LITERATURE REVIEW-COLONIAL CONCEPT AND FORGING GUEST SATISFACTION

COLONIAL CONCEPT AND FORGING GUEST SATISFACTION 

2.1   Introduction

In this chapter, going to discuss and review the theoretical and empirical studies which relevant to the subject of the research. Here, the researcher aims to discuss the theoretical and practical scenarios that have found by prior researchers. The relevant literature has been appropriately referred under this chapter. From this chapter can get knowledge of the nature and characteristics of guest satisfaction in hotels. In addition, literature of this part considers to the significance of guest satisfaction and dimensions of guest satisfaction in hospitality industry.

2.2   Definition of Guest

Those who buy the goods or services provided by companies are customers. In other words, a customer is a stakeholder of an organization who provides payment in exchange for the offer provided to him by the organization with the aim of fulfilling a need and to maximize satisfaction. Sometimes the term customer and consumer are confusing. A customer can be a consumer but a consumer may not necessarily be a customer.

2.3   Hotel and Hotel Industry

The purpose of hotels is to provide guests shelter, refreshment, food and similar kind of services and goods, offering on a commercial basis things that are customarily furnished within households but an available to people on a journey away from home. In past when we consider about hotels, they had also taken on many other functions, serving as business exchange, centers of sociability, places of public assembly and deliberation, decorative showcases, political headquarters, vacation spots, and permanent residences. Then considering about hotels as institutions and hotels as an industry, transforming travel in America, hastened the settlement of the continent, and extended the influence of urban culture.

2.4   Guest Satisfaction

During the past few decades, customer satisfaction and service quality have become a major area of attention to practitioners and academic researchers. Both concepts have strong impact on business performance and customer behavior. Customer satisfaction is widely used term in business to measure the kind of products by a company to meet customer expectation. Customer satisfaction is believed to be the company key performance indicator. According to Hansemark & Albinso (2004). Satisfaction is an overall customer attitude toward a service provider or an emotion reaction to the difference between what customers anticipate and what they receive regarding the fulfillment of some need, goal and desire.

According to schiffam & Kanuk (2004), customer satisfaction is defined as the individual’s perception of the performance of the products or services in relation to his or her expectations. Also can be define customer satisfaction is viewed as a post- choice evaluation judgment of a specific purchase occasion (Oliver, 1993).

According to the Guest satisfaction, we can apply this concept to the hospitality industry Applying to the hospitality industry, there have been numerous studies that examine attributes that travelers may find important regarding customer satisfaction. Atkinson (1988) found out that cleanliness, security, value for money and courtesy of staff determine customer satisfaction. Knutson (1988) revealed that room cleanliness and comfort, convenience of location, prompt service, safety and security, and friendliness of employees are important

Considering about the booming firms they define their strategies in guest-oriented comportment. According to Kotler (2000) mentioned that satisfaction as a person’s good desire and disappointment resulting from comparing a product is perceived performance according to their expectations. When it comes to Oliver (1997), he took a more myopic view and stated guests’ satisfaction as for a guest’s fulfillment response. It is like a result that product or service feature, or the product or service itself that provides a good level of consumption related fulfillment. In other way, it is the overall level of contentment with a service/ product experience.   

Guest satisfaction very important factor of any organization especially service providing industry like hotel industry. When consider about the above definition about the customer satisfaction according to Schiffma and Karun customer satisfaction base on customer perception and performance of service or product. (Hamesemerk and Albinsson, 2004). (as cited Mohsan, Nawaz, Khan, Shaukat, & Aslam, 2011) presented their definition base on customer anticipation, perception and need and wants. Considering wit prior research about the customer satisfaction, customer satisfaction is gap between product or service quality and customer perception, anticipating and expectation. Service or product quality below that customer perception customers are dissatisfied and service or product quality more that customer expectation customers are satisfied or delight.

Satisfaction is an “overall customer attitude towards a service provider” (Levesque and McDougall, 1996, p. 14), or an emotional reaction to the difference between what customers anticipate and what they receive (Zineldin, 2000), regarding the fulfillment of so2.1me need, goal or desire (Oliver, 1999). Gerpott et al. (2001) who propose that satisfaction is based on a customer’s estimated experience of the extent to which a provider’s services fulfill his or her expectations provide a similar definition.

Considering about guest satisfaction in a hotel they expect a maximum service from the hotel. When it comes to hospitality industry, there are main three types of services, such as accommodation and amenities, food and beverages and hospitable service. When considering about the accommodation in a hotel it must be very clean and there has to be enough space and very much comfortable, if not guests are not going to satisfy with accommodation in the hotel that will be badly effect to the retain guests and build up the guest loyalty. Other thing is the food and beverage; it must be very delicious and very tasty. In addition, food dishes and the quality of the foods must be in a high standard. Then guest satisfaction will increase and that will be very much profitable for the hotel. Considering about the friendly service in a hotel that is a one of very important component. During the check in process guest will have the first impression about the hotel and after butler service must be very friendly and active then only guests can take the first impression until they check out, therefore all those three types of service must be in the top of level for the purpose of satisfy guests.

 When considering about the Customer service and hospitable behavior, a system of activities comprises customer support systems, complaint processing & friendliness & quick service delivery. The key to achieve sustainable advantage lies in delivering high quality service that results in satisfied customers (shemwell.et.al.1998)

2.5   Definition of Guest Loyalty     

When we consider about guests, they are displaying different types of loyalty, commitment and allegiance in various aspects of their daily interactions. Considering about guest loyalty it is a positive emotional experience and satisfaction based on physical attribute and the perceived value of an experience, which includes from the service that they had in the hotel.  The loyal guests are like;

1. Repeatedly purchase a good service over time, and

2. Hold favorable attitudes towards a good service.

Customer loyalty consists of three separate dimensions: behavioral, attitudinal, and composite. Behavioral loyalty considers measurements of consistent, repetitious purchase behavior as an indicator of loyalty. In particular, it interprets a form of customer behavior Directed towards a particular brand over time (Bowen and Shoemaker, 1998).

2.6 The Colonial Concept in a hotel

Colonialism is a concept, which has a very long history. The European colonialism has begun in the 15^th century. Colonialism is a process of European human settlement also controlling of politically the world including Australia, Parts of Africa, America and specially Asia. It explains the specificity between the colonialism and imperialism that given difficulty of consistently distinguishing of two terms which entry will use colonialism as a broad concept that is referring to the project of European government domination from the 16^th to the 20^th centuries that ended with the national liberation movements. And the first decolonization was happening end of the 18^th and early19th centuries. Most probably after the decolonization started to begin the colonial type buildings specially hotels as monuments of by-gone colonial era. Most of them were the official accommodations which used by colonial empires. When it comes to Sri Lanka, the several famous colonial hotels are Galle Face hotel, Bandarawela hotel and Galle new Oriental Hotel etc.

2.7    Expectancy Disconfirmation Theory (EDT)

According to the satisfaction, there are plenty of research studies and also concepts. But the most acceptable conceptualization of the customer satisfaction concept is the expectancy disconfirmation theory (Barsky, 1992; Oh and Parks, 1997; McQuitty, Finn and Wiley, 2000). The Expectancy Disconfirmation Theory has developed by Oliver (1980). He has considered the satisfaction level is the difference between the expected performance and the perceived performance.

             

 

                                                       

       

Under this concept, Oliver has mentioned that there are expectations, perceived performance, disconfirmation and satisfaction like that four components. When it comes to Expectation, it means the aspiration of the performance about the product or service. Also the Perceived performance means, the customer’s experience after the consuming the product. It can be a better or worst experience. Finally, the Disconfirmation means the difference between the expectation and the perceived performance. It can be positive or negative. If positive customer has a satisfaction of the product or service if it is negative, customer has a dissatisfaction of the product or service.

2.8    Service Quality

Service quality is very important things in the hotel industry. Because hotels provides intangible product for guests, therefore have to more concern about service quality as the same time concerning about the guest satisfaction. The prosperity of the business is depending on those two categories. When the service quality is less than the customer expectation, customers will dissatisfy. In addition, if the service quality is high than the customer expectation, customer will satisfy.

According to the Gronroos (1982) the total service quality is the difference between the perceived service and expected service which from customer’s perception. Asubanteng,Mccleary and Swan (1996) discussed the service quality as the difference between customers’ expectations for service performance prior to the service encounter and their perceptions of the service received. In addition, the service quality as the subjective comparison those customers make between the quality of the service that they want to receive and what they actually get according to Gefan (2002)

When providing any services to guests prefer is a starting point for giving guest satisfaction.The easy way to conclude that what services guests expected is simply to ask them. According to consideration of Gilbert and Horsnell (1998), and Su (2004), guest comment cards have the majority to use for identify the hotel guest satisfaction. Guest comments cards are always circulate among hotel rooms, at the reception desk or in somewhere in a possible place. However, many studies give out several hotel chains use guest satisfaction evaluating methods based on inadequate practices to create special and complex managerial decisions (Barsky, 1992; Barsky and Huxley, 1992; Jones and Ioannou, 199, Gilbert and Horsnell, 1998; Su, 2004). In addition, most commonly made faults should be separate into main three areas, such as; quality of the sample, data collection and analysis and design of the Guest comment card (Gilbert and Horsnell, 1998). For improve the validity of hotel guest satisfaction measurement practice, there is a new sampling procedure which named as ‘‘quality sample’’. That decreases non response bias by offering encourages for completing the questionnaires. Barsky and Huxley (1992)

According to the components of the questionnaires is mainly focus on dis-confirmation paradigm expectancy theory. In here guests can discover whether service was above or below according to their expectations. In addition, are based on dis confirmation paradigm and expectancy-value theory. In this manner, guests can indicate whether service was above or below their expectations and whether they considered a particular service important or not. Moreover, Gilbert and Horsnell (1998) had developed a list of measurements for guest comment card content analysis. The issues of question clarity, survey timing, validity and scaling question order and sample size (Schall 2003).

REFERENCE

Atkinson, A. (1988). Answering the eternal question: what does the customer want? The    Cornell Hotel and Restaurant Administration Quarterly, 29(2): 12-14.

Barsky, J., & Labagh, R. (1992). A Strategy for Customer Satisfaction. Cornell Hotel And Restaurant Administration Quarterly, 33(5), 32-40.

Bowen, J., & Shoemaker, S. (1998). Loyalty: A Strategic Commitment. Cornell Hotel And Restaurant Administration Quarterly, 39(1), 12-25.

Cardozo, R.N. An experimental study of customer effort, expectation and                                               satisfaction.  Journal of Marketing Research, 2:244-249

Gerpott, T.J., Rams, W., Schindler, A. (2001), "Customer retention, loyalty, and satisfaction in the German mobile cellular telecommunications market", Telecommunications Policy, Vol. 25 No.4, pp.249-69

Hansemark, O., & Albinsson, M. (2004). Customer satisfaction and retention: the experiences of individual employees. Managing Service Quality, 14(1), 40-57.

Knutson, B. (1988). Ten Laws of Customer Satisfaction. Cornell Hotel And Restaurant Administration Quarterly, 29(3), 14-17.

Levesque, T., & McDougall, G. H. G. (1996). Determinants of customer satisfaction in retail banking. International Journal of Bank Marketing, 14(7), 12-20

Oliver, R. (1993). A conceptual model of service quality and service satisfaction: compatible. Advances in Service Marketing and Management, 2, 65-85

Schiffman, L., & Kanuk, L. (2004). Consumer Behavior. Upper Saddle: Prentice Hall Publications.

Zineldin, M. (2000). TRM: Total Relationship Management, Lund: Studentlitteratur.

Atkinson, A. (1988). The Cornell Hotel and Restaurant Administration

Wikipedia,      2014   Customer  satisfaction.   (n.d.).   Retrieved     March      18,

http://en.wikipedia.org/wiki/Customer_satisfaction

Levesque, T., & McDougall, G. H. G. (1996). Determinants of customer satisfaction in retail banking. International Journal of Bank Marketing, 14(7), 12-20

Oliver, R. (1993). A conceptual model of service quality and service satisfaction: compatible. Advances in Service Marketing and Management, 2, 65-85

Schiffman, L., & Kanuk, L. (2004). Consumer Behavior. Upper Saddle: Prentice Hall Publications.

Zineldin, M. (2000). TRM: Total Relationship Management, Lund: Studentlitteratur.

Atkinson, A. (1988). The Cornell Hotel and Restaurant Administration

Wikipedia,      2014   Customer  satisfaction.   (n.d.).   Retrieved     March      18,

http://en.wikipedia.org/wiki/Customer_satisfaction

LITERATURE REVIEW - Factors Influencing the Job Satisfaction

This chapter consists of past research articles which are related to the job satisfaction and influences as well as theories relevant to the concepts. In this process, the researcher examined some books with few found by the researchers.

There are various literature that illustrate the relation between some factors and the satisfaction of the employees and also there are different satisfaction definitions in literature, Job satisfaction shows how much an employee likes his work as well as the level of his preoccupation with work. Generally, it can be stated that job satisfaction is a sense of comfort and positive experience that an employee have related to his job. Job satisfaction can affect work behavior, and through that, the organizational performance. For a long time job satisfaction has been viewed as a unique concept, but today it is seen as a very complex cluster of attitudes towards different aspects of the work (Rollinson et al., 1998).Therefore, the definitions of job satisfaction should include a variety of factors such as nature of work, salary, stress, working conditions, colleagues, superiors, working hours etc.

Suhalia and Azeem (2014) have investigated the Dynamics Influencing Job Satisfaction of Employees in Indian Banking Sector. For the study, the data of 425 respondents have been collected through questionnaires. The variables considered in this research include Working Condition, Salary, Promotion, Training and Co-worker relation. The results of the research shows that the employees employed in Banking Sector in Uttar Pradesh are satisfied with their jobs. The factors which are considered for the study are Interpersonal Relations and Working Conditions intrinsic to the job and motivated them which were the recognition, work itself, advance opportunities and possibility of growth. It has been recommended by the results of this study that the Offer better pay package, improve the working conditions, Avoid Verbal abuse and Foster a sense of belongingness among the employees by arranging get-together, picnic etc. If the above factors are considered by the management of banking sector, it would not only improve the quality of their institution, job satisfaction and quality of work life of the employees, but in an indirect way improve the inputs for the customers be it, computer applications or business administration which might be pursued by the employees after their training completion.

Suman and Ajay (2013) have investigated the Job Satisfaction among Bank Employees as A Comparative Study of Public Sector and Private Sector Banks. For the study, the data of 110 respondents have been collected through of different age group, education level, income and designation used in simple random sampling covers four Commercial Banks in all, taking two from Public Sector namely State Bank of India and Canara Bank and two from Private Sector, HDFC and Axis Bank. The variables considered in this research include Pay and Fringe Benefits, Co-workers, Employees Empowerment, Supervision, Performance Appraisal, Nature of Job, Employee Participation and Training and Career Development. It has been observed from the results that significant difference exists between employees of Public Sectors Banks (PSBs) and Private Sector Banks (PVSBs) regarding pay increments, Training & Development, Supervision. No significant difference has been found regarding various aspects of relation with co -workers, empowerment, performance appraisal and employee participation which indicates that employees of both PSBs and PVSBs feel same level of satisfaction in their organization. The researcher has suggested that Public Sector Banks can increase the satisfaction of their employees by increasing the pay increments, and employee empowerment, PSBs have lower level of satisfaction with training and development facilities, these Banks should take steps to improve training and opportunities for career advancement to increase the level of satisfaction employees of PSBs it is necessary to improve policy for career development.

Sonia and Priyanka (2014) performed an analysis of job satisfaction in CE Infosystems Pvt Ltd. The researcher has selected employees of CE Infosystems Pvt Ltd. The main dimensions examined influence a person’s level of job satisfaction like level of pay, perceived fairness of the promotion system within a company, work place conditions, leadership and relationships with superiors, subordinates and peers and the job itself. It has been recommended that Empirical findings of this study suggest that job characteristics such as pay, task clarity and significance, opportunities for promotion and skills utilization, as well as organizational characteristics such as commitment level and relationship with the supervisors, subordinates and co-workers, have significant effects on job satisfaction.

Rashid et al. (2013) scrutinize the level of satisfaction of the employees in various telecom companies Ufone, Zong, Telenor, Warid telecom, Pakistan Telecommunication and Mobilink in Pakistan. The researchers have considered the significance of factors such as working conditions, pay and promotion, job security, fairness, relationship with co-workers and supervisors in affecting the job satisfaction. As their sample size comprises 200 telecom sector employees. The results of the research shows that the factors affecting job satisfaction were very well explained and in order to make business better great care and attention should be given to the employees. From the promoting, pay, fairness and working conditions. The importance of money in this case should not be underestimated. Everybody needs money. All employees work so that they can earn money. The best services can only be achieved through satisfied employees and so in short, an organization’s performance, to quite a big extent, depends on fairness.

Dissanayake and Wickremasinghe empirically investigate the impact of Hygiene and Motivation Factors on job satisfaction of bank executives (junior and middle level) of Commercial banks in Western Province, Sri Lanka. The data collection for this research has been done by considering 200 respondents. The results of the study reveal that 85% of the variance in job satisfaction is significantly explained by hygiene and motivation factors. Advance, the study reveals that except for salary, benefits, working condition, relationship with peers and growth, other hygiene and motivation factors are not significant predictors of the job satisfaction. It is recommended in this study that the banks should focus on hygiene and motivation factors very seriously when crafting and executing new strategies. This will ensure that the banks remain sustainable and continue to make a positive contribution to Sri Lankan economy.

Annabel and Jill (2007) have performed a study on the factors of Job satisfaction of managers in Cyprus. The variables included in the research are Self-fulfillment, Independence, and Job environment. The sample size of the study is 300 respondents. The results of the study show that the impact of independent variables (gender, age, public sector versus private sector, number of employees supervised, and service versus manufacturing industry) are evaluated, it appears that Cypriot employers have some issues to consider. Also it revealed that managers in the private sector are more satisfied regarding self-fulfillment factor than public secto

managers, executives of public sector companies should review policies in Cypriot private companies to see if changes could be made to improve satisfaction on self-fulfillment issues for managers in public sector organizations. It has been recommended by the results of this study that the some managers have inadequate numbers of employees to get the job done. Additionally, it is possible that higher numbers of employees allows more work to be shared so that managers feel more control over their daily work and have to work fewer hours to get the job done. If they can develop some approaches to increasing job satisfaction of managers, companies will likely have less absenteeism and turnover among managers and will also develop managers’ interests in meaningful work in ways that will enhance company success.

Emmanuel et al. (2015) have examined the factors affecting job satisfaction of employees in the local building construction industry in Ghana. The sample is composed of 158 employees working in selected construction organizations in the Ashanti Region of Ghana. The results of the study show that non-wage based factors such as recognition, task itself, work environment, supervision and job security appeared to influence job satisfaction than wage paid to the employees in the construction sector. It has been recommended by the researchers that the Managers in construction supply chain should make policies and incorporate factors that allow employees to achieve their high-order individual goals in job design to secure employee’s loyalty and improve productivity.

Nurul Kabir (2011) have examined the Factors Affecting Employee Job Satisfaction of Pharmaceutical Sector. The sample is composed of 285 people who are the Beximco & Apex Pharma are selected to collect primary data and the researcher visited each pharmaceutical to talk informally with pharmaceutical officials for collecting information regarding job satisfaction to investigate on the significance of factors such as working conditions, pay and promotion, job security, fairness, relationship with co-workers and supervisors in affecting the job satisfaction. The results of the research demonstrate that work conditions, fairness, promotion, and pay, are key factors affecting pharmaceuticals companies employees’ job satisfaction. It has been suggested that for future research a proportionate stratified random sample be used to compare several public sector institutions using a larger sample and the research is needed to further investigate the potential relationships and affects these variables

and other extraneous variables, such as role ambiguity, job level, contingent rewards and co-work have on job satisfaction.

Samina Qasim et al. (2012) have conducted the research on exploring factors affecting employees’ job satisfaction at work in Pakistan. The objective of this study was to find out which factor is contributing to the highest level of job satisfaction and identify the most satisfying and least satisfying factor selected in the study. The data has been collected by using random sampling method of 40 employees out of 100 employees while data has been analyzed by applying Regression, ANOVA and Correlation tests. Researcher have used work environment, remuneration, promotion and fairness of treatment as factors affecting to employees’ job satisfaction. The researcher has found that among four factors work environment has the highest magnitude that is contributing towards the highest level of job satisfaction of a multinational company's employees of Pakistan.

Khalid I. Alshitri (2013) studied that what the factors are affecting to job satisfaction among R&D employees in Saudi Arabia. Researcher used 432 employees in public research and development (R&D) center in Saudi Arabia as his sample in order to collect data by using structured questionnaires. Further researcher has considered five factors namely pay, promotion, supervision, coworkers, and nature of work which can be influenced to job satisfaction and intention to stay in the company. In this study data has been analyzed by using SPSS based on descriptive and inferential statistics while Pearson-product moment correlations, multiple regression, and hierarchical multiple regression analysis were performed to test the research hypothesis. The major findings of this study said that pay has direct effect on overall job satisfaction and indirect effect on intentions to stay through overall job satisfaction as well as promotion has direct effect on overall job satisfaction while supervision, co-workers, and nature of work have direct effects on both overall job satisfaction and intentions to stay among R&D center employees.

Bidyut and Mukulesh (2014) have examined the factors influencing employee’s job satisfaction of auto mobile service workshops in India. Data have been collected from 100 respondents in 10 auto mobile manufacturing companies. Researcher have used the Pearson correlation and T-Test and Anova Test as the statistical tools for the study while considering

four key variables namely Compensation, work environment, supervisor support and job security as the factors that can be affected the employees’ job satisfaction of the auto mobile manufacturing industry. The conclusion of the study revealed that salary is the most important factor for influencing job satisfaction of employees. Apart from salary, it has been found that the influence of supervisor support, healthy working environment, high job satisfaction level, proper work-life balance, career opportunities and promotion, proper training and development opportunities are also very important factors for determining employee’s job satisfaction

Luthan (1998) theorized that there are three important dimensions to job satisfaction:

 Job satisfaction is an emotional response to a job situation. As such it cannot be seen, it can only be inferred.

 Job satisfaction is often determined by how well outcome meet or exceed expectations. For instance, if organization participants feel that they are working much harder than others in the department but are receiving fewer rewards they will probably have a negative attitudes towards the work, the boss and or coworkers. On the other hand, if they feel they are being treated very well and are being paid equitably, they are likely to have positive attitudes towards the job.

 Job satisfaction represents several related attitudes which are most important characteristics of a job about which people have effective response. These to Luthans are: the work itself, pay, promotion opportunities, supervision and coworkers.

Influences on Commitment and Employee Satisfaction

An IRS survey (IRS, 2004) established that the following were the top five influences on employee satisfaction and commitment and employee satisfaction:

1. Relationship with manager – 63 per cent.

2. Relationship with colleagues – 60 per cent

3. Quality of line management – 62 per cent.

4. Recognition of contribution – 56 per cent.

5. Leadership: visibility and confidence – 55 per cent.

(Source: Michael Armstrong, 2006: pp. 279-280)

Theories relevant to Job Satisfaction

Abraham Maslow’s theory of Motivation (The Hierarchy of Needs)

Maslow (1954) outlined the most influential of content theories. He suggested a hierarchy of needs up which progress. Once individuals have satisfied one need in the hierarchy, it ceases to motivate their behavior and they are motivated by the need at the next level up the hierarchy. It's like a step progress, because when feel satisfied one step every one try to move next step of the hierarchy.

1. Physiological needs such as hunger and thirst are the first level on the hierarchy.

2. Security needs such as shelter and protection.

3. Social needs such as need for satisfactory and supportive relationships.

From these needs, the individual can move up the hierarchy to higher order needs.

4. Self – esteem needs for recognition and a belief in oneself is the next level.

5. The progression leads to the need to realize one’s full potential, which is termed self – actualization. Only a small proportion of the population achieves this level.

This theory was not intended as an explanation of motivation in the workplace; however, many managerial theorists have enthusiastically adopted it. The theory suggests that employees will always tend to want more from their employers. When they have satisfied their subsistence needs, they strive to fulfill security needs. When jobs are secure they will seek ways of satisfying social needs and if successful will seek the means to the ultimate end of self – actualization.

Gary Dessler says about Maslow’s hierarchy needs in his HRM book that “Maslow, later in his career, suggested it might be more useful to think of his five needs as comprising a two-step not a five-step hierarchy. The bottom rung contains needs best satisfied by things like extrinsically supplied job security and food and shelter. The second, upper rung contains needs for achievement and self-actualization, needs best satisfied by intrinsic rewards like the sense of achievement one derives from doing a challenging job and doing it well.” (Gary Dessler, 2006: p. 440)

Herzberg’s Two-Factor Theory (Motivator-Hygiene Theory)

Figure 1 indicates several factors led persistently to employee satisfaction, while some others led persistently to dissatisfaction. The satisfiers were called ‘motivators’ and dissatisfies

‘hygiene factors’. Motivators appeared to be closely connected to the job, whilst hygiene factors were connected with the environment. Motivators appeared to produce motivated behaviour. However, hygiene factors produced either dissatisfaction or a nil response

Note: The depth of each ‘box’ denotes the relative duration of the good or bad feelings about the job;

a) That motivators have their negative aspects, eg. Lack achievement can lead to dissatisfaction , and

b) That hygiene factors have their positive aspects, eg. Salary can be a source of satisfaction.

(Source: G.A.Cole, Personnel Management – Theory and Practice, 4th edition, 1997, p.78)

GLOSSARY OF KEY TERMS

Job – The name given to a particular set of tasks allocated to a particular individual or position.

Job Satisfaction- Contentment (or lack of it) arising out of interplay of employee's positive and negative feelings toward his or her work.

Benefits – Indirect financial and non-financial payments such as pensions, sickness payments, company cars etc., which are additional to earnings; sometimes known as ‘fringe benefits’.

Career – The occupational positions a person has had over many years.

Career Development - The lifelong process of managing your or your employee's work experience within or between organizations.

Competencies – Person’s ability to perform a task to an externally agreed standard, set by the organization or third party. Demonstrable characteristics of a person that enable performance of a job.

Competitive advantage – Any factors that allow an organization to differentiate its product or service from those of its competitors to increase market share.

Culture (organization) – Collection of shared values which provide employees with explicit and implicit signposts to what has come to be regarded as preferred behaviour in the organization.

Executive – A person who responsible for the administrative of a business, having the functions of carrying out plans or orders etc. Someone who manages a government agency or a department.

Empowerment – Granting employees’ greater discretion over how their jobs are done or their responsibilities fulfilled at the appropriate level.

Human Resource Management – The policies and practices involved in carrying out the “people” or human resource aspects of a management position, including recruiting, screening, training, rewarding and appraising.

Leadership – A process within groups in which one person, either by virtue of position or personality or both, obtains sufficient commitment of the other members to facilitate the achievement of group goals.

Leadership style – A term used to describe the manner in which a person exercises leadership, especially in relation to their treatment of people and tasks.

Management process – The five basic functions of planning, organizing, staffing, leading and controlling.

Coworkers – The degree to which fellow workers are technically proficient and socially supportive.

Motivation – The processes, both instinctive and rational, which occur in an individual when seeking to satisfy perceived needs and wants.

Motivators – These are factors arising from a person’s experience of a job, such as achievement and intrinsic job interests which cause that person to become motivated to put effort into the job.

Work Itself - Becoming self-aware, self-monitoring and self-correcting; Knowing what you need to do; Taking the initiative rather than waiting to be told what to do; Doing what is asked to the best of your ability, without the need for external prodding, and working until the job is completed and Learning to work at a pace that you can sustain.

Organization behaviour – The study of the way individuals and groups behave at work. Individuals and groups interaction with their environments and the conduct of change.

Personality – The unique pattern of attitudes, predispositions and behaviour possessed by an individual.

Performance management – Managing all elements of the organizational process that affect how ell employees perform. Assurance that employees are working toward organizational goals.

Policy – A statement of the manner in which work activities are to be pursued, thus contributing to the development and implementation of a set of dominant values in an organization.

REFERENCES

1. Abdul Latif, Z.U.A., 2012. “Training and development in telecom sector of Pakistan”. Am. J. Sci. Res., 79: 24-39.

2. Alshitri, K.I., 2013. “An Investigation of Factor Affecting Job Satisfaction among R&D Center Employees in Saudi Arabia”, Journal of Human Resources Management Research, Vol. 2013.

3. Annabel Droussiotis and Jill Austin (2007), “Job satisfaction of managers in Cyprus”, Euro Med Journal of Business, Vol. 2 No. 2, pp. 208-222.

4. Armstrong, Michael. (2006). A Handbook of Human Resource Management Practice. (10th Edition). New Delhi: Kogan Page India Pvt. Ltd.

5. Brill, M (1990). Workspace design and productivity. Journal of healthcare forum, 35 (5), pp 51-53.

6. Demet Leblebici (2012). “Impact of workplace quality on employee’s productivity” Journal of Business, Economics and Finance pp 38- 49

7. Dessler, Gary. (2006). Human Resource Management. (10th Edition). New Delhi: Prentice Hall of India Pvt. Ltd.

8. Dissanayake, D.R. and Wickremasinghe, M.T.P. An Empirical Study on the Impact of Hygiene and Motivation Factors on Job Satisfaction of Bank Executives in Western Province, Sri Lanka. Department of Human Resource Management.

9. Emmanuel, K.A., Isaac, O., Stephen. O., (2015), “Factors Affecting Job Satisfaction of Employees in the Construction Supply Chain in the Ashanti Region of Ghana”, Department of Procurement and Supply Chain, Faculty of Business and Management Studies, Ghana Education Service, Vol.7, No.6.

10. John, P. Kotter. (1998). Harvard Business Review on Leadership, What Leaders Really Do. USA: Harvard Business School Press.

11. Lane, K.A., et al., 2010. A study of nurse faculty job satisfaction in community colleges in Florida, European Journal of Management and Research, pp: 16-26.

12. Lise M. Saari and Timothy A. Judge (2004) “Employee attitudes and job satisfaction” Human Resource Management, Vol. 43, No. 4, pp. 395-407.

13. Luthans, Fred. (1995). Organizational Behaviour. (12th Edition). Singapore: McGraw-Hill Book Co.

14. Mosammod Mahamuda Parvin and Nurul Kabir, m.m. (2011), “Factors Affecting Employee Job Satisfaction of Pharmaceutical Sector”, Australian Journal of business and management research, vol.1 no.9, pp. 113-123.

15. Neog, B.B., Neog, M., (2014), “Factors Influencing Employee’s Job Satisfaction: An Empirical Study among An Employees of Automobile Service Workshops in Assam”, The Standard International Journals, Vol. 2, No.7.

16. Opatha,H.H.D.N.P.(2009), Human Resource Management, University of Sri Jayewardenepura ,Sri Lanka

17. Qasim, S., Cheema, F. and Syed, N.A. (2012), “Exploring Factors Affecting Employees' Job Satisfaction at Work”, Journal of Management and Social Sciences, vol.8, No1, pp. 31-39

18. Rashid, S., Rab, N.L., Anam, I., Hafiza, H.N., Shireen, M.,and Somia Y.(2013), “Factors Influencing Job Satisfaction of Employees in Telecom Sector of Pakistan”, Middle-East Journal of Scientific Research, 16 (11): 1476-1482.

19. Robert, L. Mathis, & John, H. Jackson. (2003). Human Resource Management (10th Edition). Malaysian: KHL Printing Co.

20. Rollinson, D., Broadfield, A., & Edwards, D. J. (1998). Organizational Behavior and Analysis, an Integrated.

21. Shruti Sehgal (2012) “relationship between work environment and productivity” / International Journal of Engineering Research and Applications (IJERA) ISSN: 2248 9622 Vol. 2, Issue4, pp.1992-1995

22. Sonia Lohia and Priyanka Bedi (2014), “An Analysis of Job Satisfaction in CE Info systems Pvt Ltd”, Global Journal of Finance and Management, Volume 6, pp. 691 -696.

23. Stephen, P. Robbins. (2000). Organizational Behaviour. (9th Edition). New Delhi: Prentice Hall of India Pvt. Ltd.

24. Suhalia Parveen and Azeem Ahmad Khan (2014), “Dynamics Influencing Job Satisfaction of Employees- A Study of Indian Banking Sector”, International Journal of Management and Commerce Innovations, Vol. 2, Issue 2, pp: 212-224.

25. Suman Devi and Ajay Suneja (2013), “Job Satisfaction among Bank Employees: A Comparative Study of Public Sector and Private Sector Banks”, International Journal of Research in Management, Science & Technology, Vol. 1; No. 2.

contact us ,

writing service- worldwide

slmasterhelp@gmail.com  +94788217352

Literature review for Relationship of Dividend Payout and Firm Performance

CHAPTER TWO

LITERATURE REVIEW

2.0. Introduction

The benefits accruing from shareholders’ investments from their business ventures are regarded as dividends. Thus, Colombo Stock Exchange dividend policies provide the firms the important parameters, guidelines, and limitations on the way the firms can divide its earnings between the retained earnings and dividend payouts for them to optimize their values. Therefore, this literature identifies the factors that are taken into account to analyze comparatively the dividend policy. Moreover, dividend policy is basic to all the managerial and financial strategies determining an organization’s sustainability in the long run as a going concern. According to Rustagi (2001), a firm’s primary objective is the maximization of shareholder’s wealth by optimizing the prices of the shares. Moreover, the potential firm’s value is affected by financial, investment, and dividend decisions made by the decision makers. However, the decisions on ratios that are used in the allocation of net earnings between retained earnings and dividend payout have implications on the financial strength of firms and risks. (Howett et al., 2009). Thus, the effect of this factors cascades to most of the firm’s operational centers hence benefits of dividend policy. According to Grullon and Michaely (2002), systematic risks 

This chapter, therefore, reviews the literature on the relationship between dividend policy and firm performance in the industrial sector in Sri Lanka. Moreover, review of this research is important in defining dividend policy and the firm performance of industrial sector vise. This comprises the definitions of dividends, dividend policy, dividend payout, and firm performance. Furthermore, firm performance and the relationship between firm profitability and dividend payout are also discussed. In addition, the theoretical framework, empirical review, dividend policy and firm performance in the industrial sector vise listed on the Colombo Stock Exchange, a research gap, and the conclusion are analyzed.

2.1. Dividends

The profit portion after tax distributed among firm’s shareholders is referred to as the dividend either in form of cash or stock (Rustagi, 2001). Moreover, dividends are viewed as benefits that accrue to owners as a return of investing into a business venture. However, other firms might dividends to the owners as interim which is paid in parts throughout the year or final dividends paid immediately after the year ends (Rustagi, 2001).  According to Ajanthan (2013), the dividend is important in decision making because it gives the predictions about the number of transferred funds to the investors and the earnings retained in a firm to help in future investment. Moreover, dividends also help risk-averse investors to maintain the quality and performance especially if the firm operates in a highly competitive business environment (Rustagi, 2001). Furthermore, dividend decisions have become of great significance since it helps a company in deciding the portion to be kept as retained earnings and the portion to be transferred to the shareholders in order to maintain the attraction of the firm from the outside world (Dhanani, 2005).

2.1.1. Dividend policy

The decision on allocation of dividends is the most important decisions in the finance sector. Furthermore, dividend policy is the most significant factor in the corporate finance. Moreover, many firms take dividends as the major cash expenditure (Beasley, 2016). However, the decisions on dividends are very important as they determine the funds flowing to the investors or retained by the organization for their future investments (Jaffe, Ross & Westerfield, 2002). Therefore, dividend policy is the guidelines and regulations used by a firm in making decisions on how to pay the shareholders their dividends (Nissim&Ziv, 2001). According to Beasley (2016), dividend policy is important as it delivers information to the shareholders about the financial performance of the firm.

Firm’s dividend policy has its advantages and disadvantages for the managers, lenders, and the investors. The declared or the accumulated dividends provided at a later date are a source of steady income to the investors and also a key input in the process of income valuation of the firm. In the same way, the flexible nature of managers in investing in projects depends on the number of dividends they give their shareholders because of the more the dividends, the fewer the funds to invest. Moreover, lenders may want to know the number of dividends declared by a firm since the more the dividends, the less the amount for redemption and servicing of their entitlements (Rustagi, 2001). Furthermore, dividend policy affects the firm’s cost of investment (Amidu, 2007). Furthermore, dividend policies show the dividend disbursement ratios in the company and thus it yields to the emerging economy. Additionally, dividend policy also gives the investors the financial performance of the firm.

The major determinants of dividend policy are the dividend payout, dividend cover, and the dividends per share. However, dividend payout is different from dividend policy since it is one of the major determinants of dividend policy of a firm.  Dividend policy is the set of regulations and guidelines used by a firm uses in deciding the number of earnings to allocate to the shareholders (Amidu, 2007). However, the dividend payout ratio shows the ratio of the total amount of funds allocated to the shareholders relative to the firm’s net income (Beasley, 2016).

2.1.2. Determine the factors influencing dividend policy and dividend payout

According to Pruitt and Gutman (1991), factors influencing dividend decisions are the current and past year’s profits, earnings variability, and earnings growth earlier before dividends. Moreover, a review done on factors related to the previous studies shows that there are many factors that can influence the dividend decisions made by firms regarding dividend decisions. These factors include flow considerations, returns on investment, after-tax earnings, liquidity, future earnings, past dividend practices, inflation, future growth projection, interest, and legal framework. According to Amidu (2007), said that the dividend paid by the company is directly proportional to the size of the firm. This showed that the dividend paid by a firm to the shareholders is a function of the size of the firm. Moreover, Howett et al. (2009) said that there is a positive relationship between dividend payout and the cash position of a firm as changes in the dividend policy might be related to firm’s liquidity. Therefore, liquidity affects dividend policy and payout ratio because when dividends paid to the shareholders in cash, it means that cash must be available to shareholders.

2.2. Firm performance

Performance is making something successful using the available resources. Moreover, performance deals with outcomes, results, and achievements achieved by an individual group, or an organization. Pradhan (2003) defined on the other hand defined performance as a progressive achievement of tangible, specific, measurable, worth will, and personally meaningful goals. In other instances, people define performance based on the financial aspects of the firm. However, in finance, performance is viewed as the way a firm enhances its shareholders’ wealth and their capabilities to generate earnings from the invested capital to the shareholder’s. Priya and Namalthasan (2013) said that firm performance can be measured in ways that include profitability, cash flows, sales growth, and the book value. Firm profitability describes the amount of wealth a firm makes after paying after payment of all its expenses and charges (Dhanani, 2005). The higher the profits of the firm the better its financial performance and the lower the profits the poor the performance. Moreover, profitability can be measured by the net profit, return on assets, and return on equity.

2.2.1. Measures of analyzing firms performance

According to Pani (2008), there are three broad measures of organizational performance namely accounting, market, and hybrid measures.

Accounting measures

The accounting measures that might be helpful that might be used to evaluate business performance are the return on assets, return on sales, return on equity, return on investment, return on capital employed, and the sales growth. These measures are used widely due to the fact that the government demand firms to publish their accounting data and internal controls promote reliability (Paviththira, 2014).  Moreover, these measures are easy to calculate and they also integrate organizational results into less complex metrics (Dhanani, 2005). In addition, the accounting measures are used by managers to monitor the performance of a firm and making strategic decisions (Rustagi, 2001). However, accounting measures focus on historical performance and not future performance thus limiting the use of the measure by organizations.

Market measures

Market measures can be divided into two groups, shareholder-value, and competition-based measures. The shareholder-value measures propose that firms need to optimize investment capital used thus maximizing returns gained from both investments in both the short and long run. This has resulted in financial measures based on shareholders to incorporate debt and equity capital (Amidu, 2007). On the other hand, the competition-based measures is an economic theory that suggests an organization can increase its sales through its ability to become more efficient and to lower its prices through the use of modern technology (Howett et al. 2009). This will help them to overcome competition. The competition measures that can be used to compare firm performance are market share, labor productivity, and the sales per employee (Amidu, 2007).

Hybrid measures

Hybrid measures that have the ability to overcome all drawbacks and keep the advantages of accounting and market measures should be used to measure firm performance. Tobin’s q may be used to measure the market value of the firm relative to the value of the total assets (Nissim&Ziv, 2001). The Altman’s Z-score might also be used to indicate the likelihood of bankruptcy (Beasley, 2016). However, although the two measures provide the information on risk and future contingencies that are likely to occur in a firm, they might also be volatile over the periods.

2.3. Firm profitability and dividend payout relationship

The performance of a firm is measured by the generated earnings of the company in form of profitability. Therefore, there has been a considerable literature on the relationship between profitability and dividend policy. Thus, dividends are significant to both shareholders and the potential investors and illustrate the earnings generated by the firm. Furthermore, health dividend payouts show that a company is generating real earnings. Zhou and Ruland (2006) found out that when dividend payout is high, firms experience strong earnings in the future but a moderately low past earnings growth rate despite the contradicting findings from market observers. The study done by Arnotte and Asness (2003) revealed that the growth in earnings in the future is associated with high dividend payout and not a low ration. The conclusion was that from past pieces of evidence, expected earnings growth is faster with high current payout ratios and slow with low payout ratios. However, Nissim and Ziv (2006) argued that there is no important relationship between dividends and earnings in the long run. Moreover, other studies that support this association have been done on short periods thus misleading the investors. The two researchers proposed three situations that reduce to insignificant the relationship between dividends and the future earnings.

The first illustrated that a dividend increase leads to a decline of funds to be re-invested into the firm. Thus, those firms that pay high dividends and not considering the needs of the investments experience lower earnings in the future (Nissim&Ziv, 2006). Therefore, this shows that there is a negative relationship between dividend payout and retained earnings. Furthermore, a slight increase in dividends might be as a result of the policies of the management to satisfy investors and stop them from selling stock during the period where the expectation is that the future earnings will decline or current ratios to continue (Nissim&Ziv, 2006).  Thus, this is the incident of rising dividends preceded by declining dividends. Additionally, an increase in dividends may result from good performance during the past periods and might even continue into the future. Thus, this supports the opinion of a positive casual association between dividends and future earnings. From these situations, they claim that the general long-term relationship is insignificant because there exists a positive relationship between future earnings and dividends during other periods and a negative relationship in some other periods.

Pruitt and Gitman (1991) showed that the increase in dividends is directly proportional to future earnings in each of the years after the changes in dividends. They found out that the increase and decrease in dividends are asymmetric. Thus, dividend the increase in dividends is associated with the future firm profitability for at list two years after the changes in the dividends. However, a decrease in the dividends has no relationship with the future profitability after the control of the current and expected profitability. Moreover, they propose that the lack of association is described by conservation in accounting. Thus, they concluded that there is a stronger positive relationship between the dividend payout and the future earnings, especially for the abnormal earnings. 

Amidu (2007) studied the effects of divided policies on firm performance more so the profitability measured in terms of return on assets of firms listed in the Ghana Stock Exchange. The findings revealed a positive relationship between the return on assets, sales growth, return on equity, and dividend policy. This confirmed that a firm’s profitability is influenced by its policy for dividend payment. Moreover, the results showed that there is a statistically important relationship between firm profitability and the dividend payout ratio. Furthermore, Howatt et al. (2009) said that the positive changes in firm performance come from the positive changes in the future in the earnings per share.

In a study by Uwalomwa, Jimoh, and Anijesushola (2012) that investigated the relationship between dividend payout and firm performance among the firms listed in Nigeria Stock Exchange, it was concluded that the ownership structures and the size of the firm have a positive impact on dividend payout. The variables were firm size, dividend payouts, and the ownership structures. Additionally, they found out that there is a significant positive association between firm performance and the dividend payout of firms in Nigeria. 

Dhanani (2005) study showed that dividend policy is significant in shareholder value maximization. Furthermore, the study revealed that the dividend policy of a firm has an influence on the imperfections in the real world such as agency problems, taxes or the information asymmetry between managers and the shareholders. However, in an imperfect market, dividends have an influence on shareholders’ wealth through the provision of information to investors or the redistribution of wealth among the shareholders (Dhanani, 2005). Moreover, a firm’s policy considers the different circumstances of the shareholders thus enhancing the value of the firm to the shareholders (Dhanani, 2005). However, firms formulate their dividend policies to meet shareholders’ needs depending on their preferences.

Thus, the dividend does not provide information themselves about future earnings but create a custom drawn to the firms with the dividend policy they prefer. Moreover, most firms make their dividend policies depending on shareholder’s preferences for the dividends (Amidu, 2007). However, other shareholders may prefer cash dividends, other prefer stability dividends while others might prefer capital gains that are earned re-investment of dividends and therefore there are no cash dividends (Howatt et al. 2009). The theory of bird in hand since investors may see dividends as a more current and certain return than the capital gains. Additionally, the tax preferences of individual investors influence their preferred dividends. However, investors who are afraid of high taxes prefer low or no dividend payouts with the intention of reducing the taxable income hence preferring the capital gains (Howatt et al. 2009). Thus, firms that meet investors’ needs are likely to get a higher share price premium thus enhancing the value of the firm. However, according to (Amidu, 2007), if the investors move to other firms that can pay them dividends matching their needs, the firms’ value should not be affected by the dividend policies. Therefore, the value and performance of a firm are enhanced by higher returns from optimal investments. Furthermore, dividend payments pressurize firms to increase the external funds to be used for new investments in increasing the level of external monitoring of the corporate market activities corporate acts (Atrill, 2006).

2.4. Theoretical Review

Many kinds of literature have been studied on dividend policy and firm performance in order to get a clear understanding of the relationship between the two factors. Subsequently, this study has established the necessary which has established the relationship between the two variables. Therefore, this chapter provides an understanding of some of the most important concepts about dividend policy and firm performance. Furthermore, this chapter reviews theories that prove the association of dividend policy on the firm performance essential to this study. Therefore, it discusses the agency theory, signaling theory, trade-off theory, bird-in-hand theory, and the dividend irrelevance theory.

2.4.1. Agency Theory

This theory assumes that a firm is a collection of a group of individuals with interest that conflict each other and self-seeking motives. According to Jensen and Meckling (1976), an agency relationship is a contract where one person referred to as the principal engages another person referred to as the agents to do a service on their behalf including delegation authorities involving decision making. However, conflicts may arise between the principal and the agent wherever is an agency relationship. This conflict arises when the management makes decisions which are not in the best interest of the shareholders. Therefore, these conflicts might lead to an increase in agency costs. Thus, in case of occurrence of such cases, firms usually prefer to increase the dividends and reduce their agency costs through the distribution of the cash flow. According to Ajanthan (2013), dividend payout ratios are explained by the reduction of costs when the firm increase its dividend payout. Amidu (2007) says that the agency theory makes sure that managers maximize wealth attributed to the shareholders rather using them for their own personal benefits.

2.4.2. Signaling Theory

This dividends theory was developed by Miller and Rock (1985) and it states that dividends provide the information about a firm’s future earnings. This theory, therefore, supports the notion that can conclude the information about the future status of a firm and the cash flows on the bases of the announced signals of firm’s dividends considering both the stability and changes in dividends. Therefore, there is a positive reaction due to an increase in dividends and a negative reaction with a decrease in dividends. Moreover, the theory agrees with the fact that dividend policy affects the performance of a firm positively.

Miller and Modigliani (1961) on the other hand argues that the top management of a firm possess all information about firm’s strategies and operations and thus they are in a position to give a clear forecast of firm’s earnings in the future. Therefore, due to this fact, an information asymmetry can occur making investors translate everything the company does as a sign of the future earnings and thus dividends acts as a signal of the performance of the firm in the future. According to Griffin (1976), dividends carry the information to investors and to the market on the firm’s financial performance even the sign might not be perfect. Thus, the reaction of the investors on the changes in the dividend policy does not mean that the investors prefer dividends from retained earnings. However, they indicate the important information in announcements of dividends.

2.4.3. Bird in the Hand Theory

According to Gordon (1963), this theory states that dividends are relevant in assessing the value of the firm. This theory bases its assumption on the belief that dividend is valued differently from earnings in the world of imperfection and uncertainty. Furthermore, investors are viewed as rational beings as they prefer the “bird in hand” in the case of cash dividends. However, in the case of “two in the bush” in the case of capital to be gained in the future. Moreover, the theory proposes that there exist a relationship between firm value and dividend payout and that the risk associated with dividends is less compared to capital gains because they are more certain. (Amidu, 2007).

 According to Lintner (1956), dividend policy is developed from the need of investors to get annual returns rather than capital gains. Furthermore, it is challenging to leave the information about the decision on issuance of dividends to the directors and managers because investors have different views on cash dividends and capital gains. Thus, the investors would be forced to pay higher share prices where current dividends are paid. The current dividend payment reduces the uncertainty of investors thus resulting in high values for the firm. Therefore, investors will prefer the dividends on capital gains (Amidu, 2007). This is due to the fact that a higher dividend ratio reduces uncertainty about future cash flows while a higher payout ratio reduces the capital cost hence increasing the value of shares.    

2.4.4. Dividend Irrelevance Theory

The irrelevance theory is based on the unrealistic assumptions such as no taxes or brokerage costs. Investors are uninterested in dividends and retention of generated capital gains. According to Miller and Modigliani 1961), the firm value is not affected by its dividend policy in perfect market conditions. The theory of Miller and Modigliani (1961) assumes that the management of a firm is interested in the maximization of the value of the shareholder and that the corporate insiders and outsiders share the information on the operations and prospects of the firm.

2.5. Empirical Review

Ajanthan (2013) reviewed the relationship between dividend payout and firm profitability among firms listed in Sri Lanka. The findings illustrated a strong significant positive relationship between dividends payout and company performance. Furthermore, the dividend payout was the major factor affecting the performance of a firm.

In the study by Velnampy, Nimalthasan, and Kalaiarasi (2014) on the dividend policy and firm performance among manufacturing companies listed in Colombo Stock Exchange, there is a significant negative relationship between the two variables. Moreover, the study found out that the determinants of dividend policy are not correlated with the performance measure of a firm in an organization.

Prasangi and Wijesinghe (2016) reviewed the effect of dividend payout ratio on the future growth earnings of firms listed in the Colombo Stock Exchange. The findings demonstrated that payout ratio is positively linked to the future growth earnings and the relationship is significant over a period of time. Moreover, the study concluded that high dividend ratio influences one-year future earnings of firms listed in Sri Lanka.

Jafaru and Uwuigbe (2012) studied the relationship between dividend payout and firm performance on firms listed in the Nairobi Stock Exchange. In the study, the dividend payout was measured by the actual dividends paid whereas the firm performance was measured by net profit after tax. The findings showed that the dividend payout, firm size, and revenue have a strong positive relationship with the firms’ performance. They concluded that dividends are relevant and thus managers should dedicate most of their time to scheme a dividend policy that will heighten firm performance. However, this study has been criticized that it did not incorporate the future revenues thus ignoring the concept of the signaling theory that dividends might be useful in increasing profitability in a less costly manner.

Ashraf and Khani (2014) studied the dividend payout ratio as a function of some factors the case of Pakistan Service Industry in firms listed in Karachi Stock Exchange. They concluded that a negative relationship exists between the two variables. This means that the dividend payout ratio is not the function of corporate profitability, tax, sales growth, and cash flow except the debt to equity ratio.

Ahmed and Muhammad (2014) studied the determinants of dividends with industry wise effect. The findings showed there are other determinants of dividends apart of profitability and they include life-cycle factors and asset tangibility whereas capital structure, size of the firm, and cash flows per share do not significantly determine dividends.

2.6. The Conceptual Framework

The comparative analysis of the relationship between dividend policy and firm performance is examined in this research study. Furthermore, a conceptual framework that consists of independent variables of the dividend payout ratio and dividend per share is also examined. Moreover, the dependent variables are net profit margin, the return on investment, and the return on equity among listed firms listed in the Colombo Stock Exchange. In addition, this study is concentrated on a narrow scope to explain the kind of relationship that exists between dividend policy and firm performance in a changing business environment. Figure 2.1 shows the conceptual framework

Independent variableDependent variable

 

2.6.1. Dividend Payout Ratio

Dividend payout shows the relationship between the net income and the dividends paid to the shareholders (Atrill, 2006). This means that the ratio represents the number of the firm’s earnings paid to the shareholders as dividends. According to Ajanthan (2013), dividend payout is the number of funds paid to the stockholders in relation to the firm’s total net income. Thus, dividend payout is the percentage of the earnings that are paid to the shareholders in form of dividends. The dividend payout ratio is useful to the investors as it shows them how much of the firm’s profits go back to the shareholders (Rustagi, 2001). Furthermore, the dividend payout ratio indicates the financial health of a firm all the time (Beasley, 2016). According to Ajanthan (2013), investors’ view an increase in firm’s dividend payouts as good news but a decrease is expected to cause a negative reaction in the market. Old companies have higher dividend payout ratio because they have higher financial capabilities to pay more dividends to the shareholders (Priya&Nimalthasan, 2013). However, other companies especially the new ones prefer lower payout ratios for them to retain earnings to be used for the company growth.

 The payout ratio is calculated as:                        

                 = Annual dividends per share / Earnings per share

2.6.2. Dividend per Share

According to Howett et al. (2009), dividend per share is money that the company has declared to issue to its ordinary shareholders. Moreover, Beasley (2016) said that dividend per share measures dividend policy. Dividend per share is calculated by dividing the total dividends paid by the company by the number of issued ordinary shares. According to Dhanani (2005), dividend per share is important to the investors because they use the ratio in calculating their dividends from the shares owned over a certain period of time. The more the dividends per share, the higher the company growth (Rustagi, 2001). This is because the management of a firm believes that the increase in the ratio sustains their growth.

2.7. Conclusion

Dividend puzzle has become an enduring issue in finance and it is yet to be resolved. Researchers have described it as a puzzle that many researchers have tried to resolve for a long time. Uwalomwa, Jimoh, and Anijesushola (2012) concluded from their study that although many theories have been put across to determine dividends, the variable still remains one of the hard puzzles in the corporate finance. This dilemma has gone on and on as many schools of thought have had conflicting interpretation on whether investors favor capital gains or cash dividends. Therefore, in this case, the empirical studies have failed to give a conclusion to support the arguments on dividends’ relevance (Gordon, 1963). Furthermore, from the empirical review, researchers have contradicting finding on dividend policy and payout.  Ajanthan (2013) found out a significant positive relationship whereas Velnampy, Nimalthasan, and Kalaiarasi (2014) found out that dividend policy is not correlated with dividend policy. However, many studies have clearly shown that dividend policy is among the factors that affect the financial performance of a firm.

However, past reviewed literature shows that most researchers have put their concentration on the relationship between dividend payout and firm performance but only studied the payout ratio as the only factor on dividend policy. In Sri Lanka, few studies have analyzed the behavior of dividends on firms as well as the way the behavior of earning distribution affect the future performance of firms. Thus future researchers should not only look at the issue from not only the point of view of the distribution of earnings but also the forms and timing of industrial sector firms divided payments in Sri Lanka.

References

Ahmed, M., & Muhammad, F. (2014). Determinants of dividends with industry-wise effect: Evidence from KSE 100 Index, Journal of Management.

Ajanthan, A. (2013). The relationship between dividend payout and firm profitability: International Journal of Scientific and Research Publications, 3(6),

Amidu, M. (2007). How does dividend policy affect performance of the firm on Ghana stock Exchange? Investment Management and Financial Innovations, 4(2), pp. 104 – 112

Arnott, D. R., &Asness, S, C. (2003). Surprise higher dividends are higher earnings growth. Financial Analysts Journal, 3(6), pp. 70-89.

Asharaf, N., &Khani, W. (2014). In Pakistan Service Industry: Dividend payout ratio as a function to other some other factors, Economics Bulletin, 10(3).

Beasley, M. (2016). An empirical analysis of the relation between dividend payout and firm performance, 6(7).

Dhanani, A, (2005). Corporate dividend policy: The views of British financial managers. Journal of Business Finance and Accounting, 37(7, 8), pp. 1625-1672.

Gordon, M. J. (1962). The savings investment and valuation of a corporation. The Review of Economics and Statistics, pp. 37-51.

Grullon, G. &Michaely, R. (2012). Dividend share repurchases and the substitution hypothesis, The Journal of Finance, 57(4), pp. 1649-1684.

Howatt et al., B. (2009). Dividends, earnings volatility and information. Applied Financial Economics, 19(7), pp. 551 – 562.

Jensen, M., &Meckling, W. (1976). Theory of the firm: Managerial behavior, Agency cost, and ownership structure. Journal of Financial Economics,3(5), 305-360.

Lintner, J. (1956). Distribution of incomes of corporations among dividends, retained earnings, and taxes, The American Economic Review, 46(2), pp. 97-113.

Miller, M. H., & Modigliani, F. (1961). Dividend policy, growth, and the valuation of shares. The Journal of Business, 34(4), pp. 411-433.

Miller, M. H., & Rock, K. (1985). Dividend policy under asymmetric information. The Journal of Finance, 40(4), pp. 1031-1051.

Nissim, D. &Ziv, D. (2001). “Dividend changes and future profitability”, Journal of Finance, vol. 56 (6): 2111–2133.

Ross, S. A., Westerfield, R. W. & Jaffe, J. (2002). “Corporate Finance (6th ed.), shares”, Journal of Business, vol. 34: 411-433.

Pani, U. (2008). Dividend policy and stock price behavior in Indian Corporate Sector: A panel data approach. Retrieved from Indian Institute of Technology, pp. 1-29.

Paviththira, R. (2014).  Impact of Dividend Policy on Corporate Profitability: Proceedings of 12th International Conference on Business Management.

Pradhan, R. S. (2003). Effects of dividends on common stock prices: The Nepalese Evidence. Research in Nepalese Finance, Kathmandu: Buddha Academics.

Priya, K., &Nimalthasan, B. (2013). Dividend policy ratios and firm performance, a case study of selected hotels in restaurant in Sri Lanka. Global Journal of Commerce and Management Perspectives, 2(6), pp. 16-22.

Pruitt, S.W. and Gitman, L.W. (1991). “The interactions between the investment, financing, and dividend decisions of major US firms”, Financial Review, Vol. 26 (33); 409-30.

Rustagi R. P. (2001). Financial Management, Galgotia Publishing Company, p. 806.

Uwalomwa, U., Jimoh, J., &Anijesushola, A. (2012). Dividend Policy and Firm Performance: A Study of Listed Firms in Nigeria, Accounting and Management Information Systems, 11(3), PP. 442–454.

Velnampy, T. (2013). Corporate governance and firm performance: A study of Sri Lankan manufacturing companies. Journal of Economics and Sustainable Development, 4(3), pp. 228-235.

Velnampy, T., Nimalthasan, P., &Kalaiarasi, K. (2014). “Dividend Policy and Firm Performance”, Global Journal of Management and Business Research.

 Zhou, P. &Ruland, W. (2006).Dividend payout and future earnings growth. Financial Analysts Journal, 62(3), 58 – 69.