!ll!2i%( '!$&+e' a' (&a%t'6
(Wa%$a&* B" 200? t! Ma&+# <1" 2011) (',a%%i%( t2! fi%a%+ial *ea&')
S!$&+e (Wa%$a&* B" 200? L Ma&+# <1" 2011) A1!$%t (R'0 1illi!%)
I7I7I Ba%3 @00000
I7I7I P&$e%tial Life I%'$&a%+e FH0H2
I7I7I L!1)a& :e%e&al I%'$&a%+e 1H012
I7I7I Se+$&itie' 1B0>?
I7I7I Se+$&itie' PD F0>>
I7I7I H!1e Fi%a%+e 10>>
I7I7I Ce%t$&e >000
T!tal F1H0?0
I7I7I F!$%ati!% al'! i%+$&&e t!tal e8,e%'e' !f R'0102@ 1illi!% $&i%( t#i' ,e&i! a%
#a a f$% )ala%+e !f R'0F10@@ 1illi!% a' !% Ma&+# <1" 20110
Di')$&'e1e%t' (Wa%$a&* B" 200? t! Ma&+# <1" 2011)
:&a%t Be%efi+ia&ie' (Wa%$a&* B" 2010 L Ma&+# <1" 2011) A1!$%t (R'0 1illi!%)
I7I7I F!$%ati!% P&!(&a11e'
I7I7I 7e%t&e f!& 7#il Healt# a% N$t&iti!% 1@0000
IFMR Fi%a%+e F!$%ati!% 200000
E%5i&!%1e%tall* S$'tai%a)le Fi%a%+e 20000
7SO Pa&t%e&' @0000
7ARE (P!li+* U%it) @000
St&ate(* a% A5i'!&* :&!$, 20000
I7I7I :&!$, 7!&,!&ate S!+ial Re',!%'i)ilit* P&!(&a11e'
Rea t! Lea 2@000
MITRA (I7I7I Fell!2' P&!(&a11e) @@000
7ARE (Di'a'te& Ma%a(e1e%t U%it) @000
Ra%( De 2@000
T!tal @@@000
- F0 -
:&a%t Be%efi+ia&ie' f!& 2010-2011
I7I7I F!$%ati!% P&!(&a11e&'
I7I7I 7e%t&e f!& 7#il Healt# a% N$t&iti!% (I77HN)
T#e (&a%t !f R'01@0000 1illi!% 2a' ,&!5ie t! I77HN )* 2a* !f +!&,$' '$,,!&t a% f!&
,$&'$i%( 5a&i!$' ,&!-e+t' +!%'i'te%t 2it# it' 1i''i!%0
IFMR Fi%a%+e F!$%ati!% (IFF)
T#e (&a%t !f R'0200000 1illi!% 2a' ,&!5ie t! IFMR Fi%a%+e F!$%ati!% )* 2a* !f
+!&,$' '$,,!&t a% f!& ,$&'$i%( 5a&i!$' ,&!-e+t' +!%'i'te%t 2it# it' 1i''i!%0
E%5i&!%1e%tall* S$'tai%a)le Fi%a%+e (ESF)
T#e (&a%t !f R'020000 1illi!% 2a' ,&!5ie t! ESF f!& t#ei& +!lla)!&ati!% 2!&3 2it#
R$&al E%e&(* Net2!&3 E%te&,&i'e (RENE) !% '$'tai%a)le e%e&(* a% e%5i&!%1e%t
,&!-e+t' )e%efiti%( &e1!te &$&al e% $'e&'0 T#e ,&!,!'e ,&!-e+t' 2ill ,&!1!te
e5el!,i%( t!!l' a% &i5i%( i%%!5ati!% t! '+ale &$&al e%e&(* a++e'' f!& &e1!te &$&al
$'e&'0
7SO Pa&t%e&'
T#e (&a%t !f R'0@0000 1illi!% 2a' ,&!5ie t! 7SO Pa&t%e&' )* 2a* !f +!&,$' '$,,!&t
a% f!& ,$&'$i%( 5a&i!$' ,&!-e+t' +!%'i'te%t 2it# it' 1i''i!%0
7ARE (P!li+* U%it)
A (&a%t !f R'0@000 1illi!% 2a' ,&!5ie t! 7ARE" a% I%ia% N:O t#at i' +l!'el*
affiliate 2it# 7ARE (USA)" t! +&eate a ,!li+* $%it i% Del#i0 Lea&%i%( f&!1 7AREG'
2!&3 i% I%ia a% 2!&l-2ie a' 2ell a' f&!1 t#e 2!&3 !f I7I7I F!$%ati!% a% it'
,a&t%e&'" t#e $%it 2ill 'e&5e a' a ,latf!&1 t! e%(a(e t#e (!5e&%1e%t a% ,!li+*1a3e&' i%
a% eff!&t t! )&i%( a)!$t &eA$i&e ,!li+* +#a%(e' i% a&ea' '$+# a' 1ate&%al a% +#il
#ealt#0
St&ate(* a% A5i'!&* :&!$, (SA
7#a&ita)le f!$%ati!%' i% I%ia a% 2!&l-2ie 't&$((le t! f$ll* e5el!, t#e 't&ate(*
f!&1$lati!%" 3%!2le(e 1a%a(e1e%t a% i1,a+t a''e''1e%t i1e%'i!%' !f t#ei& 2!&30 A
(&a%t !f R'020000 1illi!% 2a' ,&!5ie t! St&ate(* a% A5i'!&* :&!$, (SA
" a tea1 at7e%t&e f!& De5el!,1e%t Fi%a%+e t#at ,&!5ie' 't&ate(i+ a5i'!&* 'e&5i+e' t! +lie%t' i% t#e
e5el!,1e%t 'e+t!&" t! e5el!, t#e'e f$%+ti!%' a% t! !ffe& t#ei& e8,e&ti'e t! f!$%ati!%'
i% (e%e&al" i%+l$i%( I7I7I F!$%ati!%0
- F1 -
I7I7I :&!$, 7!&,!&ate S!+ial Re',!%'i)ilit* P&!(&a11e&'
Rea t! Lea
Rea t! Lea i' a% i%itiati5e !f I7I7I Ba%3 t! fa+ilitate ele1e%ta&* e$+ati!% f!&
i'a5a%ta(e +#il&e% i% t#e a(e (&!$, !f F-1< *ea&'0 A% a1!$%t !f R'02@000 1illi!%
#a' t#$' fa& )ee% i')$&'e t! 100"000 +#il&e% t#&!$(# <0 N:O'0 T#e )ala%+e a1!$%t !f
R'0H@000 1illi!% i' ,la%%e t! )e i')$&'e $&i%( t#e ,e&i! 200>-20100
MITRA (I7I7I Fell!2' P&!(&a11e)
MITRA i' a% affiliate !f 7SO Pa&t%e&' t#at i' f!+$'e !% a&e''i%( t#e +#alle%(e !f
#$1a% &e'!$&+e' f!& +i5il '!+iet* !&(a%i'ati!%' (7SO')0 I% ,a&t%e&'#i, 2it# 7SO Pa&t%e&'
a% MITRA" I7I7I F!$%ati!% ,&!,!'e' t! la$%+# a% I7I7I Fell!2' P&!(&a11e0 A%
a1!$%t !f R'0@@000 1illi!% #a' )ee% i')$&'e t! MITRA f!& e5el!,i%( a% la$%+#i%(
t#e ,&!(&a11e !5e& t#e ,e&i! 200>-20100
7ARE (Di'a'te& Ma%a(e1e%t U%it)
A (&a%t !f R'0@000 1illi!% #a' )ee% (i5e% t! 7ARE i% I%ia t! e%a)le it t! ,&e,a&e f!&
a%* f$t$&e i'a'te&' t#at 1a* 't&i3e a% &e',!% i11eiatel* 2it# t#e &eA$i&e &elief
eff!&t'0
Ra%( De (Mi+&! E%te&,&i'e De5el!,1e%t)
Ra%( De" a% affiliate !f 7SO Pa&t%e&'" #a' ,a&t%e&e 2it# I7I7I Ce%t$&e t! &!ll !$t f$%'
f!& 1i+&! e%te&,&i'e e5el!,1e%t i% &$&al a% 'e1i-$&)a% l!+ati!%'0 T#e a1!$%t !f
R'02@000 1illi!% t#at #a' )ee% i')$&'e t! t#e1 2ill '$,,!&t 1i+&! e%te&,&i'e' t! t#e
e8te%t !f R'01@000 1illi!% a% t#e )ala%+e a1!$%t !f R'010000 1illi!% 2ill (! t!2a&'
1eeti%( t#ei& e8,e%'e' t! )$il t#e ,latf!&10
I7I7I P&$e%tial A''et Ma%a(e1e%t 7!1,a%* Lt0 i' a -!i%t 5e%t$&e )et2ee% I7I7I
Ba%3" I%iaG' 'e+!% la&(e't +!11e&+ial )a%3 E a 2ell-3%!2% a% t&$'te %a1e i% t#e
fi%a%+ial 'e&5i+e' i% I%ia" E P&$e%tial Pl+" !%e !f t#e U%ite =i%(!1G' la&(e't ,la*e&'
i% t#e fi%a%+ial 'e&5i+e' 'e+t!&'0
I% a ',a% !f !5e& 1? *ea&' 'i%+e i%+e,ti!% a% -$'t !5e& 1< *ea&' !f t#e W!i%t Ce%t$&e" t#e
+!1,a%* #a' f!&(e a ,!'iti!% !f ,&ee1i%e%+e a' !%e !f t#e la&(e't A''et Ma%a(e1e%t
7!1,a%*G' i% t#e +!$%t&*" +!%t&i)$ti%( 'i(%ifi+a%tl* t!2a&' t#e (&!2t# !f t#e I%ia%
1$t$al f$% i%$'t&*0
- F2 -
T#e +!1,a%* 1a%a(e' 'i(%ifi+a%t M$t$al F$% A''et' $%e& Ma%a(e1e%t (AUM)" i%
aiti!% t! !$& P!&tf!li! Ma%a(e1e%t Se&5i+e' (PMS) a% I%te&%ati!%al A5i'!&*
Ma%ate' f!& +lie%t' a+&!'' i%te&%ati!%al 1a&3et' i% a''et +la''e' li3e De)t" EA$it* a%
Real E'tate 2it# ,&i1a&* f!+$' !% &i'3 a-$'te &et$&%'0
A' a% A''et Ma%a(e1e%t 7!1,a%*" 2e #a5e !5e& 1? *ea&' !f e8,e&ie%+e a% a&e
+$&&e%tl* 1a%a(i%( a +!1,&e#e%'i5e &a%(e !f '+#e1e' !f 1!&e t#a% BF M$t$al f$%
'+#e1e' a% a 2ie &a%(e !f PMS P&!$+t' f!& !$& i%5e't!&' ',&ea a+&!'' t#e +!$%t&*0
We 'e&5i+e t#i' i%5e't!& )a'e 2it# !$& !2% )&a%+# %et2!&3 !f a&!$% 1F? )&a%+#e' a% a
i't&i)$ti!% &ea+# !f !5e& B2"000 +#a%%el ,a&t%e&'0
- F< -
C0APTER1=
DATA ANA&;SIS AND INTERPRETATION
DI=IDEND DECISIONS IN INDUSTRIA& CREDIT AND IN=ESTMENT
CORPORATION O: INDIA 'ICICI$
T#e 5a&i!$' 1!e' !f i5ie% t#e!&ie'" 2#i+# #a5e )ee% i'+$''e ea&lie&" t#e 'a1,le !f
t#e INDUSTRIAL 7REDIT AND INCESTMENT 7ORPORATION OF INDIA
(I7I7I)0'ele+te0 A% a%al*9e t! e1,i&i+al e5ie%+e f!& t#e t2! t#e!&ie' '$,,!&ti%( t#e
&ele5a%+e !f i5ie% ,!li+ie' Walte&G' 1!el a% :!&!%G' 1!el0
We '#all +la''if* t#e i%$'t&ial +&eit a% i%5e't1e%t +!&,!&ati!% !f I%ia (i+i+i)0i%t!
t#e'e 'i8 +ate(!&ie' )a'i%( !% t#e e8,lai% t#e Di5ie% ,e& '#a&e" Ea&%i%( ,e& '#a&e"
- FB -
Ret$&% ,e& '#a&e" P&i+e Ea&%i%(" P&!fit afte& Ta8" Net 2!&t#0 T#e'e a&e e8,lai%i%( )a'e
!% la't fi5e fi%a%+ial *ea&'G ata0
Si%+e 200F-0H t! 2010-11 +!lle+te t#e ata i% INDUSTRIAL 7REDIT AND
INCESTMENT 7ORPORATION OF INDIA (I7I7I)0
COMPARISION O: DI=IDEND PER S0ARE O: T0E INDUSTRIA&
CREDIT AND IN=ESTMENT CORPORATION O: INDIA 'ICICI$%
;EAR DI=IDEND PERS0ARE
4BB914BB3 2000
4BB314BB5 20@0
4BB514BBC 20@0
4BBC14B2B <000
- F@ -
4B2B14B22 B000
Interpretation<
T#e i5ie% Pe& S#a&e !f I7I7I lt0" i' R' 2000 i% t#e *ea& !f 200F-0H0 T#e i5ie%
,e& '#a&e f!& t#e %e8t t2! fi%a%+ial *ea& i' +!%'ta%t (i0e0 R' 20@0)
W#e% it i' +!1,a&e 2it# t#e *ea& 200F-0H t#e i5ie% ,e& '#a&e i% t#e *ea& 200H-
0? it i' i%+&ea'e at t#e &ate !f @0] a%100] i% t#e *ea& !f 2010-110
COMPARISION O: EARNING PER S0ARE O: T0E :IRM :OR
T0E &AST :I=E ;EARS
;EAR EARNING PER S0ARE
4BB914BB3 F00B
4BB314BB5 1<0HH
4BB514BBC H0<<
4BBC14B2B >0>>
4B2B14B22 @?00?
- FF -
Interpretation<
T#e Ea&%i%( ,e& '#a&e !f t#e fi&1 i' 5e&* l!2 i% t#e *ea& 200F-0H" )$t it i' !$)le i%
t#e %e8t *ea&0 T#e Ea&%i%( ,e& '#a&e fl$+t$ate 'li(#tl* $&i%( t#e fi%a%+ial *ea&'
200?-0> a% 200>-100 H!2e5e&" t#e&e i' 1a''i5e i%+&ea'e &e,!&te (a)!$t > ti1e' t!
t#e 'ta&ti%( *ea& !f 200F-0H) i% t#e *ea& 2010-110 It i%i+ate' t#e i%+&ea'e i% t#e
&e5e%$e !f t#e ,&!fit0
A PRO:I&E O: RETURN PER S0ARE O: T0E :IRM
;EAR RETURN PER S0ARE
4BB914BB3 B00B
4BB314BB5 11020
4BB514BBC @01H
4BBC14B2B F0>>
4B2B14B22 @B00?
- FH -
Interpretation<
Ret$&% ,e& '#a&e !f I7I7I Lt i' l!2 !f i% t#e *ea& 200F-0H a% i% t#e %e8t *ea& it #a'
i%+&ea'e %!&1all* a% afte& %e8t *ea& it i' #i(#l* e+&ea'e0 T#e *ea& !f 2010-11 t#e
&et$&% ,e& '#a&e #i(#l* i%+&ea'e t#at i' @B00?
COMPARISION O: PRICE EARNING O: T0E ICICI
;EAR PRICE EARNING
4BB914BB3 B02?
4BB314BB5 B02F
4BB514BBC 1F0B<
4BBC14B2B 21021
4B2B14B22 @0>0
- F? -
Interpretation<
T#e P&i+e ea&%i%( 5al$e !f t#e fi&1G' '#a&e i' R' B02? i% t#e *ea& 200F-0H" it i' 'a1e i%
t#e %e8t *ea& al'!0 It i' &e,!&te #i(# $&i%( t#e fi%a%+ial *ea&' 200?-0>" a% 200>-100
H!2e5e& t#e ,&i+e ea&%i%( &ate i' 5e&* l!2 i% t#e *ea& !f 2010-110
COMPARISION O: PRO:IT A:TER TA O: T0E ICICI
;EAR PRO:IT A:TER TA 'in Rs$
4BB914BB3
2?01@
4BB314BB5
F<000
4BB514BBC
<<0@1
4BBC14B2B
B@0H1
4B2B14B22
2F@0F?
- F> -
Interpretation<
T#e ,&!fit afte& ta8 !f I7I7I Lt #a l!2 at 200F-0Ha% %e8t *ea& 2a' i%+&ea'e0 Afte&
e+&ea'e at t#e *ea& !f 2010-11 i%+&ea'e #i(#l*0 T#at i' 2F@0F?0 It i%i+ate' t#e
,&!)a)ilit* 't&e%(t# !f t#e fi&10
COMPARISION O: NET *ORT0 O: T0E ICICI
;EAR Net .ort,
4BB914BB3
<<?0H?
4BB314BB5
<B?0B?
4BB514BBC
<HH01@
4BBC14B2B
B1F00@
4B2B14B22
F@B0BF
- H0 -
Interpretation<
T#e&e i' a (&a$al i%+&ea'e i% t#e %et 2!&t# !f t#e fi&1 '$)-e+t t! 5e&* #i(# i% t#e
fi%a%+ial *ea& 2010-110
C0APTER1=I
FINDIN:S
SU::ESTIONS
- H1 -
7ON7LUSIONS
BIBLO:RAPHD
=% :INDINGS AND SUGGESTIONS
6%2 :INDINGS<
F!ll!2i%( a&e t#e fi%i%(' f&!1 t#e i5ie% e+i'i!% a%al*'i' !f t#e I7I7I6
1) P&!fit Afte& Ta8 #a' i%+&ea'e f&!1 R' B@0H@ 7!&e' t! R'0 2F@0F? 7!&e'0
2) Ea&%i%( ,e& '#a&e #a' i1,&!5e f&!1 R' >0>> t! R'0 @?00?
<) Di5ie% #a' )ee% )e%+#e f&!1 R'0 <000 t! B000
B) I%+&ea'e %et 2!&t# f&!1 R'0 B1F00@ 7!&e' t! R'0 F@B0B<
- H2 -
@) T#e i5ie% +a&&ie' '!1e i%f!&1ati!%al +!%te%t0
F) T#e i5ie% ,a* !$t &ati! #a' a% i1,a+t !% t#e fi&10
H) T#e i5ie% ,e& '#a&e i%+&ea'e %!&1all*0
?) T#e&e i' a fl$+t$ati!% i% ea&%i%( ,e& '#a&e
>) T#e Ret$&% ,e& '#a&e #a' )ee% i%+&ea'e (&a$all*0
SUGGESTIONS<
T#e f!ll!2i%( S$((e'ti!%' a&e )ei%( ,&!5ie t!
T#e I7I7I i%$'t&*0
1) I%5e't!&' al2a*' ,&efe& t#e i5ie% ,a*1e%t f!& 7a,ital a,,&e+iati!%0 He%+e
'!1e a1!$%t !f Di5ie% 1$'t )e ,ai &e($la&l*0 U%le'' t#e Pa*1e%t 2ill &e$+e t#e
%et 2!&t# !f t#e i%$'t&*0
2) T#e i%$'t&* '#!$l i1,&!5e t#e i5ie% ,e& '#a&e0
- H< -
<) T#e i%$'t&* '#!$l f!ll!2 'ta)le i5ie% ,!li+*0
B) T#e i%$'t&* '#!$l 1ai%tai% #i(# ,e& '#a&e0
@) T#e i%$'t&* 1$'t i1,&!5e a% 1ai%tai% #i(# &ati!0
F) W#e% t#e i%$'t&* (et' t#e ,&i+e ea&%i%( #i(#l*" t#at i%$'t&* 2ill (&!2
H) I% T#e i%$'t&* Net 2!&t# i' 5e&* (!!0 T#e i%$'t&* #a' t! 1ai%tai% t#i' t*,e
!f Net 2!&t#0
BIB&OGRAP0;<
10 7#a%&a" P&a'a%%a6 JFi%a%+ial Ma%a(e1e%t-T#e!&* a% P&a+ti+eG" @
t#
Eiti!%"
2001" Tata M+ :&a2 Hill P$)li')i%( H!$'e0
20 7!!,e& D!%al E" Pa1ela S S+#i%le&" ?
t#
Eiti!%" 200<" M+ :&a2 Hill
P$)li'#i%( H!$'e0
<0 =#a% M D" P -ai%6 Jfi%a%+ial Ma%a(e1e%t-Te8t a% ,&!)le1'M <
&
Eiti!%" 1>>>"
Tata M+ :&a2 Hill P$)li'#i%(
- HB -
H!$'e0
B0 Pa%* I M6 JFi%a%+ial Ma%a(e1e%tM ?
t#
Eiti!%" 200<" Ci3a' P$)li'#i%(
H!$'e P&i5ate Li1ite0
@0 La2&e%+e W0 :il1a6 P&i%+i,le !f 1a%a(e&ial Fi%a%+e" Ai'a 2e&l*0
2220(!!(lefi%a%+e0+!1
2220i+i+i0+!1
2220fi%aa%+ial&ef!&1'i%ia0+!1
- H@ -
doc_383799519.doc