PROJECT REPORT

ON

Dividend policy: its influence on the value of the enterprise for the last Ten years

SUBMITTED BY:NAKUL SAINI NITIN TYAGI VARSHA YADAVRoll no. RQ4901A13 Roll no.RQ4901A15 Roll no .RQ4901A14

SUBMITTED TO:MISS. KANIKA SAHNI

SUBMITTED TOLOVELY PROFESSIONAL UNIVERSITY PHAGWARAINTRODUCTIONAUTOMOBILE INDUSTRY IN INDIAThe Automotive industry in India is one of the largest in the world and one of the fastest growing globally. India manufactures over 11 million vehicles (including 2 wheeled and 4 wheeled) and exports about 1.5 million every year. It is the world's second largest manufacturer of motorcycles, with annual sales exceeding 8.5 million in 2009. India's passenger car and commercial vehicle manufacturing industry is the seventh largest in the world, with an annual production of more than 2.6 million units in 2009. In 2009, India emerged as Asia's fourth largest exporter of passenger cars, behind Japan, South Korea and Thailand.As of 2009, India is home to 40 million passenger vehicles and more than 2.6 million cars were sold in India in 2009 (an increase of 26%), making the country the second fastest growing automobile market in the world. According to the Society of Indian Automobile Manufacturers, annual car sales are projected to increase up to 5 million vehicles by 2015 and more than 9 million by 2020. By 2050, the country is expected to top the world in car volumes with approximately 611 million vehicles on the nation's roads.

Figure 3: Vehicle Production in IndiaA chunk of India's car manufacturing industry is based in and around the city of Chennai, also known as the "Detroit of India" [With the Indian city accounting for 60 per cent of the country's automotive exports]. Gurgaon and Manesar near New Delhi are hubs where all of the Maruti Suzuki cars in India are manufactured. The Chakan corridor near Pune, Maharashtra is another vehicular production hub with companies like General Motors, Volkswagen, Skoda, Mahindra and Mahindra, Tata Motors, Mercedes Benz, Fiat, Force Motors. Ahmedabad with Tata Motors Nano plant and Halol with General Motors in Gujarat, Aurangabad in Maharashtra, and Kolkata in West Bengal are some of the other automotive manufacturing regions around the country.BACKGROUND OF TATA MOTORSTata Motors Limited (Tata Motors) is an automobile company. The Company is engaged mainly in the business of automobile products consisting of all types of commercial and passenger vehicles, including financing of the vehicles sold by the Company. The Company has two segments: automotive and others. The others segment includes construction equipment, engineering solutions and software operations.Instigated in the year 1945, Tata Motors has a wide network of retailers and suppliers across India. It was in 1954 that the company launched its first vehicle. Today more than 3 million Tata cars and heavy vehicles glide through Indian roads. The company gained the prestige of being the first from engineering industry of India to be listed under the New York Stock Exchange in September 2004.Besides being second biggest in the passenger car division, Tata Motors is also ranked as fifth highest in the category of medium and heavy commercial vehicles at international level. With the help of its associates, Tata Motors offer high end manufacturing and automotive solutions to its customers. It's foremost indigenously made car was Tata Indica, followed by a mini-truck Tata Ace in 2005. In the year 2009, the firm marked its name in the pages of automotive history by introducing the world's fuel efficient and cheapest car - Tata Nano.DIVIDEND POLICY

To start with the topic firstly we will brief about dividends. Dividends are the payments madeby an organization to its shareholders or members. It is basically a portion of corporate profitthat is paid out to the shareholders. When any organization earns profit, the money that theorganization gets can be used in two ways to fulfill the expectations of the shareholders i.e. tomeet the cost of equity. Either it can be reinvested in the business or It can be paid to the shareholders as dividends.Many companies just retain a part of the earnings and pay the remainder as a dividend.Dividend is allocated as a fixed amount of a share and hence shareholders get the dividend inproportion to their shareholding. Dividend can be of two types, Cash dividend, in which organization gives cash to its shareholders in proportion to theirshareholding, Stock dividend, in which each shareholder is given extra shares depending on thenumber of shares it has currently. In this cash is not given but extra share is giveninstead of that.

Now Dividend policy refers to the policy that the management formulates in regard to earningsfor distribution as dividends among shareholders. It determines the division of earningsbetween payments to shareholders and retained earnings.

IMPORTANCE OF DIVIDEND POLICIES

1. To balance the growth of the company and the distribution to the shareholders.2. A critical influence on the value of the firm3. To strike a balance between the long term financing decision (company distributingdividend in the absence of any investment opportunity) and the wealth maximization.4. The market price gets affected if dividend paid are less5. Retained earnings helps the firm to concentrate on the growth, expansion andmodernization of the firm6. To sum up, it to a large extent affects the financial structure, flow of the funds,corporate liquidity, stock price and growth of the company and investors satisfaction.

FACTORS AFFECTING DIVIDEND POLICIES

1. Liquidity of Funds2. Extent of share Distribution3. Trade Cycles4. Government Policies5. Taxation Policy6. Legal Requirements7. Past dividend Rates Ability to Borrow8. Policy of Control9. Repayments of Loan10. Time for Payment of Dividend11. Regularity and stability in Dividend Payment

Broadly these are the factors that affect dividend payout ratio and hence the dividend policy fora company. But we have in our study taken limited factors and not all of these. The factors thatwe have taken are,_ Net sales_ Profit after tax i.e. PAT_ Market capitalization_ Capital expenditure_ Cash and cash equivalents at the end of yearTATA MOTORS DIVIDEND POLICYTATA motors has a very balanced dividend policy since 1955 (Exhibit 1). In all, but two years the company has paid a healthy dividend. Dividend smoothing has enabled the company so pay dividend even at the cost of negative retained earnings. Despite being a growth company expanding in new sectors the company has continued to strike a balance between retained earnings and dividend pay-outs. In times when the company has been in crisis they have looked at others measures of satisfying the needs for liquidity for shareholders like issue of Bonus shares.Automobile market is cyclic and the effect can be seen in the earnings of TML as well. Whenever the profits of the company have exceeded expectations, the company has declared an interim dividend while continuing with the existing pay-out ratio for regular dividends. Outside India the company is also listed on the NYSE. The dividend policy of TML has helped build a special relationship with retail customers who comprise more than 7 per cent of the shareholders.Rights IssueA rights issue is a way in which a company can sell new shares in order to raise capital. Shares are offered to existing shareholders in proportion to their current shareholding, respecting their pre-emption rights. The price at which the shares are offered is usually at a discount to the current share price, which gives investors an incentive to buy the new shares if they do not, the value of their holding is diluted.A rights issue by a highly geared company intended to strengthen its balance sheet is often a bad sign. Profits are already low (or negative) and future profits are diluted. Unless the underlying business is improved, changing its capital structure achieves little. A rights issue to fund expansion can usually be regarded somewhat more optimistically, although, as with acquisitions, shareholders should be suspicious because management may be empire-building at their expense (the usual agency problem with expansion). The rights are normally a tradable security themselves (a type of short dated warrant). This allows shareholders who do not wish to purchase new shares to sell the rights to someone who does. Whoever holds a right can choose to buy a new share (exercise the right) by a certain date at a set price.Rights Issue in 2001The Board of Directors of approved the simultaneous Issue of Convertible Debentures and Non- Convertible Debentures with Detachable Warrants on a rights basis in the ratio of one CD and one NCD for every five shares (1:5) of the Company held. The Company expected to raise approximately Rs. 1,228 crores - Rs. 1,382 crores from the proposed rights issue. The proceeds of the rights issue was planned to be used for essential capital expenditure and new product development programs and repayment/ prepayment of expensive borrowings of the Company. The infusion of long term funds, by way of this rights issue, was expected improve the cash flows and the debt equity ratio.Rights Issue in 2008In May 2008 the company announced its long term financing plan for Jaguar-Land Rover acquisition. At that time, the Company had announced that a part of the total funds required would be raised through a Rights Issue to the shareholders of three simultaneous but unlinked securities namely a) an issue of Ordinary Shares of a total amount of about Rs.2,200 crores; b) an issue of A Ordinary Shares having differential voting rights (viz. 1 vote for every 10 shares held) of a total amount of about Rs.2,000 crores and c) an issue of 0.5% 5-year Convertible Preference Shares of a total amount of about Rs.3,000 crores, which would be convertible into A Ordinary Shares at any time after 3 years but before 5 years from the date of allotment.Changes in Capital Market and the level of prices in the stock markets led the Board of Directors to decide to keep the increase in Share Capital as low as possible, the Board decided - 1.To restrict the Rights Issue only to two simultaneous but unlinked securities namely (a) an issue of Ordinary Shares and (b) an issue of A Ordinary Shares having differential voting rights, as already announced; and 2. In place of the issue of Convertible Preference Shares, it is now proposed to raise the required resources by monetizing a part of the Companys investments through a phased divestment of certain investments (preferably as inter-group sales wherever feasible) at prevailing market prices over the next 6 to 8 months. The funds released from such future divestments together with those already sold during the current financial year, will form part of the resources to be raised for repaying the bridging loan taken for the Jaguar-Land Rover acquisition.2008 - 2009 CrisisTMs original core business in the passenger car division (small cars in India) was mildly influenced by the crisis as TMs passenger car sales decreased by only 5%. The company was much more negatively affected by the decline in sales of its commercial vehicle division which represented not yet taking into account the JLR acquisition some 2/3 of its turnover. However, the financial crisis had a much more serious impact [in the last quarter of 2008 and the first quarters of 2009] because of the burden of two major strategic initiatives. The shift of the production site and postponement of the full Nano launch which was originally scheduled for launch in March 2008 by two years led to unexpected resource needs (new manufacturing site) and a shortfall of otherwise expected 2008-09 revenues. While this burden was not caused or much exacerbated by the crisis in the global car industry, the acquisition of JLR only few months before the onset of the crisis actually affected TM much more: the dramatic decrease in JLRssales (JLR being fully exposed to European and US markets) significantly increased the heavy losses of the new combined company in FY 2008/09; even more importantly, the refinancing of the short term bridging loan of $ 3 billion for the acquisition became much more complicated and costly in a situation of dried up capital markets. The refinancing difficulties and increasing financing cost contributed to a serious debt overload of TM which might have led to bankruptcy (and a take-over) if the TM would have been a stand-alone company and would not have been protected and supported by its affiliation to the Tata group and its well-connected chairman.While it is no surprise that the crisis caused (temporary) problems and challenges for TMs business it seems much more remarkable how little effect it had on the companys strategy. TM steered through the crisis without much change in its path-changing (Nano) as well as its path-breaking (JLR) strategy initiatives.The constancy of purpose as well as a continuous and consistent execution of strategic plans was maintained despite highly sceptical capital market markets which had temporarily withdrawn support from TM. The unwavering pursuit of a transformational strategy of TM in the face of the financial crisis can be ultimately explained only by the affiliation of the company to a very strong and supportive conglomerate with a particular mode of operation: TM is one of the few strategic companies of the Tata group; it is guided personally by the Chairman of the Tata Group who has committed the group to a course of globalization and innovation while relying on Indias comparative location advantages; it allows the company to sustain long periods of low profitability and significant investments in resource and capability accumulation; TM profits from the value and attraction of the TATA brand in its dealings with suppliers, customers and the Government, as well as in attracting talented staff; it also profits from various group support services like the groups excellence model, its acquisition and finance expertise and its training efforts. This inherent affiliation strength enabled TM to even use the crisis as an accelerator for the implementation of its strategies by legitimizing a more swift course towards cost cutting in the JLR operations (announced closure of one plant and shift of significant supply sources to India). It may also have facilitated the far-reaching changes in TMs top management as experienced top managers were available due to the crisis and a change of top management seemed to be justified in view of TMs difficulties and temporary low performance. It can therefore be concluded that the financial crisis has not much affected TMs transformational change or even reinforced and accelerated it.

Dividend and stock price snapshot of Tata Motors of last 10 years

PAT, Retained Earnings and equity dividend snapshot of Tata Motors of last 10 years

Vehicle Production in India

EXHIBITS

LITERATURE REVIEWBefore starting the discussion, lets review the origin and evolution of corporate dividends provided an example from history. The authors note that in early sixteenth century captains of sailing ships in Great Britain and Holland began selling to investors claims to the financial payoffs of the voyages. At the conclusion of the voyages, proceeds from the sale of the cargo and shipping assets, if any were divided among the participants proportionate to ownership in the enterprise. These distributions were in fact nothing more like payments that effectively liquidated the venture, or liquidating dividends. By the end of the century, these claims on voyage outcomes began trading in the open market. These claims to outcomes were later replaced by share ownership. Even before the modern capital theory developed alongside with the statistical measurement of the impact of diversification on portfolio risk, investors in these sailing ventures regularly purchased shares from more than one captain to diversify the risk in these endeavours. Also, like in the modern corporation, investors provided capital for these ventures, while the captains offered their skills for instance, seafaring and managerial skills.Modgliani and Miller, (1961) The crux of debate on the dividend policy is the division of retained earnings i.e. profit after tax (PAT) between dividend and earnings as internal resources. According to a widely discussed theory, the value of a firm is not subject to the dividend policy followed but depends on the earnings power of the firm. Hence instead of deciding on how to split the earnings between dividends and retained earnings, the firm should endeavor towards having an optimal investment policy resulting in optimal return. Gordon, (1962) A rational investor would normally discount the future of distant dividendsat a higher rate than near dividends as a matter of averting risk. Hence a company paying a higher dividend will always command a higher price for its share than a company having same earning power but paying lesser dividend. Walter,(1963) The growing firm where, internal rate of return is more than the cost ofraising finance from outside would normally opt for paying minimum possible rate of dividend and ploughing back more profits for further investment opportunities. A growing firm can maximise its shareholders wealth by retaining all the profits. It is reverse in the case of a declining firm.Farrar and Selwyn, (1967) Investors world normally prefer low dividends as the dividends aresubject to higher tax rate than that in the case of capital gains resulting out of earnings capitalisation But the investors in lower or no-tax bracket would prefer higher dividend rates since they consider the dividends as a source of regular income.Bhat and Pandey, (1994) In a recent study conducted on Tata motors reveals that the firms in India specify their dividend policy in terms of DPS or dividend rate. The previous years dividend rate plays a significant role in deciding the current years dividend rate than the current years earnings. Frankfurter and Wood (1997) concluded their survey with a next observation: Our conclusion, based on study, is that dividend-payment patterns (or what is often referred to as dividend policy) of firms are a cultural phenomenon, influenced by customs, beliefs, regulations, public opinion, perceptions and hysteria, general economic conditions and several other factors, all in perpetual change, impacting different firms differently. Accordingly, it cannot be modelled mathematically and uniformly for all firms at all times . In this paper well try to make a model which will help to describe the most acceptable policy or, at least, to show what strategy is better.Now lets look at the modern economy. There are many firms in the market and each of them has its own value, some of them become extremely expensive and some of them become bankrupt. What are the reasons which determine and can affect the firms value? There are many approaches in this area but I would like to mention some of them. They are: managerial style, ownership structure, Political stability, Dividend payout under the influence of different factors (taxes for instance). What are the instruments using which the top-management (and owners of course) can increase the market value of the firm? Firstly, lets think about exactly this top-management. Each owner tries to hire the best manager. Consequently this manager has to be proposed by the competitive conditions and of course one of them is wage (we can also include here a social package which is very popular in Ukraine now). Therefore, the salary can be distinguished like a separate unit of expenditures. Moreover, summarizing, we find out the term as a managerial style. Without any doubt the performance of the firm is dependent of the management. The better management the more profit will firm get. Thus we can evaluate the costs which are connected with reorganization and restructurisings. To prolong, the connection between high salary and performance was studied by the Segunin 1996. In his article he separated general and administrative expenses in two groups: non-discretionary (structural) and discretionary expenses.

The question arises is it really profitable to hire well-paid managers? How do the expenses of the firm influences the firm value? The result was rather unexpected if we increase the volume of general and administrative expenses as the component of managerial styles - this step will not be associated with significantly levels of firm value. In contrast, it was found that higher levels of the structural component are significantly negatively related to firm value. Therefore, the owner of the company should think carefully about paying high salary increasing in such a way G&A expenses. Thats sounds easy when we have to deal only with one person who makes a decision. After salary, the next problem which we can face is shareholders. To be more precise were more interested in the blockholders or people who can block the any decision which is undertaken. This is a crucial point in the management because other shareholders always have to keep in mind the possibility of rejection and even an injunction. The result of the existence of big shareholders (here big means that that shareholder can directly influence the decision-making thus we get the controlling interest of an enterprise) can lead to the serious problem of making a decision. One big shareholder can present with a fait accompli the board of directs and forces to do only his decision. That is why some authors tried to investigate the optimal value of shareholders power to reduce the probability of opportunism by a single shareholder (Gomez and Novaes (2005)). Throughout this topic McConnel and Servais (1990) investigated the relationship between the structure of ownership of the company and Tobins Q. They found out that there exists a relation between Q and a part of the stock which belongs to the corporate insiders. Thus, we can say that ownership and control structure of the enterprise is a significant determinant of its dividend payout policy that influences the firms value. We can look at this case on the example of state-controlled firms in Austria. They smooth dividends, have large target payout rations and are the most unwilling to cut dividends even taking into account big amount of potentials costs of shareholders. But the decisions differ when we have a deal with a family controlled firms have completely different dividend policy, they are more likely to cut the dividends. In addition the owners (and often the most important shareholders) can adjust dividend policy and investment priority pretty fast. This result was received by Gugler (2001). Another conclusion was that dividends significantly negatively influence capital investment. Then the shareholders, in turn, have to pay taxes because they get profit (dividends) from their shares. Consequently, the value of the tax directly influences profoundly on the preferences of the shareholders whether to have deposits or shares. This explains the interest of researches which devoted their papers to this question. Harris and Kemsley (1999)(HK) investigated how taxes on dividends affect the relative value of retained earnings versus contributed capital. Furthermore, Collins and Kemsley (2000)(CK) observed the effect of dividend and capital gains on firm value. Then Harris (2000)(H) showed the effect of dividend taxes and imputation credit on firm value. The crucial point here is that all the authors (HK, CK, H) gave an interpretation of their evidence as consistent with dividend taxes being fully capitalized. Let us talk about the results of the Harris and Kemsley test: they found out that the coefficient on retained earnings as compared to book value was negative (to be more precise -0.47) and they interpreted it in the following way: an estimate of the dividend tax rate capitalized into prices, so our results suggest the marginal investor faces an average dividend tax rate of 47% and they even stated that dividend taxes are capitalized in the values of the shares.

However, this question was expanded and the aim was to investigate not only the problem of capitalization but also how taxes are capitalized and to what extent are they capitalized in the market values of the shares. That actually did Hanlon (2003) and disproved the result that was received using the model by Harris and Kemsley. We talked about shareholders and their profits, about the managers of the firm but there is a crucial point which is left why some firms prefer to pay dividends rather than repurchase shares? Sometimes institutional investors are less taxed then the private (individual) investors this fact can lead to the ownership clientele effects. However, each firm has to decide the strategy of paying dividends which can be separated into two parts: the optimal amount for paying and the optimal times. Cadenillas A. et al (2004) modelled this as stochastic impulse control problem and found the analytical solution. The result was that as the dividend tax rate goes down it becomes optimal for the shareholders to receive smaller but more frequent dividend payments. The firms which pay out the dividends usually attract more institutions than those which do not pay. This, in turn, presents the possibility of detecting the level of management (quality) and the top firms. If we consider such a situation when we do not have any transaction costs and taxes then share repurchasing and dividends are equivalent. As in many countries dividends are taxed much higher than the capital gains, then logically to conclude that the share repurchasing is more attractive and preferable. However, dividends stay of one of the major and essential types of income. It should be pointed that during last years 1973-1983 dividends of the largest 1000 US firms averaged 44 % at the same time the repurchasing was only 6 percent. Then in 1984 repurchasing increased significantly and kept its position rather constant but did not become a substitute for the dividends. Throughout, looking at the period of 1984-1988 the picture changed significantly: repurchasing increased from 6 up to 38% of earnings, dividends also went up from 44 to 51% .

That is to say Allen and Bernardo (Dec. 2000) constructed the model which explains the preferences of an enterprise: whether to pay dividends rather than to repurchase shares or to incline to smooth dividends. Their model was based on the two assumptions: there are groups of investors who are taxed differently and another one is that dividends are one way of attracting institutions. Looking at these assumptions it can be concluded that firms attract more institutions as shareholders by paying out the dividends and moreover these firms (which pay dividends) perform better than otherwise equal non-dividend-paying firms. The results of their research proved these assumptions - dividend-paying firms perform better. We can also talk about Profits, Dividends and Capital Expenditures (or CAPEX). Looking on the sample of US enterprises we can find out that during last 50 years after-tax profits increased at a compound annual rate of 6.6 percent, dividends grew at 7.3 percent, and plant and equipment expenditures grew at 7.9 percent. The average payout rate over this period was 52 percent. Clearly, dividend payments are significant relative to the corporate earnings and investment. Figures 1 and 2 describe the pattern of dividends versus after-tax profits and investments, respectively. Looking at the pictures we can conclude that managers, at least in aggregate, appear to continue to smooth dividend payments relative to earnings and capital expenditures.

DATA ANALYSISTATA Motors:

Coefficients Standard Error t Stat P-value

Intercept 54.15414003 20.79038896 2.604768008 0.028514374

Net Sales -0.002894046 0.003726561 -0.776599613 0.457318855

PAT 0.020974534 0.039960898 0.524876444 0.612351511

Market Capitalisation -0.000367615 0.002107089 -0.174465671 0.865361036

Capital Expenses -0.007132883 0.013314882 -0.535707584 0.605144369

Cash and Cash Equivalents -0.002792638 0.022675438 -0.123156953 0.904689256

It can again be seen that the influence of Cash and cash Equivalents, Market Capitalization andCapital Expenditure is negative and is also very insignificant. And the Net Sales also impactnegatively with a very minute coefficient of 0.002. There is a positive correlation between PATand DPR, the coefficient of 0.02 implies that a 1% change in Pat would lead to 0.02% change inDPR, both negatively and positively.

For TATA Motors, if we look at EPS and DPS figures, from the graph we can get that the DPSfollows EPS. If EPS increases, company increases the DPS offered to the shareholders. Thoughthe increase is very small but still it is clearly visible. Moreover if the EPS falls then DPS alsofalls. We can see from the graph that there are very high fluctuations in the EPS for thecompany though over years it has after fluctuation come again to same level it was in 1995,with a minute fall at -1.41% CAGR. But as a consequence, dividend payout also shows very wide variations in the value over the years between 0% to around 110%. The average payout ratio for the company over the years has been around 38%. It can also be inferred that The Company pays same proportion of EPS as Dividends or it follows a Hybrid policy of fixed proportion as dividend with extra dividend in case of increasing profits.

FINDINGS

We have analyze the dividend policy, out of the five factors that we took, Net sales, Market capitalization and PAT are the factors that affect the most to DPR. Also if we take EPS and DPS into account then generally for Tata motors, we have found a trend that from 1995 to 2001, the company generally followed constant dividend policy but after 2001 the dividendswere somewhat following EPS of the company. Though for companys the dividend policy was constantly growing.

RECCOMENDATIONSA. Investment Opportunities: More investment opportunities - > Lower Dividends B. Stability in earnings: More stable earnings -> Higher Dividends C. Alternative sources of capital: More alternative sources -> Higher Dividends D. Constraints: More constraints imposed by bondholders and lenders -> Lower DividendsE. Signaling Incentives: More options to supply information to financial markets - > Lower need to pay dividends as signal F. Stockholder characteristics: Older, poorer stockholders -> Higher dividends.G. It is important to isolate who receives the dividend due to the stock price reaction following the payment The stock should fall by the amount of the dividend with no taxes.H. Retain the cash for investment in the firm. The company retains the cash and invests in T-bills and pays out the proceeds 5 years from now. (Individuals pay the taxes at the end).I. Share Repurchases & Signaling.

CONCLUSION

This paper was devoted to the issue of utmost importance to present day business environment dividend policy and its impact on firm value. Combined with a number of other factors dividend policy was positioned as a crucial element for determining the return on portfolio of a particular enterprise. By modeling the behavior of the enterprise value we tried to reveal the most crucial factors, to assess their contribution and to perceive the nature of their influence. By doing so we obtained several interesting results. The first and the most desirable conclusion basically concerns the payout policy itself. Enterprises which preferred to distribute the spare part of an income between its shareholders on average increases it value. The mechanism is quite simple reinvesting the dividends is a vague and obscure treatment to the income which may appreciated by professionals, while paying a dividend may attract a regular agent. This way the stock becomes more popular and its price reacts accordingly. We have analyze the dividend policy, out of the five factors that we took, Net sales, Market capitalization and PAT are the factors that affect the most to DPR. Also if we take EPS and DPS into account then generally for Tata motors, we have found a trend that from 1995 to 2001, the company generally followed constant dividend policy but after 2001 the dividendswere somewhat following EPS of the company. Though for companys the dividend policy was constantly growing.

BIBLIOGRAPHY

Allen F., Bernardo E. (Dec., 2000) A theory of Dividends Based on Tax Clienteles, Journal of Finance, Vol. 55, No. 6, 2499-2536 Black F, Scholes M, (1974) The Effects of Dividend Yield and Dividend Policy on Common Stock Prices and Returns. Journal of Financial Economics 1, p. 1-22 Brennan, M. (1970) Taxes, Market Valuation and Financial Policy. National Tax Jornal, No 23, p. 417-429 Chew Donald H., JR, (1993), The new corporate finance. Where Theory Meets Practice. Cadenillas A. et al (Dec., 2004) Optimal Dividend policy with mean-reverting cash reservoir. Dorfman, J. (11 November,1996), The power of Dow Dividends. The Wall Street Journal, C1 Fama F., French R. (autumn 1998), Taxes, Financing Decisions, and Firm Value , The Journal of Finance, vol. 53, .3, p.819-843 Francfurter, G., and R. Wood, Jr. (1997) The evolution of the Corporate dividend Policy. Journal of Financial Education 23, p. 16-33

Appendix

Tata Motors (all figures in crores)Year Sales PBT EPS DebtEquity InterestCoverage Debt

09 28292.56 1013.76 18.81 0.97 1.68 13165.56

08 32885.03 2576.47 50.52 0.7 6.23 6280.52

07 31611.21 2573.18 47.1 0.56 7.98 4009.14

06 23673.43 2053.38 37.59 0.56 8 2936.84

05 20152.03 1651.9 32.44 0.49 8.58 2495.42

04 15165.85 1292.34 21.93 0.44 7.38 1259.77

03 10585.43 510.37 8.87 0.74 2.65 1458.31

02 8676.86 -109.21 2.23 0.93 0.85 2304.96

01 7927.63 -500.34 3.48 0.86 -0.02 2998.88

00 8691.62 75.2 10.97 0.86 0.6 3004.26

99 6391.95 107.16 29.01 0.9 0.98 3445.23

98 7166.72 327.66 21.92 0.79 1.8 3308.74