Dividend is that part of the earnings of a corporation that is distributed to its shareholders which is usually paid quarterly.

But why do companies pay dividends? In Finland, dividend policy has always been the main concern according to some few empirical studies. But they normally based it on assumptions that each security has an intrinsic value based on the economic conditions of the firm. These economic conditions are determined on many things like: earnings, dividends, capital structure and growth potential. We called it the fundamental stock analysis.

Some stocks, especially blue chips, pay dividends. This means that for every share you own, you are paid a portion of the company’s earnings. For example, for every share own, you will get sent $0.15 every year. Most companies pay dividends (four times a year). This study focuses on dividend policy of companies listed on the stock exchange of Mauritius. Since early 1960, the dividend debate has been lively interesting, why it is like that? As some economists have analysed the effect on the value of the firm and explored the data of evidence that dividend policy affects security prices and investors behaviour.

In developed countries managers and economists together have recognised that dividend policy plays an important role in the overall corporate strategy since the decision between paying dividends and retaining earnings has been taken seriously by investors. Indeed the dividend debate has not been restricted not only to equity markets in developed countries but has been carried out in emerging markets. Some Studies have shown that dividend policy in those markets is often different from the norms that have been accepted. In developed countries and that in emerging markets firms place more emphasis on dividend payout ratios than they do on the level of dividend paid. As a result dividend payments tend to be more volatile in emerging markets than in the developed countries

1.2-How Mauritius is as an emerging Market

Mauritius is a fast developing independent island in the Indian Ocean. It has followed a classic pattern off economic development, moving from agricultural based economy in the 1960 to a manufacturing based in the 1970 and 1980. Since then, we can see how Mauritius how developed its economy. The Mauritian economy was then noticed by exceptionally high increase in GDP (GROSS DOMESTIC PRODUCT) and the achievement of full employment. Its Normal that Mauritius could not sustain such an economic growth rate by relying only on Agriculture and manufacturing industries. That is how Mauritius comes with the idea to diversify its economy and henceforth integrate into the world economy. He first diversifies f into the financial sector. The successful economic achievement in the 1980’s brings a rapid growth in this sector and hence in 1988 the stock Exchange was established in Mauritius.

1.3-Objective of Study

This study focuses on dividend price on the seven companies listed on stock exchange of Mauritius for the year 2010.It is intended to find out how dividend changes before the final dividend date and after the final dividend date .

1.4-Structure of Project

The Project was mainly based on dividend reactions on the Seven Companies .It Includes data downloaded from the website or taken from authors of dividend policy and also some communication which was exchanged by the Head of department of Sbm Securities which helped me to find out the data.

2 LITERATURE REVIEW

2.1 Theoretical View Points

Normally we have two different theories that explain what the relationship between Dividend Policy and the Price of Shares. They are categorized into two groups:

The Irrelevance School

The Relevance School

In the Irrelevance School we have Merton and Miller .

This man clearly state that dividend don’t really affect value , He also said that there was now a substantial agreement within the academic community which is based in turn on many careful, scientific statistical studies and there is no systematic exploitable relation between a firm dividend policy and the value of its shares.

Normally that value is governed by its earnings or more precisely by its earnings power.

It is of considerable importance the effect of a frim dividend policy on the current price of its shares …not only to the corporate officials . but also to those investors who are planning portfolios and also to the economists that are seeking to understand and appraise the functioning of the capital Markets.

According to similar ideas like JOHN FREEAR (1980), the whole question of dividend policy is controversial. Like some say that it has no effect whatever on the finance market ‘assessment of the value of a company, others argue that the market pays much more attention in assessing dividends that to earnings. Indeed the relationship between dividend and the value of the share is not clear cut. Normally a Finance Manager must understand the various conflicting factors first which influence the dividend policy before he decide how to allocate its company‘s earnings into dividends and retained earnings. Another important aspect of the dividend policy is that we must determine what the amount of earningsthat should be distributed to shareholders and which amount we must kept in the firm .Indeed it can be a tough task for Mauritius as we have just diversify into the Financial Sector .

Retained earnings are the most significant internal sources of financing the growth of the firm whereas dividend constitutes the used of the firm funds.

From a shareholder point of view, dividends may be considered desirable because they tend to increase their current wealth. Objective of a dividend policy accordingly should be to maximise a shareholder‘s return so that value of its investment is maximised. As the shareholder’s return consists of 2 components:

Dividends

Capital Gains where Dividend policy has a direct influence .

Black and Scholes(1974)

Black and Scholes (1974) views of divid