The subject of cash dividend is one of the important topics for investors after the general meeting of a company. According to the reform of the Commercial Code of the Islamic Republic of Iran ratified in 1969, companies are obligated to prepare financial statements and to hold general meeting until four-month period after the end of the financial year. Moreover, the commercial code compels the companies to provide the exact date of profit sharing before the assemblies and the maximum time period for the payment of dividends is set at 8 months after the date of annual ordinary general meeting. This is while in Tehran Stock Exchange the problem of the amount of dividend as well as the time and method of payment is part of the objections and complaints of shareholders during the season of companies’ general meeting.


The season of companies’ meetings is considered as the time to present the yearly performance of companies. The approval of financial statements and also the cash amount of dividend is one of the instructions of this meeting. During recent years, shareholders have always been complaining about the dilemma of profit sharing. The complaint regarding the amount of the dividend and the timetable of their payment have been some of the main issues discussed during the meetings, which is due to the weakness of laws and regulations and investigations regarding any complaints will be very time-consuming. Despite the existing objections, former policies are still being pursued at Tehran Stock Exchange, which can be viewed as the direct result of lack of sufficient supervision over this part of companies’ activities. The time of profit sharing is one of the main problems that exist in the stock market and consists on average of a period of 3 to 8 months. This time is usually announced by the company within days before the general meeting. While the dividend is distributed to shareholders during a long period of time, on the opening day the amount of the dividend is deducted from the share value. This issue, which normally appears attractive, can be followed by sale pressure from shareholders. On the other hand, despite the publishing of the profit sharing timetable by companies, in some cases it has been seen that as a result of liquidity problems companies are not capable of paying dividend even at the designated dates. The method of payment of dividends is another problem that exists in this regard. Absence of relevant authorities and clear regulations in this regard can lead to confusion for shareholders in receiving their cash dividend. Each company necessitates its shareholders to declare an account number from a designated bank (according to the agreement between companies with various banks) in order to directly pay their dividends. In this situation, a shareholder that wants to receive dividends from a number of companies is required to open accounts in these banks.


Other companies that do profit sharing indirectly suggest other banks, and finding the names of these banks add to the problems of determining the timetable for profit sharing. As pointed out earlier, lack of clear and compelling regulations is among the factors that have aggravated the problems that exist in the Tehran Stock Exchange. The amount of the cash dividend is another problem that has led to shareholders’ protest. In this regard, shareholders’ complaints especially the real ones regarding cash dividends is seen less at the meetings. This is while the boards of directors of the companies usually consider much less sums. In analyzing this problem in comparison to the one stated before it should be noted that the departure of liquidity from companies is a factor that eventually diminishes their strength in development plans and creates financial problems for the company in the years ahead. As a result of this issue, companies will be obligated to obtain financial facilities with very high interest rates in present situations. The increase in companies’ costs as a result of these high interests will hamper the successful performance of the company. Liquidity problems will also prevent companies to carry out timely payment of dividends in the future years.


It is apparent that the average dividend during the recent years has been around 75%, which is high among Iranian companies. In reality, according to the theory of signaling if the management of the company is confident about the arrival of cash flow in the future as well as the surplus of resources, it will perform profit sharing. However, this is not very popular among stock exchange companies and in some cases it has been seen that in order to obtain more popularity among shareholders and to respond to the needs of major shareholders, the management of the company will share dividends even through seeking loans.


These actions will result in weakening of the financial structure of the company, and in addition high amount of loans during economic boom has resulted in the reduction of the company’s ability to repay its debt to banks and in such conditions profit sharing does not seem to be a very rational solution for the companies. In present economic situation it can be stated that for companies that do not have any management or operational problems, profit sharing can be harmful for future performance since a major part of their resources will go out and even the management will be obligated to seek loans in order to compensate for these losses. Therefore, profit sharing in such situations does not necessarily guarantee shareholders’ benefit.


Considering the above mentioned arguments, it is apparent that legal structure and requirements concerning the issue of profit sharing should be earnestly pursued by the judiciary branch and the Securities and Exchange Organization, and also investors by considering long term benefits of the company should vote for profit sharing. On the other hand, those investors who seek shares with high return should primarily investigate the liquidity and financial claims of a company before purchasing any of its shares.