Theoretical Economics Letters, 2017, 7, 1233-1243 http://www.scirp.org/journal/tel ISSN Online: 2162-2086 ISSN Print: 2162-2078 DOI: 10.4236/tel.2017.75083 July 31, 2017 Dividend Policy and Firm Valuation —A Study of Indian Electrical Equipment Manufacturing Industry Brahmaiah Bezawada 1 , Ravi Kumar Tati 2 1 ICFAI Business School, IFHE, Hyderabad, India 2 Manipal University, Dubai, UAE Abstract Dividend policy relevance has been researched extensively, but little consen- sus has been built from the findings. There are many factors that affect a given firm’s dividend policy which can be found in the literature such as risk faced by the firm, cash flow situation of the firm, agency costs etc. According to Bhattacharya (1979) dividend decision of a firm can be seen as a source of signal which shows that profitable firms with good project investment oppor- tunities will pay higher dividends to present themselves distinct from other firms which are having projects with lesser profits. This paper attempts to analyze whether the dividend policy of a firm affects the market value of a firm and the shareholders’ wealth. We have set our objective to find out the impact of dividend policy on the shareholders’ wealth in the Indian electrical equipment manufacturing industry. For this, we have adopted a sample of dividend paying electrical machinery manufacturing companies listed in Bombay Stock Exchange (BSE). There were totally 439 companies in the in- dustry of electrical machinery manufacturing. Out of them 194 companies were listed in the Bombay Stock Exchange (BSE) and there were 72 companies paying dividends frequently. Therefore the data of these 72 companies were taken into consideration. Our study revealed the empirical evidence with some of the dividend irrelevance theories such as M&M. The results indicate that there is a negative non-linear association between market value of a share and the dividend yields. Keywords Dividend Policy, Firm Valuation, Wealth Maximization How to cite this paper: Bezawada, B. and Tati, R.K. (2017) Dividend Policy and Firm Valuation—A Study of Indian Electrical Equipment Manufacturing Industry. Theo- retical Economics Letters, 7, 1233-1243. https://doi.org/10.4236/tel.2017.75083 Received: June 3, 2017 Accepted: July 28, 2017 Published: July 31, 2017 Copyright © 2017 by authors and Scientific Research Publishing Inc. This work is licensed under the Creative Commons Attribution International License (CC BY 4.0). http://creativecommons.org/licenses/by/4.0/ Open Access