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Carry out your own research to find a non-financial firm that changed its dividend policy over the last few years. Assess the (p - Essay Example
Finance & Accounting
Pages 14 (3514 words)
Carry out your own research to find a non-financial firm that changed its dividend policy over the last few years. Assess the (possible) reasons for the change and critically argue the impact of the change on its share price. Introduction Dividend policy is the strategy that a particular company uses to determine the amount of funds that should be retained for reinvestment in new projects and the amount of dividend that should be paid out to the shareholders…
One of the key theories that explain the relationship between dividend policy and stock price is the irrelevance of dividend policy, in which Miller and Modigliani (1961) suggest that dividend policy is immaterial when it comes to determination of the shareholders’ wealth. They specifically argued that, without considering market imperfection and taxes; the shareholders’ wealth is not affected in any way. Hakansson (1982) supported the views of Miller and Modigliani by maintaining that dividend do not play any role in the value of the firm, regardless of whether they are informative or not; but this applies only when investors possess time additive utility and homogenous belief as well as when the market is fully efficient. Different empirical studies associated with dividend theory policies do not show consistent results. As such, it is not possible to give a general view as to whether the investors prefer dividend or capital gain. ...
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