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What external factors determine the dividend policy?The external factors which determine the dividend policy are as follows:-
1) Dividend payout rate- defined as the ratio of dividends per share and earnings per share.
2) Regulated firms
3) Unregulated firms in this result are compared with earlier studies.
4) Amount of profit to be distributed among the shareholders,
5) Amount of profit to be retained in the firm.
6) Systematic risk,
7) The percentage of common stocks held by insiders,
8) Number of common stockholders.
What external factors affect the dividend policy?
The external factors which affect the dividend policy are as follows:-
1) Economy in general state:
In uncertain economic conditions, management might retain large part of earnings to build reservoir to absorb future hurdles.
Period of recession or inflation or beginning stages of it company may also retain large part of earning to maintain the liquidity.
2) State of Capital Market:
Favourable Market: This is also called as liberal dividend policy.
Unfavourable market: This is also called as conservative dividend policy.
3) Legal Restrictions:
Methods to pay the dividends are either from the Current or past profits of the company and paying outside the capital is not allowed.
4) Contractual Restrictions:
Contractors may put some kind of restriction on the payment of dividends to save their interests during the hard times when the company or market is going through a low phase.
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