Ramesh Bhat and I. M. Pandey Dividend Decision : A Study of Managers' Perceptions Introduction Dividend decision of a company involves the question of how much of the net earnings should be distributed to shareholders as dividends and how much should be retained in the business. Retained earnings constitute internally available funds for financing the growth of companies. At the same time, dividends are considered desirable from shareholders' point of view as they are perceived by many to increase their current wealth. In fact, the return to shareholders consists of two components : dividends and capital gains. However, this relationship is quite complex in practice. It is so because the share prices are generally affected by a large number of actors and not just alone by dividend policy of the company. This is further complicated by the fact that capital gains are perceived to be more uncertain than dividends and also, capital gains are taxed at a lesser rate than dividends. The objective of this study is to find out how managers perceive the question of dividend payment and retention. The study is divided into four parts: firstly, a brief discussion on the most important theoretical propositions on dividend policy; secondly, the methodology and sample, thirdly, the findings of the survey and finally, summarizing the main conclusions of the survey. Dividend Policy : Theory and Practice * According to one view, the dividend policy depends on the availability of investment opportunities and the relationship between the firm's internal rate of return and its cost of capital (Walter 1963). Firms having internal rate of return greater than the cost of capital, as may be case with growth firms, would have ample profitable investment opportunities. By retaining all earnings the firm can maximize the value per share. In case of declining firms where internal rate of return is less than cost of capital the firm will be maximizing value of share by distributing 100 per cent of earnings as dividends to their shareholders. Professor Ramesh Bhat is Chairman, Finance and Accounting Area and Professor I. M. Pandey is Dean at Indian Institute of Management Ahmedabad. Decision, Vol. 21, Nos. 1 & 2, January - June 1994 67