The Effect of Dividend on Common Stock Prices

There are considerable debates on how dividend policy effects firm value. Some researchers believe that dividends increase shareholder wealth; others believe that dividends are irrelevant, and still others believe that dividends decrease shareholder wealth. The main purpose of this study was to investigate the effects of dividend on common stock prices. To test the research hypothesis, the study used the 1994-2002 financial data of a cross - sectional set of companies listed in the Tehran Stock Exchange. The financial data used in the study belonged to a total of 60 corporations who met certain predetermined research criteria. Regression was used to test the research hypothesis. The results show positive correlation between the dividend and common stock prices.