Reviving The Capital Market
Millions of small savers have been incurring lose investing in shares of listed companies and in mutual fund units. Price indexes of stock exchanges have been falling months together. Investors continuously are incurring capital lose. Those who are not selling shares and mutual fund units in expectation of reasonable dividends are also frustrated getting negligible dividends. But most of the listed companies are performing well and earning handsome net profits. Even listed companies in general are doing good business but not providing total net profit or lion share of net profit to shareholders. It is owing to the depriving mentality of directors. Board of directors are transferring lion portion of earned net profit to reserve account of the company concerned. They intend to enjoy the consequence benefits from the reserve as they manage the company. Shareholders, in general do not get back reserve in their life time. Directors can do these irrational and depriving decisions owing to the limitations of Bangladesh Security Exchange Commission (BSEC) regulations. If share investors got total net profit or lion share if net profit of the company as dividend capital market could stay in good status. Their return from share investment could have been considered commensurate. They would not create presser to sale shares of the companies they hold if they get good return, which the companies could providing rational dividends. That cause less presser of sale of shares in Dhaka Stock Exchange and Chattogram Stock Exchange. Rapid and continuous fall of prices could have been stopped or slowed down. When companies use to distribute handsome dividend, mutual funds profit could have increased. As a result those could provide reasonable dividend and could stabilize market price.
In this scenario, to improve capital market in Bangladesh companies have to share total or lion share of earned net profits with shareholders and a negligible portion of net profits are to be transferred to the reserve account for rainy days. BSEC has to come forward to bound board of directors to distribute as much dividend as possible from earned profits. The following suggestions may be framed in regulation form by BSEC:
Reserve of a listed company must not exceed paid up capital. The existing companies who have reserve over paid up capital will be allowed two financial years to completely the policy.
When reserve will remain below paid up capital, maximum 20% net profit could be transferred to reserve account in a financial year but not exceeding paid up capital.
Stock cannot be given as dividend exceeding cash dividend in a financial year.
Without case dividend stock dividend cannot be given in a financial year.
When reserve will be equal to the paid up capital, total net profit is to be distributed as dividend to shareholders.
Violation of these policies/regulation(s) will disqualify directors. BSEC will remove the directors responsible for the violation. And corporate tax conception will not be allowed the company that violates the policies/ regulation(s), that is, the company has to give corporate tax as non-listed company.
These policies and regulations will ensure getting rational dividends by shareholders; capital market will get opportunity to improve.
Md Ashraf Hossein
120, Central Bashabo
Dhaka-1214
