Protestant Reformation Essay Essay

Have you aver questioned authority or superior forces than yourself? Martin Luther and John Calvin, two famous theologians deeply questioned their times authority, the Catholic Church. These two had created a new way of thinking and voicing it out, especially when it comes to religion. Questioning the Catholic Church and the works that came with that made both of them landmark points in the world’s history but the question relies on why they attacked the fundamental principles of the church. The strong opposition to selling indulgences and that anyone could make its way to heaven if they had the right amount of money was what ignited the reformation, including Martin Luther 95 theses against indulgences. Later on came John Calvin’s work against the Catholic Church including the Geneva reform and his idea of predestination, the idea that God is willing all of the events that can happen in one’s life. Both of these theologians had intentions of creating a truer version of the Christian religion and created their own form and version of Catholicism, Calvinism and Lutheranism. Some viewed these new branches/forms of Christianity as a new way of interpreting the religion and some; according to Prentice Hall world history thought it would be a chance to â€Å"throw off the rule of both the Church and the Holy Roman Empire.† (Ellis and Esler 64) In a whole, both of their works were a way to challenge and attack the Church and to voice out their ideas, which differed from those of the religious authorities. In this time period, late 15th through the end of the 16th century, the Catholic Church was the predominant authority and religion in most of Europe, it had a set of rules, in theory based on the bible, that everyone had to follow. However, these so called laws from the bible were modified and made to arrange the leaders, especially rich individuals. One of the main laws was flagrantly unequal and people understood that but couldn’t voice it out fearing the superior powers in rule. This law, of course was in the advantage of the most fortunate and the richest. This was the law selling indulgence and paying off your sins, meaning that if you had the right amount of money one could pay its way to heaven. As said earlier, several people believed it wasn’t correct and equal; however the problem they faced in those times was that a wide range of people did not know how to read and had no evidence or proof that what the Catholic Church said was different from what was written in the bible. When well-educated theologians such Martin Luther heard about such law, he found it unacceptable, to demonstrate it, he wrote a set of points against selling indulgences and how indulgences should be. This directly â€Å"challenged the teachings of the Catholic Church on the nature of penance, the authority of the pope and the usefulness of indulgences.† (Theopedia, Encyclopedia of Christianity) Luther posted these points on the Church’s door and it grabbed people attention, nevertheless a wide range of people believed that these points were true. This was the spark of Lutheranism, a new branch of Christianity based on the Martin Luther’s ideas and works. Few years later came John Calvin, a theologian and reformer. Calvin attacked at his turn the Catholic Church. He, very similarly to Luther, believed that selling indulgences wasn’t correct and more importantly he embraced the concept of predestination, the belief that God is wanting and knows everything that might happen in one’s life. He also created a theocracy; a government that was ran by church headmen. Based on his ideas and concepts he created, at his turn, a new branch of Christianity. This was another challenge forwarded to Catholic Church. On the other hand, the Catholic Church did not change any of its laws through out the reformation period. Catholicism compared in numerous ways with both Calvinism and Lutheranism on many subjects. In Catholicism, the bible is one source of truth and church tradition is another source of truth. However in Calvinism and Lutheranism, the bible is the only source of truth. These branches also differ in how the belief is revealed, in Catholicism the priest interprets the bible and people are transmitted that information through Church teachings. On the other side, in the two other branches, people read and interpret the bible for them to find what is written. Catholicism also believes that salvation is achieved through faith and good work, and most importantly that one can pay off its sins with current money; this is way the branches differ. Selling indulgences was the result of needing money to finance lavish pope lives, and the artists they paid to work for them. This meant that the Catholic Church was widely moving away from the original biblical writing and interpreting it differently to finance personal projects. In these cases religion wasn’t respected and that is what mainly sparked these large reforms. In Catholicism, the only way to achieve salvation is through faith and good works. At those times, popes and renaissance leaders took advantage of all of these modified biblical rules and mind washed people to achieve once again personal projects. This branch of Catholicism also gave a disadvantage of unfortunate people, lower classes and poor people. During the reformation times, poor people did not know how to read and therefore could read and have their own interpretation of the bible. Their only way to know what is supposedly written was through the priest’s interpretation and Church teaching. However, as stated earlier these teachings and passing of religious laws were not accurate, they were modified by the priests and upper class barons, which obviously gave them an advantage. Lutheranism was the first branch that appeared. When Martin Luther posted the 95 theses on the Church’s doors, he expected an obvious opposition by the leaders and authorities. When Luther’s ideas started spreading the Church asked him to remove all of his works and let his projects down. Instead â€Å" he developed even more radical and new doctrines.† (Ellis and Esler 63) One of the key factors to the spread of his ideas was the existence Gutenberg’s’ invention, the printing press. It made it possible to print a large amount of copies of the 95 theses. Among his ideas, he stated that salvation could be achieved through faith and faith alone, compared to Catholicism and Calvinism. Martin also said that at the head’s church should be an elected council. Calvinism was also a source of inspiration to all of the peasants that believed that this rule has been brain washing them and in favor of the richest. It ignited revolts all over Europe and results in socio-economic changes; these were mainly present through out Germany. One of the points Luther stressed is that all Christians should have the same and equal access to religion and God. This was an immense attack to the principles of the Catholic Church. What was making the Catholic Church’s head so influent and imposing was being attacked, those times people not accessing accurate information made it possible for the authorities to remain. However, with these new prominent and seemingly fair ideas, the Church was vulnerable to new revolts and opposition. Last, Lutheranism also was a wonderful opportunity to gain power. Small German princes embraced Lutheranism for the simple reason to overthrown the current Catholic Church. On the other side, Lutheranism doesn’t share a lot of details with Catholicism; they both share monotheist views, faith in God and Jesus as well as other broad and large concepts. Lastly, Calvinism came to create a new reformed type of Protestant Christianity. John Calvin, the major author of this new branch was himself a reformer and had lived in various European countries, he was a â€Å"refugee among refugees.† (Vosloo 3) However once in Geneva, Protestant wanted him to lead their people. To do that Calvin created a theocracy, a government led by church leaders. They later on gave birth to Calvinism, which was fundamentally attached to the predestination concept.. To Calvinists, predestination is what rules our everyday life and our future, God knows what we did, do, and will do. They also believe in the idea that God has already determined who would acquire salvation, and that the world contained two different types of people, those who sinned and saints At its turn it was a way to challenge the Catholic Church since it strictly denied the existence of predestination and that there wasn’t such thing. Calvinism was not very far different from Lutheranism, both believed that the bible is the only source of information and that every citizen should read and interpret the bible by his or her own means. In this branch, work and honesty, Calvinism was so strict that anyone that engaged in laughing in church, dancing, or fighting would be heavily fined. Nevertheless, Calvinism expanded through visitors and travelers that came to Geneva to embrace the concept of Calvinism, and then brought it back home. This was so successful that in Scotland a Calvinist rebel defeated the Catholic Queen and gained power. On the other side of the English Canal, violent war was going on between Calvinists and Christians. To conclude, the reformation was a time period of questioning, a time of new reforms and equal laws. Martin Luther and John Calvin were the landmarks in these times and were the ones that ignited the reformation. Creating new religious branches, Calvinism and Lutheranism, which embraced laws that gave an opportunity to the poor to understand the true meaning of the bible. Giving this opportunity to unfortunate people helped start new socio-economic reforms in their favor. It was the fruit of Luther and Calvin’s questioning of the Church and the attack of their principles. By writing the 95 theses against selling indulgences, Luther made people aware that the Church’s laws were not always coherent. The people’s huge uncertainty toward the Catholic Church made it easier for Calvin to impose new beliefs such as predestination and a more refined and clean way of living religion. All three branches of Christianity had both common and non-common points however Lutheranism and Calvinism were much more similar than to Catholicism.

Dividend Policy and Stock Price Behaviour in Indian Corporate Sector: a Panel Data Approach

Dividend Policy and Stock Price Behaviour in Indian Corporate Sector: A panel data approach Upananda Pani? Abstract: This paper attempts to explore the possible links between dividend policy and stock price behaviour in Indian corporate sector. A sample of 500 listed companies from BSE are examined for the years 1996-2006. Dividend policy has always been a source of controversy despite years of theoretical and empirical research both in developed countries and emerging economies. The present paper features a panel data approach to analyze the relationship between dividend-retention ratio and stock-price behaviour while controlling the variables like size and long-term debt-equity ratio of the firm. The sample is taken across six different industries namely electricity, food and beverage, mining, non-metallic, textile and service sector. The results are based on the fixed-effect model, as these perform statistically better than random effects and pooled OLS model. Results of the fixed-effect models indicate that dividend-retention ratio along with size and debtequity ratio plays a significant role in explaining variations in stock returns. The fixed effect models show the presence of firm level effect in explaining the possible links between dividend policy and stock price behaviour of the firm. In another words it exhibits the possibility of â€Å"clientele effect† effect in case of some industries. Therefore the model helps to understand the intricacies of dividend policy and stock-return behaviour in Indian corporate sector for the same period. Although the results are not robust enough as in the case of developed markets but shades some more interesting facets to the existing corporate finance literature on dividend policy in India. Kew Words: Dividened Policy, Stock Price, Corporate Finance, Fixed Effect Model JEL Code: G30, G35 Research Scholar, Indian Institute of Technology, Khragpur-721302. The author can be contacted [email  protected] ac. in ? 1 1. Introduction Dividend policy still remains an academic debate amid the clouding picture of its importance among the financial economists till today. There are few aspects of corporate financial policy where the gap between the academics and the practitioners is larger than that of the dividend policy. From Miller & Modigliani (1961)1, ,Gordon & Linter to Fama & French (2001)2 ,the research on the topic exhibits conflicting trends in dividend payments & firm value. The academic consensus shows that dividends really don’t matter very much for the market nor is relevant, when firms pay dividend as a signal to the investors. Both corporate officials and investment analysts, still continue to insist that a firm’s dividend policy matters a great deal for conveying the information to the stakeholders. One side of the argument on the basis of economic theory is, it doesn’t matter or is irrelevant. But the practitioners believe it as information content to the public, which reflects seriousness of the problem that is inherent in the reaction mechanisms of the market to the dividend policy announcements. I want to foreground an explanation before the practitioners, why, in the face of all this evidence of price increase in response to dividend announcements, otherwise sensible academics believe that a firm’s dividend policy really doesn’t make much difference. At the same time, I’11 argue that the dividends do matter for a firm. Dividend Policy & Share prices The dividend policy of a firm becomes the choice of financial strategy when investment decisions are taken as given. It is also imperative to know whether the firm will go for internal or external source of financing for its investment project. There are a number of factors affecting the dividend policy decisions of a firm such as investor’s preference, earnings, investment opportunities; annual vs. target capital structure, flotation costs, signaling, stability & Government policies and taxation. In the presence of asymmetric information, signaling is one of the crucial factors that influence the market. Dividends may convey information about the company, so it suggests the possibility of its influence 2 on the stock market. Paying large dividends reduces risk and thus influence stock price (Gordon, 1963) and is a proxy for the future earnings (Baskin, 1989) Baskin (1989) takes a slightly different approach and examines the influence of dividend policy on stock price volatility, as opposed to that on stock returns. He advances four basic models which relate dividends to stock price risk. He terms these as the duration effect, the rate of return effect, the arbitrage pricing effect and the informational effect. The difficulty in many empirical works examining the linkage between dividend policy and stock volatility or returns lies in the setting up of adequate control over the factors that influence both. For example, the accounting system generates information on several relationships that are considered by many to be measures of risk. Baskin (1989) suggests the use of the following control variables in testing the significance of the relationship between dividend yield and price volatility are operating earnings, the size of the firm, the level of debt, the payout ratio and the level of growth. So he had tried to explain the underlying linkage between dividend policies (dividend yield and dividend payout ratio) and stock price risk in his empirical work on USA. A number of theoretical mechanisms have been suggested that cause dividend yield and payout ratios to vary inversely with common stock volatility. As dividends can be cash dividends, stock dividends, stock splits & share repurchases, the question comes about the nature of the dividend & its impact on the share price and whether market is more volatile to high dividend yield share than normal share comes into the picture. There is a need to study the sensitivity of market to the nature of dividends. The linkage etween dividends & share price should be examined by controlling other factors which are responsible for affecting the dividend policy of a firm. Study of dividend policy and stock price in India As Indian stock market is one of the most volatile stock market in the world. As the no of private corporations are growing day by day, & financial markets becoming more developed, there need of the study of different policy implications by corporate sector. 3 There are a number of stu dies existing on the determinants of dividends3 behaviour in Indian context. All the studies have determined the dividend behaviour from the perspective of the factors influencing the dividend behaviour in the short run as well as in the long run4. But a very few literature captures the intricacies of market reaction to the dividend announcement by Indian corporate sector. The study by Reddy, Y S (2003) on dividend behavior of Indian corporate firms over the period 1990 – 2003 shows a conflicting picture of the dividend policy of firms across different industries. The study explores dividend trends for a large sample of stocks traded on the NSE and BSE, indicate that the percentage of companies paying dividends has declined from 60. 5 percent in 1990 to 32. 1 percent in 2003 and that only a few firms have consistently paid the same levels of dividends. Further, dividend-paying companies are more profitable, large in size and growth doesn't seem to deter Indian firms from paying higher dividends. Analysis of influence of changes in tax regime on dividend behavior shows that the tradeoff or tax-preference theory does not appear to hold true in the Indian context. This paper shows the contradictory results from the previous one. The limitations of these papers are they have taken only cash dividends for analyzing the determinant behaviour. The present paper is structured as follows as introduction. The subsequent section II follows the theoretical strands and section III highlights ed model for the purpose. The section IV denotes the data sources and variable construction. The section V shows empirical results and discussion. The last and final section displays the findings. II. Theoretical Strands and Literatures study The dividend irrelevance theory of Modigliani and Miller (1961) proposed the absence of any significant impact of the dividend policy on the value of shares because it’s impact is offset exactly by other means of financing and is thus irrelevant. This theory was formulated by assuming perfect market conditions, which didn’t take into account the imperfections like taxes, transaction cost or asymmetric information. Consequently, dividend policies have little impact on the market value of the firms. In a perfectly competitive market situation both the company, through its profit retention, and the 4 hareholders, through their dividends, might invest in the same assets, and hence, who’s making the investment does not matter for the economy as a whole. However, since the capital market is neither perfect nor complete the dividend irrelevance proposition needs to be applied carefully by focusing on effects of taxes, information content, agency cost and other relevant affecting variables. The Gordon model (1959) stock valuation model states the fair value of a stock should equal to the stock-dividend per share and the difference between the discount rate and the long-term dividend growth rate. The model assumes that the firm’s dividend will grow at a constant rate and that the discount rate stays the same for ever. The theory suggests if there will be an increase in dividend rate there will be simultaneously an increase in stock value of the firm. Fama (1998) is the advocate of modern corporate finance theory, which states that firms should be managed to create and maximize value. Here the value depicts the total price of a firm commands in the market that is the sum of the values of its equity and debt. Thus, the criteria and rules for correct financial decisions are oriented towards maximization of the total value of the firm. In theory, value maximization is appealing because it is associated with efficient allocation of resources, provided the capital market operates efficiently. That is, it rewards the most to firms that channel their resources to the best uses. Extensive empirical work on capital Market behaviour shows that the prices of corporate securities indeed respond to firms’ decisions in a way that appears to be consistent with expectations about the appreciation or depreciation of value in the market. The theory emphasizes the importance of corporate financing decisions on the value of the firm in the market. Thirumalvan & Sunita (2005) studied the impact of Share repurchases & Dividend announcements on Stock prices in the context of Indian Corporate sector during the period (2002-2004). They examined the signalling effect of Stock repurchases and Dividend announcements. The study examined abnormal returns across various repurchases level. They have taken the firms listed in the BSE Index for the purpose of 5 empirical investigation. The study covers the impact on stock prices five days prior and after the dividend announcement. The result exhibits the upward trend of share price movement after the dividend announcement. The crucial point of their findings is that positive signalling existed only for a day after the announcements. After which the extent of positivism of shares starts declining. Their finding shows that market reaction in the Indian context to events or announcements such as share repurchases and dividends generally fluctuate around day or two. The study can be cited as important for the present study. Sen and Ray (2003) have explained an interesting phenomenon regarding the key determinants of stock price in India. The study is based upon the stocks comprising the BSE index over a period 1988-2000. The empirical study revealed dividend pay-out is by far the single important factor affecting stock prices. The second factor comes earning per share which has very weak impact on the share prices. So the study explored one of the crucial factor dividend pay-out ratios having impact on Indian stock price. Black and Scholes (1974) in their study on the effects of dividend yield & dividend policy on common stock prices & returns They stated uninformed demand for dividends can result from dividend decisions which in turn derive from imperfections such as taxes, transaction costs and institutional investment constraints. Given the above background, the study makes an attempt to examine the effect of dividends and retention earnings on the stock price behaviour in Indian corporate sector in a partial macro economic framework. III. Proposed Derived Model In analyzing dividend and stock price behaviour, the most important point to begin with is an objective function representing a firm’s preference regarding dividend-retention mix instead of taking only dividend yield or payout ratio. Because the objective function is related to firm’s main motives & there has been a shift in it’s motives due to the dominance of joint stock corporations & the associated characteristics of separation of ownership & control. This shift can be characterized from the sole motive as maximization of rate of return on capital to other set of motives such as sales maximization, expansion of business. This set of motives contributing to an increase in the market value of the firm, also, is in consonance with the managing agency system of operation, which is a characteristics of Indian companies. Moreover, the separation of ownership & control also implies a difference in the objectives & preferences between firm’s management & its shareholders. From the shareholders side, their preferences depend upon mainly their income level & the degree of understanding of corporate stock –dealings & associated tax implications. Nevertheless, the behaviour of the shareholders may be generalized as that they prefer stable dividend rates & that the effect of taxes is only on the preference of the shareholders as the shareholders, who belong to the richer classes prefer low dividends and high retained earnings. The opposite is applicable in the case of middle income group of shareholders. On the other hand, the management behaviour can be relatively & conceptually distinguished between a ‘passive’ & an ‘active’ type5. The motives of passive management are similar to those of the shareholders & it efforts to ensure stable dividend. But firm also requires sufficient profit retentions to satisfy the firm’s long-term needs such as investment demand & liquidity needs etc. But the ‘active’ management aims at increasing the market value of the firm & the market price of shares as well. So while its credibility requires to emphasize on the shareholders preference, it’s general tendency would be to reduce dividends on the basis of different excuses like high tax rates on distributions, ‘tax shelter’ benefits. Given the vast diversity of stockholders, it is not surprising that, over time, stockholders tend to invest in firm’s whose dividend policies match their preferences. Stockholders in high tax brackets who do not need the cash flow from dividend payments tend to invest in those companies which either pay low or no dividends. By contrast, stock holders with low tax bracket will invest in companies with high dividends. This clustering of stock-holders in companies with dividend policies that match their preferences is called as clientele effect. So it suggests that firms get the investors they deserve since the dividend policy of a firm attracts 7 investors who like it. Second, it means that firms will have a difficult time changing an established dividend policy, even if it makes complete sense to do so. However in practice, it is reasonably assumed that managements are neither extremely ‘passive’ nor extremely ‘active’ and shareholders are neither rich nor badly dependent or dividend income alone but contain all the elements in different combinations. Thus, let’s consider a typical firm having a map of dividend preference curves, each indicating a specific level of utility obtained by alternative combinations of dividends & retentions. So the dividend preference function can be noted as: U = f (Dn, R) (3. 1) Where, Dn and R are the dividend and retention net of all taxes at all levels. The utility level can be seen as monotonically related to the motives of the management with respect to the shareholders preference. The shape of the utility curves might be a result of a process of accounting for their relative performances & the factors influencing such preferences as well. The second step is to represent the hypothesis that dividends affect stock prices or market value of the firm. The utility function can be represented as the function for optimizing the market value of the firm. The market value of the firm can be represented as Market value of the Firm = ? ? Dividends ? f ? Net profit , ? Re tained earnings ? ? ? (3. 2) The market value of the firm here is basically represented on the basis of Accounting Earning Analysis. Here the Net profit is derived from the current investment of the firm. The higher the net profit the higher will be the stock price. The market value of the firm also depends upon the ratio of Dividends to Retained Earnings because the profit is basically segregated into either dividend or retained earnings. If clientele effect is not present in the firm then higher dividends will lead to higher value of the share price whereas if the investors are rich then they will prefer lower dividend to retention. The 8 return on equity entirely depends on the net worth6 of a company. Equity return of a company depends upon dividends and retained earnings. If a company is going for dividends then the retained earning will be less, leading the firm to go for either newequity issues or External financing. If the flotation cost7 is high, the company will go for external financing which will be costlier for the firm than internal financing through equity. So the firm has to maximize the dividend to retained earnings ratio for any new investment aimed at firm’s growth. We can represent it through the following function; ? D? Pt = f ? Y , ? ? R? (3. 3) Where Y represents the net profit of the firm D represents ratio of dividends to retention earning of the firm. The ratio of R ividends to retained earnings acts as a proxy for future cash flow of the firm and share price, Pt , acts as the proxy for the absolute market value of the firm. While calculating the stock return on an equity share, we are basically interested to calculate the change in current price with respect it’s price in the previous period. So the equation (3. 3) can be represented as ? Pt ? ?P ? 0 ? ? ? ? = f ? Y , D ? , ? P R? ? ? ? 0 ? (3. 4) The eqn (3. 4) represents the change with respect to base price. We have assumed a CobbDouglas type of function represented as the following ? Pt ? ? Y ? ? D ? 2 ui ? ? = A? ? ? e ? P ? R ? P ? ? 0? ? ? ? 0? ?1 ? (3. 5) The equation (3. 5) can be expressed alternatively as 9 ?Y ? ?P? ?D? ln ? t ? = ln A + ? 1 ln ? ? + ? 2 ln? ? + ui ? P ? ?P ? ?R? ? 0? ? 0? (3. 6) We can write the above equation as ?Y ? ?D? ln Vit = ? i + ? 1 ln? ? + ? 2 ln? ? + uit ? P ? ?R? ? 0? (3. 7) Where ln A = ? i = 1†¦ N t = 1†¦ T, There may be potential links between size and volatility of stock returns of the firm. The size of the firm also exhibits crucial link between size and volatility. Small firms are likely to be less diversified in their activities and subject less investor’s scrutiny for the firm. But research is still confined to large listed companies. The Information on the stocks of smaller listed companies could conceivably be less informed and illiquid in nature. These firms are subject to greater price volatility as a result of above posed factors. So a control variable, long-run debt equity ratio is being added . When asymmetric information comes into the picture, there is also likely to be a link between borrowing & dividend policy. Baskin (1989) suggests that firms with a dispersed body of shareholders may be more disposed towards using dividend policy as a signaling device. The dividend policy may also be a function of size and there is a need to introduce size as a control variable. There is also a need of introducing control variables, which will reflect the corporate leverage. The earlier models have been aimed at capturing the effect of stock price and dividends but very few of them have tried to include the control variables such as debt-equity ratio and size of the firm. So in the present study, the focus is to fillup the limitations of the previous studies by using context-specific Panel-Data models including the control variables like leverage ratio and size of the firm. Through panel data estimation we can observe firm effect8 and time effect throughout the sample period. So now the eqn (3. 7) can be stated as ? Y ? ?D? ?D? ln Vit = ? i + ? 1 ln? ? + ? 2 ln? ? + ? 3 ( SZ ) + ? 4 ? ? +  µi + ? it ? P ? ?E? ?R? ? 0? (3. 8) Where V = value of the firm SZ = Ln (Total Assets) 10  µ i = firm specific component ? it = disturbance term IV. Analytical Framework We have already discussed the proposed model to be tested here to analyze the impact of dividends on stock returns. So in this section we will analyze the methodological issues over our proposed derived model. Simultaneously we will discuss other options available for the analysis. We will first analyze the results of different industry and then aggregate data over all the industry. The proposed model is here is ? Y ? ?D? ?D? Ln Vit = ? i + ? 1 ln? ? + ? 2 ln? ? + ? 3 ( SZ ) + ? 4 ? ? +  µi + ? it ? P ? ?R? ?E? ? 0? 4. 1 Where SZ = Ln (Total Assets)  µ i = Firm specific component ? it = Disturbance term Here the null Hypothesis is dividend or D/R ratio affects stock return i. e. H0: D/R affects Vit . We will test the results of the classical linear regression model and other tests. Then we will proceed to see if Panel data models improve the estimation. So we will propose different models before proceeding to fixed effect model. We will define four basic models to be tested before proceeding towards final estimation. 1. y it = ? + ? it (No group effect or xs) 2. y it = ? i + ? it (Group dummies only) 3. y it = ? + ? ?X it + ? it (Repressors only) 4. y it = ? i + ? ?X it + ? it (Xs and group effects) Model 1 on 2: H0: (no group effects on the mean of y) Model 1 on 3; H0: (no fit in the regression of y on xs) Model 1 on 4; H0: (no group effects or fit in regression) 11 Model 2 on 4; H0: (group effects but no fit in regression) Model 3 on 4; H0: (fit in regression but no group effects) We have tested the data set for applying the panel data models with the above five different hypothesis. The LR, F and LM Test along with the Hausman Specification test favors the use of fixed effect models for Food and Beverage, Mining Industry and Nonmetallic Industry whereas the diagnostic tests rejects the use of fixed effect models for Other services, Textile industry, and Mining industry. The Aggregate data is also not satisfying the qualifying criterion for applying Fixed effect models. V. Data Sources and Sample Design The study mainly relies on the Prowess database of the CMIE (centre for monitoring on Indian economy) in India in order to mitigate the above noted objectives. Since the present study aims at exploring the dividend and stock return volatility with the assumptions of â€Å"semi strong efficiency† in the stock market a sample of 500 companies from â€Å"A1† and â€Å"B1† group of shares is selected for the empirical analysis. All of them are spread across six different industries namely Electricity, Food and Beverage, Mining, Non-metallic, Textile and Service Sector. The first filtering criterion for selecting the stocks is their consistency with the dividend payment history for the study period 19962006. The second filtering criterion used for the selection is that the market-capitalization of these companies should be more than ten crores. The third filtering criterion is that the scrip must be traded continuously without any interruption during the above mentioned period. However, the study has conceptualized the dependent variable (i. e. market value of the firm) and the explanatory variables such as size of the firm, dividends to retain earning ratio, and debt to equity ratio. The stock return is considered as proxy for the market value of the firm (dependent variable) and for other subsequent variable, Ln (total assets of the firm) have taken as a proxy. 12 Sock Return: Market value of the firm which is the dependent variable of our interest is being represented by Stock Return . This can be calculated by taking closing share prices of each company. Stock returns should be calculated using the log return of the closing price of the stock, where the Closing price is defined as the last trade price of the stock. Vit = ln (Pt/Pt-1). Net profit Here the net profit is taken as the profit after taxes. Average book value of equity Profit after taxes is calculated as the difference between the profit before taxes and tax for the year. PBIT or Profit before interest and taxes is generally calculated as the sum of operating profit and non-operating surplus/ deficit. This represents a measure of profit which is not influence by financial leverage and the tax factor. Hence, it is pre-eminently suitable for inter-firm comparison. Hence it is assumed that higher Net profit of a firm leads to higher share prices as opposed to stock returns. It is denoted as Y in the study. P0 Dividend ? D? ? ? This can be calculated by adding together all the annual Re tained earnings ? R ? cash dividends paid to common shareholders & then dividing this summation by the total no of outstanding equity shares in each year. The average of all available years will be used. Retained earnings is calculated as the difference between profit before taxes and dividends and dividend by the total no of outstanding equity shares each year . Like Earnings, dividends act as proxy for the future profitability . Therefore this ratio is expected to have positive relationship with the stock return. Long term debt (Debt to Equity ratio) is calculated as the sum of each company’s debentures, mortgages & loans with a maturity greater than one year to total equity is to be calculated. The average over all the years will be used. 13 Size of the Firm (SIZE) The variable size should be constructed in such a way that it will reflect the value of the firm in real terms. Here the natural log of Total assets is being used as a proxy for size. VI. Empirical Estimation and Results Discussion The basic principles of fixed-effect model have already been discussed in the previous section. So in this section we attempt to estimate our proposed model. In this section we present the results in two sections. We present first the results of those industries that how the applicability of fixed effect models by our previous section of hypothesis testing. And those industries that don’t satisfy our criterion in another sections (table 4. 9). Here we test the other models and the significance of our target variables. The results from the regression analysis are discussed in two sub-sections. The first section is the result of the Table 8, which exclusively covers the regression result of one-way fixed effect model for Electricity, Food and Beverage and Non-Metallic Industry. The other section of the result from the Table 9,covers the regression from the other three industries that did not satisfy the filtering criterion of hypothesis for fixed effect model. These industries are other services, Textile and Mining. In the last section we discuss about the results of aggregate data. Electricity Industry:As we have already discussed in the previous chapter, we have taken one-way fixed effect model. The result for the electricity industry can be summarized as follows. Before estimating the final model, we have tested different combination of variables. The estimation of one way fixed firm effects multivariate regressions illustrate that controlling for the underlying time-invariant heterogeneity of firms has significant effect on results. The coefficient for PAT/P0 is 9. 32 which is significant at 5% level of significance. It explains 9. 32% variation in the model. The variable D/R is also exhibiting positive relationship with stock-returns. It implies higher the dividend paid 14 to the investor higher will be the return in the long-run. The co-efficient for D/R is 2. 48 which is significant at 1% level. This implies validity of the model through the dividends and retention. The coefficient of leverage ratio or D/E ratio is -1. 89% which is significant at 10% level. The negative sign of the coefficient implies the negative relationship between the stock return and D/E. As the leverage ratio will be higher then it will have a negative impact on the stock-return. The coefficient for another variable size is . 96 which is coming insignificant at any level of confidence. The standard error is also coming very high at 12. 54. The R2 for the model is 0. 44, which is explaining 44% variation for variation in the dependent variable stockreturn. The p value of F-test is significant at 1% level. The computed F-tests (Fixed firm effect versus pooled OLS) of the null hypothesis that all coefficients are jointly equal to zero are rejected. The one-way fixed effect model explains the relationship more clearly as it explains more than 50% level of variation of firm-specific component in the model. So the over all explanatory power of the model is high in the Electricity Industry. Food and Beverage Industry:- The computed F-test results favors the use of the fixed-effect model over the Pooled OLS is justifiable over the test of OLS vs. Fixed effect model. The Hausman statistics is also high suggesting the use of the fixed effect model over the random effect model. Before estimating the model with variables D/R, PAT/P0, D/E and SZ with Stock return, we have tried with different combination of independent variables with the stock-return. The Current model gave the high R2 and low standard errors. The coefficients for the variables D/R, PAT/P0, D/E and SZ are 3. 05, 11. 09,-1. 41, . 68 respectively. Here the variables D/R and PAT/P0 are significant at 1% and 5% level of significance. The coefficients for the control variable which is included to control the heteroscedasticity is significant for size of the firm which explains 68% variations in the stock-return is and the coefficient for the debt-equity ratio is -1. 41. The most important result is that the dividend retention ratio is positive and explains 11. 09% variation in stock return. The R2 is 0. 36, explaining 36% variation in the dependent 15 variable i. e. Stock return. The F-test for Pooled OLS Vs Fixed effect turns out to be significant and the null-hypothesis that all the co-efficients are zero is rejected here. Non-metallic industry:- The coefficients for the variables D/R, PAT/P0, D/E and SZ are . 024, 10. 58,0 -. 88 and 30. 5 respectively. The variables are significant at 5%, 1%, and 10 %( Sz. ) level of significance in T-test for testing the null-hypothesis that the means of the co- efficients are zero. The sign of the D/R remains positive here. It explains positive relationship with the stock-return. So the D/R ratio explains 11. 98% variation in the stock-return behaviour of the firms. It supports the null-hypothesis that D/R affects the stock prices. Another important observation is that the coefficient of size of the firm is 30. , which is quite high in comparison to the other industry. The variables are insignificant in other models like pooled OLS, so the F-test rejected the hypothesis that all co-efficients are jointly equal to zero. The R2 is coming with improved performance of 0. 46%, which is high in comparison with other two industries. After all Non-metallic industry is showing robust result with th e expected sign as proposed in methodology. Results from the Table 9:- We have presented another analysis for other services, Textile Industry and Mining industry because these industries are not satisfying the criterion for the fixed effect model. So the next best alternative is to test it with pooled OLS and Random effect model. We have done comparison with these three models for these industries. Other Services Industry:- If we compare the results of the fixed effect model and Random effect model here, then some interesting picture emerges. The co-efficients for the fixed firm effect model for the variables D/R, PAT/P0, D/E and SZ are coming 6. 37, . 33,-10. 54, 2. 61 respectively. Among the co-efficients D/R and D/E are significant at 10% level of 16 significance. D/R is surprisingly significant with a positive sign according to our prior expectation. We then compare the R2 value of two models, which is very low i. e. 0. 09 for fixed firm effect model and 0. 11 for the random effect model. Although R2 turns out to be very low the variable D/R and D/E ratio is exhibiting correct sign as per the hypothesis is concerned. The F-test for comparing the coefficients are equal to zero or not is becoming insignificant for the variables. This can be observed through the p-value which comes out 0. 9870. This is not significant at 1%, 5%and 10% level of significance. In the Random effect model the Coeff for the variables D/R, PAT/P0, D/E and SZ are 4. 9, 0. 53,-8. 09 and 13. 96 respectively. The R2 improves by two points to 0. 11 the target variable D/R ratio remain insignificant in the model. May be the cause for insignificant variables and low explanatory power of the model is due to improper specification which is affected by the industry characteristics. The firms in the Services industry generally went for less dividends and more retenti on in the study period. These are high growth firms which require more flow of money for the projects. So the investors got return through the capital gains here. Textile Industry:- If we observe the Coeff for the variables D/R, PAT/P0, D/E and SZ, the values are 5. 28, . 10, -1. 73,5. 95 and for the Random effect model the values are coming out 4. 83,. 17,-1. 30 and 0. 87 respectively. The results show some unexpected outcomes in the model. The signs of the Coeff are as per prior expectation but D/E ratio is out significant at 5% level in fixed firm effect model and other variables are remaining highly insignificant with R2, 0. 04 . In the Random effect model, the target variable D/R is significant at 5% level and PAT/P0, D/E ratio are significant at 10%, 1% level of significance respectively. The R2 for the random effect model has improved to 0. 13%. When we compare the result between two models, random effect model turns out to be more robust than the fixed effect model. 17 Mining Industry:- The values of the co-efficients for the variable D/R, PAT/P0, D/E and SZ, are 17. 07, 14. 75,-13. 77, 4. 09 and for the Random effect model the co-efficients are 16. 01, 10. 08,-6. 63 and 1. 66 respectively. In fixed effect model three Coeff. of PAT/P0, D/R and D/E ratio remain significant at 5%, 1%, and 10% respectively. The R2 for the fixed firm effect model remains at 0. 0 and for the random effect model it is 0. 14. We cannot judge the models by the R2 only because we have to check out the significance of the variables. So given these conditions, the fixed effect model is more appropriate in the Mining industry. Aggregate Industry Data:- As we have examined above the different industry wise data, only three Electricity, Food and Beverage and Non-metallic satisfy the tests for use of the fixed firm effect model whereas other three industries namely Textile, Mining and Other services do not satisfy the test criterion in favour of fixed effect model. Aggregate industry data doesn’t shows any robustness for using fixed-effect model over other possible models such as pooled OLS and Random Effect model. The results from fixed-effect models is having leverage over the random effect model results . The aggregate data of whole industries is affected by those industries, which are not satisfying the criterion for fixed effect model. The overall explanatory power of the Aggregate industry data are affected the fluctuations in other industries as the data set is characterized by different industry. So when we run the regression of one-way fixed effect model, the R2 is also exhibiting very low at 0. 12 only. The value of the Coeff of the variables D/R, PAT/P0, D/E and SZ are coming out 3. 10, . 34,-. 60, -. 15 respectively. If we observe the sign of the variables D/R, D/E and PAT/P0 remains as per prior expectation. Among the Coeff of variables, PAT/P0 and D/E come out significant at 1% and 5% level of significance. Whereas if we compare the result with random effect model, we will find that no variables are significant and the R2 turns out to be very low at 0. 08 18 only. The p-value of F-test is also coming very high at 0. 6, which is well above the 0. 01and 0. 05 level of significance. The use of the fixed effect model in aggregate data explained the variation of the independent variables more clearly than Random effect model and Pooled OLS model. VII. Conclusion We have tried to explore the relationship of dividends and stock return by using a simple Specification of stock r eturn as a function of net profit and dividend-retention ratio with two control variable such as size & debt-equity ratio of the firm. There was an attempt to test different structural tests before proceeding towards the final estimation through panel-data modeling. The exclusive tests of different model allow us to go for the use of panel-data modeling. As we have given six different industry classifications for the study, we have tested the proposed model for each industry separately with different combination of variables. The results display statistical significance and linearity when the industry classifications are given. The regression on aggregate data remains in significant. .However, the direction of relationship between the dependent variable is as per prior expectation. In other words dividend retention ratio is positively related with the stock-returns. In case of aggregate data which consists of all firms above from industry classifications, the regression lacks statistical significance, the null hypothesis that there is no relationship between the dependent variable and independent variable cannot be rejected. 19 When the fixed firm effect regression is applied on sample firms of classified industry category-wise, we observe some industry specific peculiarities. Firms of Electricity, Food and beverage and Non-Metallic Product show some robustness in the results of the regression. The signs of the coefficient and their value remain significant in the analysis. Other three industries, textile, mining and other services are exhibiting insignificant coefficients values and very low R2. This conflicting trend of these variables is also visible when we have tried Pooled OLS and Random effect model. When we relax the industry classification and with the same data set and variables, fixed effect model shows the regression is significant at 0. 05 level of significance as the p value of getting a higher or equal value than calculated f-value is 0. 0497, which is we can reject the null hypothesis that all coefficients are equal to zero. Another important result is the sign of the leverage ratio and the coefficient remain as per prior expectation. The negative sign of the debt-equity ratio implies the negative relationship between the stock-return and debt-equity ratio. As the firm will go for more debt, then its value is going to be affected by stock-return. Size of the firm remains consistently positive but in many cases it turns out to be insignif icant. So we can not generalize about the variable size. So we can conclude that dividends have impact on the stock-return in Indian corporate sector, which is industry specific. The study explores that the dividend paying companies are large, profitable and growth rate of the firm does not seems to dissuade the dividend payment. Although the regression is not showing high R2 but Net profit and Dividend and Retention Ratio remains significant in other services, mining and Textile industries. 20 Appendix Electricity Industry (Table 1) Models R2 H0 LRTest Chisqu. 114. 3 pvalue F-test FVal. 52. 06 pvalue LM-Test vs. Model-3 Haus. Spec. Fix vs. Ran. 1. Constant term only 2. Group effects only 3. X-variables only 4. X & group effect 5. Fit in Reg. but no Group effect. . 0000 M1 on 2 M1 on 3 M1 on 4 M2 on 4 M3 on 4 0. 001 0. 000 Chi 2 (1) 36. 21 p value; chi 2 =0. 000 0. 4245 123. 4 156. 6 0. 000 0. 000 113. 5 121. 9 0. 002 0. 010 1. 52 p ; chi 2 (1) 0. 2183 0. 2135 0. 63 141. 5 0. 100 128. 6 0. 000 0. 24 129. 5 0. 000 134. 7 0. 100 Note: – Large values of Hausman statistics argue in favour of the fixed effect model over the random effect model. 2. Large val ues of the LM statistics argue in favour of the one factor model (either Fixed or Random depends upon further Hausman Specification test) against the classical regression with no group effects. . A large value of the LM-statistics in the presence of a small Hausman statistics argues in favour of the random effect models. 4. If p ; 0. 10, then the test is significant at 90% confidence level, if p; 0. 05, then the test is significant at 95% level of confidence. If p; 0. 01, then the test is significant at 99% level of confidence. 5. The p-value of the LR test will be set to 1 if it is determined that your estimate is close enough to zero to be, in effect, zero for purposes of significance. Otherwise, the p-value displayed is set to one-half of the probability that a chi-square with 1 degree of freedom is greater than the calculated LR test statistic. 21 Food and Beverage Industry (Table 2) Models R2 H0 LRTest Chisqu. 113. 4 pvalue F-test FVal. 112. 9 pvalue LM-Test vs. Model-3 Haus. Spec. Fix vs. Ran. 1. Constant term only 2. Group effects only 3. X-variables only 0. 000 M1 on 2 M1 on 3 M1 on 4 M2 on 4 M3 on 4 0. 000 0. 000 Chi 2(1) 34. 21 2. 53 0. 32 134. 2 0. 000 132. 5 0. 000 p ; chi 2(1) p; chi 2=0. 000 0. 41 4. X & group effect 0. 53 103. 5 142. 8 0. 000 0. 000 126. 5 176. 5 0. 004 0. 3831 0. 001 5. Fit in Reg. ut no Group effect. 0. 24 121. 7 0. 002 183. 5 0. 000 Mining Industry (Table 3) Models R2 H0 LRTest Chisqu. 116. 070 pvalue F-test F-Val. pvalue LM-Test vs. Model-3 Haus. Spec. Fix vs. Ran. 1. Constant term only 2. Group effects only 3. X-variables only 4. X & group effect 0. 00 M1 on 2 M1 on 3 M1 on 4 M2 on 4 M3 on 4 0. 000 52. 084 0. 000 Chi 2(1) Chi 2 (1 ) 2. 02 p; chi2 (1) 0. 7318 0. 21 150. 894 0. 001 170. 23 0. 000 1. 21 p ; chi 2(1) 0. 32 161. 23 0. 003 232. 419 0. 000 0. 2721 0. 42 277. 186 0. 005 186. 03 0. 001 5. Fit in Reg. but no Group effect. 0. 15 172. 5 0. 000 58. 78 0. 000 22 Non-Metallic Industry (Table 4) Models R2 H0 LRTest Chisqu. 119. 070 pvalue F-test FVal. 21. 00 pvalue LM-Test vs. Model-3 Haus. Spec. Fix vs. Ran. 1. Constant term only 2. Group effects only 3. X-variables only 4. X & group effect 0. 00 M1 on 2 M1 on 3 M1 on 4 M2 on 4 0. 000 0. 000 chi2(1) = 3. 92 chi2(3) = 1. 23 Prob;chi2 = 0. 0013 0. 21 154. 894 0. 000 31. 01 0. 000 Prob ; chi2 = 0. 0477 0. 13 165. 23 0. 000 12. 02 0. 064 0. 25 267. 186 0. 000 49. 64 0. 000 5. Fit in Reg. but no Group effect. 0. 31 M3 on 4 172. 05 0. 214 64. 57 0. 741 Models R2 Other services Industry (Table 5) H0 LRpFTest value test ChiFsqu. Val. 0. 060 11. 00 on 2 pvalue LM-Test vs. Model-3 Haus. Spec. Fix vs. Ran. 1. Constant term only 2. Group effects only 3. Xvariables only 4. X & group effect 5. Fit in Reg. but no Group effect. 0. 01 M 1 109. 70 164. 89 0. 087 chi2(1) = 0. 30 chi2(4) = 1. 39 Prob;chi2 = 0. 8460 0. 24 M 1 on 3 0. 000 41. 01 0. 001 Prob ; chi2 = 0. 5812 175. 23 0. 000 52. 02 0. 020 0. 14 M1 on 4 217. 19 0. 000 79. 64 0. 000 0. 33 M 2 162. 05 on 4 M3 on 4 0. 000 95. 4 0. 000 23 Textile Industry (Table 6) Models R2 H0 LRTest Chisqu. 139. 070 pvalue F-test FVal. 71. 00 pvalue LM-Test vs. Model-3 Haus. Spec. Fix vs. Ran. 1. Constant term only 2. Group effects only 3. X-variables only 4. X & group effect 5. Fit in Reg. but no Group effect. 0. 03 M1 on 2 M1 on 3 M1 on 4 M2 on 4 M3 on 4 0. 000 0. 000 chi2(1) = 7. 75 Prob ; chi2 = 0. 0054 = 3. 50 0. 14 124. 894 0. 000 44. 00 0. 000 Prob;chi2 = 0. 4774 0. 21 195. 23 0. 000 22. 02 0. 000 167. 186 0. 000 152. 05 0. 000 69. 67 96. 8 0. 000 0. 001 0. 43 Aggregate Data (Table 7) Models R2 H0 LRTest Chisqu. 169. 70 pvalue F-test FVal. 31. 01 pvalue LM-Test vs. Model-3 Haus. Spec. Fix vs. Ran. 1. Constant term only 2. Group effects only 3. X-variables only 4. X & group effect 5. Fit in Reg. but no Group effect. 0. 02 M1 on 2 M1 on 3 M1 on 4 M2 on 4 M3 on 4 0. 000 0. 00 chi2(1) = 0. 01 chi2(4) = 1. 28 0. 11 184. 94 0. 000 51. 01 0. 000 Prob ; chi2 = 0. 9425 Prob;chi2 = 0. 8649 0. 21 145. 23 0. 000 62. 42 0. 000 0. 24 257. 186 0. 000 172. 95 89. 84 0. 000 24 Table 8 Results of Fixed-effect model Industry Variables Coeff. Fixed effect model S. E R2 F. V PAT/P0 Electricity Industry D/R D/E Size PAT/P0 Food & Beverage D/R D/E Size P AT/P0 Non-Metallic D/R D/E Size 9. 32** 12. 48* -1. 89*** . 96 3. 05* 11. 97** -1. 41* . 68 . 024** 10. 58* -. 88 30. 5** 5. 84 . 0794 4. 38 12. 54 1. 63 . 18 0. 71 1. 79 . 04 1. 74 2. 72 4. 70 0. 46 0. 36 0. 44 F(4,56)=11. 49 P;F= 0. 000 F(4,256) = 1. 26 0. 01 F(4,232) = 12. 21 Prob ; F = 0. 0000 Note:-1. Fixed effect model has no constant term. 2. *, **, *** represents 10%, 5% and 1% level of significance respectively 25 Table 9 Comparison of results of fixed effect model and Random effect model. Industry Variables C. F PAT/P0 D/R Other services D/E 6. 37 (12. 52) 0. 33*** (. 443) 0. 09 -10. 54*** (24. 56) 2. 61 (15. 52) 5. 28 (1. 83) 0. 10 (. 704) -1. 73** (1. 28) 5. 95 (2. 73) 17. 07** (10. 57) 14. 75* (27. 90) -13. 77*** (10. 79) 4. 09 (5. 80) 3. 10* (. 095) D/R Aggregate Data D/E . 34 (. 10) -. 60** (1. 89) -. 15 0. 10 0. 04 F. E R 2 R. E F F (4,182) = 0. 08 p;F = 0. 870 -8. 09*** (16. 69) 13. 96** (8. 43) 4. 83*** (1. 51) . 172** (. 667) -1. 30* (1. 066) . 87 (. 459) 16. 01** (8. 67) 10. 08*** (22. 26) -6. 63 (7. 39) 1. 66 (4. 91) -. 011 (. 0945) . 31 (. 1051) -1. 06 (1. 40) 0. 14 0. 13 C. F 4. 69 (9. 81) 0. 053 (. 426) 0. 11 R2 W W chi2(4 =2. 86 p;chi 0. 5819 Size PAT/P0 D/R Textile D/E Size PAT/P0 D/R Mining D/E Size PAT/P0 F (24,244) =0. 33 p;F =0. 990 Wald Chi 2(4)=10. 36 p;chi 2=0. 0348 F (4,46) =2. 00 p;F =0. 1097 Wald Chi 2 (4) =6. 35 p;chi 2 = 0. 1747 F (124,1232) = 16. 49 p;F 0. 76057 Wald Chi 2 (4) 0. 08 = 2. 31 p; chi2 0. 8745 0. 12 Size 1. 55 (1. 037) Note:- *, **, *** represents 10%, 5% and 1% level of significance respectively 26 References:Aharony, J. and I. Swary, 1981, â€Å"Quarterly Dividends and Earnings Announcements and Stockholders' Returns: An Empirical Analysis,† Journal of Finance, Vol 36, 1-12. Altman, E. I. , 1968, â€Å"Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy†, Journal of Finance, Vol 23, pp 589-609. Altman,E. I and V. Kishore, 1996, â€Å"The Default Experience of U. S. Bonds†, Working Paper, Salomon Center. Altman, E. I. , 1994, â€Å"Defaults and Returns on High Yield Bonds†, Working Paper, Salomon Center, New York University. Amihud, Y. B. Christensen and H. Mendelson,1992,†Further Evidence on the Risk-Return Relationship,† Working Paper, New York University. Asquith, P. and D. W. Mullins, Jr. , 1983, â€Å"The Impact of Initiating Dividend Payments on Shareholder Wealth,† Journal of Business, Vol 56, 77-96. Bailey, W. â€Å"Canada's Dual Class Shares: Further Evidence on the Market Value of Cash Dividends,† Journal of Finance, 1988, v43 (5), 1143-1160. DeAngelo, H. and E. M. Rice, 1983, â€Å"Antitakeover Charter Amendments and Stockholder Wealth†, Journal of Financial Economics, Vol 11, 329-360. DeAngelo, H. and L. DeAngelo, 1985, â€Å"Managerial Ownership of Voting Rights: A Study of Public Corporations with Dual Classes of Common Stock,† Journal of Financial Economics, Vol 14, 33-69. DeAngelo, H. , L. DeAngelo and E. M. Rice, 1984, â€Å"Going Private: The Effects of a Study in the Creation, Transfer and Destruction of Shareholder Value, Homewood, Ill. , Irfan, C. M. and Nishat, M. (2003),†Key fundamental factors and long run stock price changes in an emerging market- A case study of Karachi stock exchange†, Paper presented at PSDE conference, Islamabad. Jensen, M. C. nd Meckling, W. H. (1976) Theory of the firm: Managerial behaviour agency costs and capital structure, Journal of Financial Economics, (October) 305-60 Linter, J. , (1956), â€Å"Distributions of incomes of corporations among dividends, retained earnings and taxes†, American economic Review, 46 (1): 97-113. 27 Mendenhall, W. , and T. Sincich, (1989), A second Course in Business Sta tistics: Regression Analysis, Macmillan, London, New York. Miller, M. H. and Rock K. (1985) Dividend policy under asymmetric information, Journal of Finance, 40, September, 1031-51 Molodowsky, N. 1995, â€Å"A Theory of Price- Earnings Ratios†, Financial Analysis Journal, Jan. –Feb. 29-3. Nishat, M. (1992),†Share prices, dividend and retained earnings behaviour in Pakistan stock Market†, The Indian Economic Journal, Vol. 40 October-December, No. 2. Parkinson, Michael, â€Å"The Extreme Value Method for Estimating the Variance of the Rate of Return†, Journal of Business, Vol. 53, No. 1, University of Florida, (Jan. , 1980), pp. 61-65. Rappoport, (1986), â€Å"The affordable dividend approach to equity valuation†, Financial Analysis Journal, 42 (4): 52-58. Rozeff, M. S. 1982) Growth, beta and agency costs as determinant of dividend payout ratios, Journal of Financial Research, Fall, 249-59 Sharpe, W. , 1964, Capital asset prices: A theory of mar ket equilibrium†, The Journal of Finance, 19(1): 425-442. End Notes:1 Miller, Merton, and Modigliani, Franco, (1961) Dividend Policy, Growth, and Valuation of Shares, Journal of Business. 34. PP. 411-433. 2 Fama, Eugene F. & French, Kenneth R. , 2001. â€Å"Disappearing dividends: changing firm characteristics or lower propensity to pay? ,† Journal of Financial Economics, Elsevier, vol. 60(1), pages 3-43, April. 3 The term ‘dividends’, is defined inclusively under the Income Tax Acts, 1922 and 1961. The definition of Dividends includes distributions from accumulated profits wheather capitalised or not, which reduces the assets of a company or in the form of 28 debentures issue, distributions on liquidation or in the form of loan or advances to the extent such distributions are attributable to to accumulated profits. The definition for certain companies of closely held category, the definition is more inclusive 4 Sarma, JVM. (1990). â€Å"Taxation and corporate dividend behaviour in India†, Y V Reddy (2003). The trends of dividend Behaviour in Indian corporate sector. NSE working paper. 5 Sarma, J V M (1990) , Taxation and Corporate Dividend Behaviour in India, Harman Publishing House. 6 Net worth of a company refers to the difference between Total assets and Total debt of a company. 7 It refers to the cost of new-equity issues to be borne by the company, under the condition of imperfect market. 8 Firm effect refers to the effect of factors affecting the behaviour of an individual firm, if it is constant overtime. The time effect refers to the economic condition of particular time point : it varies over time. 29

What effect did the first world war have on the health of the British Essay

What effect did the first world war have on the health of the British population - Essay Example For example, in examining the Great Depression of the 1930s, it is typically determined that government policies together with statistics published by health officials reveal a decline in health and an increase in hunger. Bryder argues that perhaps a more localized study would reveal a more realistic account of the health of a population at any given time.3 In this essay, we examine various studies and reports documenting the health of the British population on the health of the British population during the First World War. Bourke demonstrates that the First World War had a significantly detrimental effect on the bodies of surviving soldiers. This is turn had a detrimental impact on the quality of their lives in the post-war era. Many of these men joined the war as â€Å"middle-class volunteers† who were â€Å"eager to do their bit†.4 As Bourke points out: The decisive impact of the Great War on men’s bodies can be seen most clearly by looking at the war-maimed. Irrevocably re-moulded by their experiences, these men struggled to create new lives that challenged their status as physically disabled.5 The gravity of dismemberment is captured by statistics provided by Bourke. According to Bourke, the number of mutilated and maimed men during the First World War was at the time unprecedented and a shock to the British morale. More than 41,000 British soldiers experienced amputated limbs during the First World War. Among the amputees, 69% lost a leg, 28% lost an arm and 3% lost both an arm and a leg. In addition, 272,000 sustained damages to the limbs, although amputation was not required. Approximately 65,500, soldiers sustained head or eye injuries. Another 89,000 suffered grave bodily harm.6 The number of maimed and disabled soldiers returning to civilian life would obviously impact the health or at least the well-being of the general population. The economic conditions would have obviously declined as a result of the expense involved in figh ting the war. Yet, post-war expenses would have increased over expenses in the pre-war era. As Bourke points out, the number of disabled persons relying on public funds necessarily increased as a result of the war experience. For example, up to 1920, 31, 500 soldiers were still on disability for amputations.7 There was also a psychological impact of war in that the mental health of the soldiers during the First World War was arguably unavoidable and this would also add to the public’s financial burden. During the First World War, surviving soldiers witnessed the mass burial of their fallen and mangled colleagues. As Bourke reports, men were systematically buried wherever they happened to fall since there was no time or resources to retrieve the bodies and take them to a place of dignity for property burial.8 Harrison maintains that although the First World War itself contributed to the spread of disease and as such posed a threat to the health of both the civilian and soldier population, it had positive outcomes for the long-term health of the general population overall. As Harrison reports, historically, during war times, more soldiers died of disease than those who died from war-related injury. However, during the First World War, this trend changed in that more soldiers died of war-related injury than those who died of disease. While it is quite possible that this turn around in the ratio of disease-related

Arguments for abortion Essay Example | Topics and Well Written Essays - 2250 words

Arguments for abortion - Essay Example Moreover the extent of abortion has also reduced a great deal because of the spread of awareness regarding safe sex and encouraged use of contraceptives, among even people living in the rural and backward areas of the world. The legality of abortion is a much debated topic in most countries around the world with some countries’ constitutions looking down upon the subject and others allowing it with certain exceptions and till a certain date of the growth of the embryo. Many people are even concerned with the ethical issue of abortion and whether or not it involves killing another soul; all these controversies have caused a great deal of scarring on the right that women have over abortion too, because after all they carry the child and have to go through all the pain and physical trauma. (Mappes, Thomas A., and David DeGrazia) Most abortions that take place are due to unintended pregnancies and the abortion takes place depending upon the gestation period of the embryo because i f the embryo has grown into a foetus of 5 or more months, it may not be possible to carry out an elective or therapeutic mode of abortion as by the time, the baby is almost fully developed. Many abortions are carried out because of issues ranging from rape and incest to health risks being posed to the woman’s body and her inability to carry the child due to lack of nutrition, proper health care facilities etc. In many cases, the abortion may be spontaneous, resulting in a miscarriage, when the embryo or the foetus faces an unintentional expulsion. This usually takes place before the 24th week of gestation. If a miscarriage takes place before 37 weeks of gestation then it is termed as a premature birth and not an abortion or miscarriage because by this time, the live infant is delivered, and may in many cases be a still born. Such spontaneous abortions may be caused by accidental trauma or even stress. (Mappes, Thomas A., and David DeGrazia) The medical methods of having an ab ortion till the early gestation period include ingesting medicines containing mifepristone misoprostol combinations of 200 mg followed by 800 mcg of vaginal or buccal misoprostol and these medicines may be effective till the 9th gestation week. In most European countries like France, Britain, Switzerland and Nordic countries this is the most common medicine used by people and they tend to abort their pregnancies before the 9th week. In the United States of America on the other hand, the number of women ending their pregnancies in such early weeks are far lower. The surgical methods used till 15 weeks of gestation are suction or vacuum aspiration where a syringe is used to remove the foetus or the embryo and the placenta with an electric pump. (Mappes, Thomas A., and David DeGrazia) Many doctors also use the method of menstrual extraction where a cervical dilation is not required. Another method encouraged by the World Health Organization is called Curettage where the walls of the ut erus are cleaned with a curette, leading to very less chances of infection and bleeding. In many backward areas of the world, several unclean and unhygienic methods are used that are very unsafe and tend to cause deaths among pregnant women in their attempt to have their child aborted such as the insertion of objects like hangers and knitting needles inside the vagina to remove the foetus or embryo. The issue of abortion is one of the most widely discussed debates in the world today; it involves the riddance

Epidemiology Article Example | Topics and Well Written Essays - 750 words

Epidemiology - Article Example Various studies have been performed in order to determine the risk involved in the sector of occupational cancer in falling ill with cancer for those working in this sector. The purpose of the study was to determine the risk of lung cancer as a result of occupational exposure to wood dust. For this research, there were two population-based case-control studies in Montreal, Canada. There was different study populations used in this research. The first study was conducted from the year 1979 to the year 1986. It included men of the age of 35-70 years. These men were diagnosed with cancer at any of the 19 sites. The second study was conducted between the years 1996 and 2001. This population study included both men and women who were aged between 35-75 years. This group of men and women were diagnosed with lung malignancy. In both of these studies, the patients included all had incident histological confirmed cancers identified across all major Montreal area hospitals and restricted to Canadian citizens. Both of the studies also included a series of population controls. These population controls were randomly selected from electoral lists. The first study was to explore the possible associations between hundreds of occupational substances and multiple cancer sites that included lung cancer. This study was conducted in the early 1980s and was a population-based case-control study that was done in Montreal in Canada. A similar study was then later performed in the same region in the late 1990s. This was the second study and it focused more on lung cancer. Both of these studies examined the risk of lung cancer associated with occupational exposure to wood dust while controlling for the major confounders that include smoking and other occupational exposures. The exposure in the study was to the wood dust in occupations such as construction and timber making industries. It was to analyze the first and second study in

Main Report Essay Example | Topics and Well Written Essays - 750 words

Main Report - Essay Example The present study also makes SWOT analysis of the topic under study keeping in view cultural factors and global phenomenon within which the industry observes significant boost during the last century. The future trends and dimensions of the industry have also come in the fold of present study. The contemporary world is the world of technological advancement and hi-tech industrialization. The invention of computer sciences, information technology, internet and mobile phones have revolutionised the world at large. The businesses in the contemporary era revolve round technological advancements and industrial expertise. It is therefore, our business plan is also related to the modern technology i.e. mobile phone PDAs. PDA refers to the personal digital assistant, which interlinks telephone, internet, fax and computers with networking characteristics. "A typical PDA can function as a cellular phone, fax sender, Web browser and personal organizer. Unlike portable computers, most PDAs began as pen-based, using a stylus rather than a keyboard for input.† (Quoted in webopedia.com/TERM/P/PDA.html) Before entering into a business, it is an essential matter to have a comprehensive knowledge and information regarding the particular field where one is going to exercise his abilities on the one hand and allocate his energies and concentration on the other. Gates declares knowledge and information a reason, which distinguish an enterprise from its competitors and rivals. â€Å"The most meaningful way to differentiate your company from your competitor, the best way to put distance between you and the crowd, is to do an outstanding job with information. How you gather, manage, and use information will determine whether you win or loose.† (Gates, 1999 p 1). Strategy is an inevitable part of every corporate firm’s management plan on which all its functioning stands. All the organizations either large or small devise methods and apply techniques

Theory of contract law Essay Example | Topics and Well Written Essays - 2250 words

Theory of contract law - Essay Example The primary object of courts while construction of a contract is to determine and give effect to the intention of the parties. This fact is elucidated by the eminent judges such as Chief Justice Brian in 1478 held 'that the intention of a man cannot be tried, for the Devil himself knows not the intent of a man'1. And nineteenth century judges such as Lord Eldon who in kennedy v Lee said that it was not the task of his 'to see that both parties really meant the same thing, but only that both gave their assent to that proposition which, be it what it may, defacto arises out the terms of their corresondence.2 And Austin said that 'when we speak of the intention of contracting parties, we mean the intention of the promissor or the intention of the promisee' and he also added that 'the sense in which it is to be inferred from the words used or from the transaction or from both that the one party gave and the other received it'3.Before essaying the subject it is significant to discuss conc isely on other prime factors of a valid contract to which intention of the parties is related to, such as Offer and acceptance and consideration.Offer: Consensus ad idem is the maxim on the offer and acceptance, which means meeting of minds. A contract is made out of an agreement and an agreement is made out of offer and acceptance that means in an agreement one party makes an offer and the other party accepts it. An offer may be an advertisement or a definite offer either to a particular person or to public at large. The law is settled in this respect in Carlill v Carbolic Smoke Ball Co4 in which the company made an offer through an advertisement offering 100 to any person who is affected with influenza after using smoke balls. The plaintiff Carlill has claimed for 100 from the company since she was effected influenza. The company defended that (i) the transaction was only a bet with in the meaning of gaming acts (ii) the advertisement was not intended to create a binding obligatio n (iii) there was no offer to any particular person (iv) no acceptance is notified by the plaintiff. The court of appeal has rejected the grounds taken by the defendant and allowed in favour of the plaintiff. The court while allowing held that there was an offer to the world at large, an offer can be made to the world at large and it also held that by making an offer to the world a contract is made with a limited parties who perform the conditions. Here we can observe that the intention of the advertisement was with an intention to create a legal obligation that is the reason the court has come to a conclusion of existence contract. Offer and an invitation to treat - Intention: The law of contract makes a distinction between offer and an invitation to treat. An invitation to treat does not make a binding contract. When a person responds to an invitation to treat makes an offer. The courts have made distinction between offer and an invitation to treat in auction sale and advertisements. In offer the intention of the parties to create legal obligation where as the in invitation to treat this intention to create legal obligation is premature. Harris v Nickerson5 In this case it was held that an advertisement specifying that goods will be sold by auction do not constitute a promise or offer. It is settled law that an advertisement without further qualification is not an offer to sell the goods but it is only an invitation to treat. The court observed the fact that the intention of the party making an advertisement is to receive the offers from the willing parties and he would select the best offer and intends to withdraw his invitation if he is not receiving the offer he is anticipating or he could accept, therefore there is no legal relationship exists at that particular point of time. The distinction between the offer and invitation to treat was clearly illustrated in Gibson v Manchester City of Council6. Acceptance: When one person makes an offer and such offer is accepted then becomes an agreement. Acceptance is an

Human Resource Management (report writing) Assignment

Human Resource Management (report writing) - Assignment Example It has been in operation for about eight years now and has dominated the sector since its formation until presently new and more competitive companies are coming on the scene. The main business they do is to take over the transport section of large companies on the contract basis. Their main duty is to ensure employees of these companies are transported to and from their workplaces everyday. They have a large number of buses they use in performing this task. When it comes to recruitment of workers the first step the company take is to first advertise the vacancy (ies) on the media and give a period of time for interested applicants to apply for whatever position they want to occupy. Qualified applicants are then invited for interviewing. The result of the interview determines whether or not the applicant has a better chance of been employed. After the interview the officials, Officials in charge sit down and analyze each individual and potentials so as to be able to select the best among them to occupy whatever vacancy they apply for. The basis they use in determining whether or not someone is qualified for the job, depends on the position the person applied for. In a transport company such as this, the main group of employees would be the drivers responsible for driving the vehicles, engineers responsible for the maintenance of the vehicles and the administrators including managers. In recruiting drivers for instance, some of the things they look out for include, genuine driving licenses, certificate of completion of a driving school, Non-taker of any sort of alcoholic substances. There are other qualities also that the drivers are supposed to have which runs through the other two groups, that is the engineers and the administrators. These qualities include hard working, time consciousness and dedicative amongst others. The people in charge of the interview are able to identify whether or not the applicants have these qualities elaborated above through how the applicants addresses questions thrown to them. Those applying to work in the engineering department are also expected to have at least a higher national diploma in engineering or higher depending on the position the applicant is applying for. They are also to have a minimum working experience of two to three years in their field. How applicants to this criterion are also expected to posses the above-mentioned general qualities. Applicants for positions in the administrative section are also expected to posses certain potentials in addition to the general ones every worker is expected to have. These potentials also vary depending on the section of administrative work the applicant want to serve in. It could be finance, Human resource management amongst others. But one has to have at least a higher national diploma in whatever section of admini stration the applicant wants to serve. For the applicants in the engineering and administrative sections, the interviewing stage serves as the selection stage also, where qualified are fully employed afterwards. In the case of the drivers the process is quite different. They are recruited

Critically evaluate evidence obtained from a range of sources Essay

Critically evaluate evidence obtained from a range of sources demonstrating how it can inform practice - Essay Example In Wales, the National Health Services (NHS) holds the mandate of providing a functional framework that guides the entire social and health sector address the health needs of all the different groups. NHS also sets the required standards of health care that the people of Wales should enjoy (National Service Frameworks, 2012:1). The organization came into place in order to address the issue of inconsistency that had prevailed concerning the availability of and access to healthy care. Therefore, the organization has the special mandate of ensuring that a level of consistency does exist. In order to make its goals a success, the body sets up assessment measures of determining the rate at which the departments and organizations involved meet their goals. Moreover, NHS has multiple programs that foster implementation of its goals. Upon defining the desired health standards, it becomes easy for the body to recognize and address the issues that arise (Pierson, 2011:243). However, despite it s efforts, the organization lacks the capacity of handling all the health issues of the people of Wales (Pierson, & Thomas, 2010:185). The government of Welsh government has monitors and regulates the care delivery systems to its people (Welsh Government, ‘Bill’, 2012:20). It does this by designing policies, setting of standards, and inspection of service delivery programs and provision of funding to the local authorities. An independent committee looks into the delivery of social services in Wales and presents reports on the areas that need improvement (Independent Commission, 2010:8). According to recent statistics, a third of people in Wales live with a permanent condition reducing the quality of life that they lead. Moreover, a fifth of the entire population had disability issues in 2010 and the prevalence keeps increasing. Other researches indicated that the chances of disability increased with age. This translates to the fact that the

Presidential Electoral System Essay Example for Free

Presidential Electoral System Essay The Presidential Electoral System of the United States is one that is unique among the electoral systems of nations all over the world as it breaks down into separate elections of each federal state – 51 – which is then integrated to determine the winning candidate.   Members of the Electoral College are tasked to select their preference for the chief executive position, which is then committed as the vote of the state.   The members of the Electoral College are in theory tasked to reflect the sentiments of the state residents. (Paulson, 2000) The presidential candidate that would obtain the majority vote would be declared as the winning candidate; the absence of the majority vote would lead to intervention from the House of Representatives.   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   This system is in fact very different from the popularity vote system, as there is a possibility that there would be a difference between the electoral vote gained and the popularity vote.   Several times in history this occurrence has transpired, which then puts the presidential electoral system in question. (Burrill, 1975)   This becomes quite a controversy as the Electoral College would not reflect popular sentiment, which is sometimes argued to be paradoxical, as it runs conflict with the democratic principle of communal decision-making.   The justification for the present electoral system is to give credence to small states that may be overwhelmed by votes from the larger states. (Paulson, 2000) It is noted to bring about equitable distribution of opportunity to select for all states regardless of population size.   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   There are several criticisms as to the conduct of the United States presidential electoral system.   For one, it is a winner-take-all system that is disadvantageous for third party candidates.   Because it is only the two dominant parties of the Republicans and Democrats that can elicit electoral victories through the Electoral College system, then Third Party candidates has less opportunity to win. (Paulson, 2000)   Another criticism, as was mentioned, it is at times does not reflect the true popular sentiment of the voters.   It has been several times in history that there is a result disparity between the Electoral College victor and the recipient of the most number of popular votes. This therefore leads to the problem that â€Å"not every vote may count†, for there is this possibility of winning the electoral vote of the state without consideration for the margin of victory.   This has been the case in the 2000 Presidential elections wherein Bush won the most number of electoral votes because of small states, while Gore, while receiving more popular votes because of the bigger states, received less electoral votes.  Ã‚   There is also a large impact on how campaigning are then being conducted, as candidates would prefer to focus on states that would be consequential to moving the results of the electoral voting.   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   There are several proposals to amend such type of electoral system. First is the adoption of the one-person-one-vote, and adopt a simple pluralist or majoritarian system.   In this way, the total number of popular votes, and not the number of electoral votes, would then determine the election winner.   Another is to proportionally distribute the electoral votes, and not the winner-take-all system. For instance, if a candidate, in a state with 30 electoral votes gets 70% of the vote, then s/he would be entitled to 21 electoral votes.   In that way, there is more consideration for the margin of preferences of the state citizens. In fact, this proportional representation system or even the direct election system can prove to be more appealing to the public than the electoral voting process, which tends to not place value on individual preferences.   The electoral system must be amended to reflect the democratic choices of the citizens. References Burrill, Richard. (1975). Controversy Over the Presidential Electoral System. United   Ã‚  Ã‚   States: R and E Research Associates. Diamond, Larry, and Marc Plattner, Eds. (2006). Electoral Systems and Democracy.   Ã‚  Ã‚  Ã‚   United States: The Johns Hopkins University Press. Paulson, Arthur. (2000). Realignment and Party Revival: Understanding American   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Electoral Politics at the Turn of the Twenty-First Century. United States:   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Praeger Publishers.

Evaluation of Consumer-Driven Health Plans (CDHPs)

Evaluation of Consumer-Driven Health Plans (CDHPs) Introduction Consumer-driven healthplans(CDHPs) are health care benefits plans focused on the commitment of patrons in health care decision-making. Consumer-driven healthplans(CDHPs) facilitate patients to also make use of dollars of employer-funded or to save their personal dollars in an account to be used to shell out for appropriate health care expenses.The backlash of managed care of the 1990s merged with growing health expenditures leaded to the formation of consumer-directed health plans (CDHPs), which lay bigger accountability for decision-making of health care in the consumer’s hands. In retort to the insight amongst consumers that managed care plans were restricting admittance to prospectively beneficial care consumer-directed plans were proposed to manage costs by altering health care decision-making accountability from insurers to customers. [Buntin MB, Damberg C,] CDHPs are anticipated to decrease spending of health care by divulging consumers to the implications of financial of their treatment decisions. The idea was that consumers, equipped with classy tools of information and rendered to the financial effects of their decisions, would compel in health care delivery value-based advance. CDHPs have developed in reputation ever since their inception, now enrolling in relation to 17 percent of people with insurance of employer-sponsored.[ Goodman, J. C.] There are three most important components of CDHPs plans under the head of the reimbursement account (HRA), health savings account (HSA),and Flexible Spending Account (FSA). The plans are initiated to support members to comprehend and have superior association in their individual decisions of health care. The employee can suitably choose when and how his or her health care dollars are utilized. Following are the descriptions of different types of plans:- Health Reimbursement Account -This account is funded by the employer. A Health Reimbursement Account plan includes a deductible, but enrollees classically employ their HRA to disburse for out-of-pocket expenses prior to they meet the deductible. The HRA plan comprises an enrollee out-of-pocket maximum. The plan offers 100 percent reimbursement once the limit is met, for covered services, together with pharmacy benefits. Health Savings Account -A Health Savings Account (HSA)is the individual account of account holder’s and can be employed to compensate for qualified pharmacy and medical expenses.HAS can be funded by the employee employer, or others. An HSA plan comprise a deductible, however enrollees can use their HSA to shell out for out-of-pocket expenses prior to they meet up the deductible. Flexible Spending Account -A patient may perhaps have the alternative to employ an FSA in combination with an HRA to assist to pay for entitled pharmacy and medical expenses not enclosed by the medical plan. This comprises non-medically necessary procedures, over-the-counter medications, (e.g., laser eye operation) and a great deal more. Consumer-driven health care tenders numerous opportunities to develop the health of employees and to lessen on the whole health care costs for employers. For the most part importantly, the model of consumer-driven health care propose support for employees, their families and further dependents to take a further dynamic role in supervision of their health and health care service. CDHPs are inclined to draw upper income, additional educated enrollees; other than there is no confirmation that CDHPs have escort to risk segmentation resultant in corroded insurance coverage. Approximately all the proof on CDHPs is from huge, self-insured employers for whom constructive choice into a CDHP is not essentially challenging. [Barry CL, Cullen MR,] On the whole, the consequences of this synthesis propose that the types of strategies used by CDHPs must carry on to be considered as an advance to containment of health care cost. [Buntin MB, Damberg C,] Research shows that major cost savings connected with these plans, suggestive of that financial incentives besieged at consumers can be efficient in lowering health care expenditures. Alongside this confirmation of cost savings there is relatively modest evidence of reductions in quality of care. While the effects of these plans on utilization and outcomes must be continued to monitored, predominantly given the changes in the types of plans offered in the market, the initial results shows prospective. Consumer Driven Healthcare Plans tender several diverse incentives such as: Tenders superior choice. Members appear to be stirring away from managed care restrictions as enrollment of HMO keep on to reducing while PPO enrollment style plans is increasing. Incentives for employees turn out to be more involved in making economic decisions in relation to the use of healthcare resulting in additional educated purchasers demanding lesser cost and superior quality service from their providers. Addresses cost and admission problems in the existing healthcare system. As the health care cost carry on to skyrocket, it is significant for employers to deem options like consumer-directed health plans (CDHP)—health plans with a confirmed trail record of sustaining wellness, even as controlling costs. These plans afford an appropriate, cost-effective resolution for companies. Employers can prefer to initiate CDHP plans as a complete substitution to the accessible health benefits program, or can tender CDHP options together with additional managed care options, for instance a PPO. Incentives can be intended to persuade members to partake and better administer their health.[ Goodman, J. C.] Employees in CDHPs from a health perspective, expend more on preventive care and emergency room visits are reduced as a result. Female patients access additional women’s health screenings, and diabetes patients also carry out monitoring at higher rates in addition. It as well has educated patients who make use of essential prescriptions to cure chronic conditions, similar to their equivalent in PPO plans. Considerably, there is greater choice of generic drugs, escalating on the whole health care savings.[ John W. Rowe, Tina Brown-Stevenson, Roberta L. Downey, and Joseph P. Newhouse] The outcomes of CDHPs on rates of coverage of insurance are unidentified. Even despite the fact that the prospective for these products to produce risk segmentation crosswise diverse types of coverage hoist concern over the affordability and admission to coverage amongst high risks, the accessibility of lower-premium items which lesser premiums by lessening spending on low-value services may perhaps eventually add to rates of insurance coverage in the midst of both high- and low- risk consumers. While the facts point out that CDHPs be inclined to experience constructive selection when they are proposed by huge employers along with other types of plans, there is no proof that constructive choice in this circumstance has inclined on the whole rates of coverage of insurance. In the case of the small and individual group markets, there is modest to no proof on the level to which CDHPs experience constructive risk selection and the inference for coverage rates. The impact of these plans In addition, on vulnerable populations, predominantly amongst people with low down levels of income and proper education, is yet uncertain. An enhanced discerning of these effects is significant as market penetration of these products enhancement and they are gradually more offered by employers on a complete basis of replacement.[ Goodman, J. C.] CDHPs In the employer-sponsored market, may perhaps be offered either unaccompanied or next to other plans, and choice may perhaps take place at the stage of the employer choosing to render the plan or at the stage of the employees choosing amongst plans. For huge firms, which in general tender CDHPs together with other plans, risk selection takes place principally in the group. Since regulation forbid employers from diverging employee contributions founded on health status of individual, employee contributions do not diverge by risk of individual. As a result, if a CDHP with a low down employee contribution and an elevated deductible is tendered along with a plan with lesser cost-sharing and an elevated employee contribution, it is to be expected to be additional striking to low risks for whom likely out-of-pocket expenditure will be lesser. When the company is self-insured, on the other hand, as almost all big firms are, the employer is at hazard for the expenditure of the whole gr oup. Consequently, the employer, who does not advantage monetarily from excessively enrolling low down risks into the CDHP, has modest inducement to tender CDHPs to support such risk segmentation. Even as an added concern is that this kind of selection may perhaps intimidate the steadiness of a additional generous plan (20), an employer may perhaps keep away from this type of unpleasant selection â€Å"death spiral† in the course of the selection of the employee contribution policy. As a result, favorable selection into CDHPs inside firms in the huge group market is not likely to be challenging. In contrast, in the small group market, employers classically tender simply one plan and habitually acquire fully insured products. Risk selection In this case, occurs principally in the structure of the employer prefering which plan to tender employees and probable amongst employees choosing whether to register in the coverage of insurance tendered by the employer. Insurers have inducement to price products founded on the group risk, and if they are not capable to make use of risk-based pricing, they may perhaps intend coverage consecutively to accomplish risk segmentation. This would in due course for low-risk groups lower the premiums and raise them for groups of high-risk. The net result on rates of coverage would rely on how each one group act in response to the consequent alterations in premiums. Risk selection connected with CDHPs is a larger concern in the individual markets and small group in abstract, since insurers have incentives to employ in risk selection in the course of benefit design in these surroundings when risk of enrollee is complicated or expensive for them to monitor. Enrollment of CDHP in these settings, nevertheless, does not essentially indicate problematical risk-based selection. Enrollment of CDHP may perhaps replicate inclination for lower-premium, a lesser amount of liberal plans in this setting. [Goodman, J. C.] Conclusion CDHPs proponents emphasize the prospective for these plans to endorse superior implication in spending of health care and to lodge various consumer preferences (19, 3, 27). In contrast Critics, hoist the concern that, even as consumers may act in response to high deductibles by means of less medical care, they may perhaps not distinguish efficiently between less and more valuable care when constructing those reductions, eventually reducing eminence of care, and that superior cost-sharing places a too much financial load on low-income and/or not as much of healthy enrollees. However, in their current form, CDHPs are expected to represent merely part of a solution to deal with high and rising health care costs. The evidence indicates that CDHPs construct savings primarily among medium and low- -risk enrollees. They have modest outcome on spending for the diminutive proportion of the population who constructs the mass of health care spending. As a result, an all-inclusive approach to tackling high health care spending would need substitute solutions targeted in the direction of high-risk populations. References â€Å"Who Chooses a Consumer-Directed Health Plan?† Barry CL, Cullen MR, et al. Health Affairs, vol. 27, no. 6, 2008 â€Å"Consumer-Directed Health Care: Early Evidence About Effects on Cost and Quality.† Buntin MB, Damberg C, et al. Health Affairs, vol. 25, no. 6, 2006. Consumer Directed Health Care. Goodman, J. C. (December 2006). Social Science Electronic Publishing, Inc, The Effect of Consumer-Directed Health Plans on the Use of Preventive and Chronic Illness Services,John W. Rowe, Tina Brown-Stevenson, Roberta L. Downey, and Joseph P. Newhouse, Health Affairs, Volume 27, Number 1, January/February 2008