Black determines the market price of the share. Many

Black 1 argues
that “Dividend examination is always a puzzle with pieces that do not fit
together”. After his publication the research made on policy of dividends by
using various theoretical and empirical models has increased dramatically.

Bernstein 2 and
Aivazian and Booth 3 looked into this puzzle and found many questions
unanswered. There has been rising opinion that dividend payments cannot be
explained in a single way. Companies should pay dividend for various reasons
(i) it replicates the financial wellbeing of the company (ii) it looks
attractive for the investors who need current income (iii) it determines the
market price of the share. Many factors may
affect the dividend payout decisions. Based on the literature review these are
the factors taken into consideration.Corporate Profitability is always been considered as the primary
indicator for a company to pay dividends. Linter 4 and Baker 5 says
that payment pattern of a company is influenced by earnings of current
year.Amidu and Abor 6 found relationship to be positive for corporate
profitability and dividend payout ratios.Cash flow position is another determinant to measure payouts of
dividends. If the company has poor position in liquidity then it has very less
dividends due to no availability of 7 says that payments of
dividend depends more on cash flows which explains the ability of the firm to
pay  as it is not influenced by practices
of accounting.

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Models which are
adjusted for tax presumes that
investors always require higher expected returns on shares which pay dividend
regularly. Modigliani 8 argues that effect of collective clients are
responsible for the changes in the composition of a portfolio.Masulis and
Trueman’s 9 model says that liability of tax increases/decreases, preference
for payment of dividends also increases/decreases.Amidu and Abor 6 also found
relationship to be positive between tax and dividend payout ratios.