Dividend Policy

Critically examine both the handed-down and Modigliani and Miller theories on how dividend policy affects the value of a company. Your answer should include relevant empirical studies that support each view and details of early(a) element ins that companies should consider when deciding their dividend policy. There atomic number 18 two views on whether dividend policy affects the marketplaceplace value of a company; traditional and M&M. The traditional says dividends are relevant to market value of a firm. It argues investors prefer large dividends to smaller dividends because the dividend is authorised but future capital gains are uncertain this was defend up by Lintner (1956) and Gordon(1959). This leads to the bird in the hand note where shares of companies give higher dividends will be more of import than shares of companies compensable lower dividends. Hence, dividend policy is seen as a appoint factor in determining the share price. The client ele progeny is a theory that a firm will clear a group of investors favouring a particular kind of dividend policy. Thus, firms with antithetical dividend policies would appeal to different kinds of investors or dividend clienteles. For example, firms cedeing stable and predictable dividends would attract investors needing stability and income.

Those investors not needing current income would prefer firms that pay subatomic or no dividends. Stocks of utility companies with high dividends are probably to attract individual investors seeking income and institutional investors such(prenominal) as pension plans t hat pay little or no taxes. An consequenc! e of the clientele effect is that a firm whitethorn miscellanea the composition of its cableholders by altering its dividend pattern. Stockholders who are dysphoric with the naked as a jaybird policy may sell the stock and buy stock of companies having dividend policies more conformable with their dividend preferences. As a result, the firms stock price may decrease due to change pressure. If, however, more parvenu investors prefer the new policy...If you want to piss a generous essay, order it on our website: OrderCustomPaper.com

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