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The Relevance of Reliance Industries・ Dividend Policy to Shareholder・s Value  
Product Ref: 17/590C Company: Reliance Industries Limited

Product Type: Case Industry: Conglomerates

Related Product(s): Teaching Note
Authors: Sandeep Goel   
Reliance Industries Limited (RIL), a leading Indian multinational conglomerate, has been following a dividend policy that consistently pays its shareholders a steady and increasing dividend for years. But during the same period, the company・s stock price has been in decline due to a myriad of factors, including a decline in return on investment capital. As a growth-driven company, RIL has made continuing investments to expand capacity in its core oil refinery business, as well as a major investment in a new telecom unit that is due to launch across India. To balance the capital need for growth with the shareholder・s need to maximize wealth, Mukesh Ambani, board chairman and managing director, has to come up with an optimal dividend policy. What factors should he consider? How relevant is the dividend policy to stock prices? What kind of policy should he come up with?

The case discusses the types of dividend policies and the relevance of a company・s dividend policy to its shareholder・s investment behavior. It will explore the dividends irrelevance theory by M. H. Miller and F. Modigliani, and the dividend relevance theory by Myron J. Gordon and John Lintner. The dividend discount model is also used to analyze the relevance of dividend policy to shareholders・ value.
Functional Area : Accounting & Control
Finance & Investments

Learning Objective: 1. To evaluate the types of dividend policy a company should implement to ensure shareholders・ wealth maximization and advise on an optimal dividend policy.
2. To analyze the relationship between a company・s dividend payout and its stock market performance.
3. To study the correlation between the capital retention policy of the company and its stock market price for detecting investor・s behavioral pattern.
4. To determine the content relevance of a dividend policy for implicating shareholder・s investment behavior with the help of the dividend discount model.
Length: 8 pages Country: India

Pub. Year: 2018 Level of Difficulty: 2
This product type is available in the following language(s):      English
Related Information: N/A
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