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) agentive role ins that companies should consider when deciding their dividend policy. There are two views on whether dividend policy affects the marketplaceplace value of a company; conventional 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 absolute but future capital gains are uncertain this was hazard up by Lintner (1956) and Gordon(1959). This leads to the bird in the hand contention 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 report factor in determining the share terms. The cliente le work is a theory that a firm will pull a group of investors favouring a particular kind of dividend policy. Thus, firms with incompatible dividend policies would appeal to different kinds of investors or dividend clienteles. For example, firms gestateing stable and foreseeable 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 as pension plans that pay litt le or no taxes. An consequence of the cli! entele effect is that a firm whitethorn miscellanea the composition of its cableholders by altering its dividend pattern. Stockholders who are infelicitous with the naked as a jaybird policy may sell the stock and buy stock of companies having dividend policies more uniform with their dividend preferences. As a result, the firms stock price may decrease due to change pressure. If, however, more impertinently investors prefer the new policy...If you want to piss a rise essay, order it on our website: OrderCustomPaper.com

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