Discuss the Proposition that a Company's Dividend Policy is Irrelevant to its Market Value.

Discuss the Proposition that a Company
High school
Essay
Finance & Accounting
Pages 7 (1757 words)
Download 0
Discuss the Proposition that a Company's Dividend Policy is Irrelevant to its Market Value Dividend irrelevance theory basically signifies that an issuance of dividends must have little or no impact on stock price. This theory is “A postulation that the dividend policy of a company should have minimal effect on the investment decisions made by an investor due to the fact that the payment or non-payment of a dividend will not necessarily impact the net return to the investor…

Introduction

Some argue that dividend policy will not affect the wealth of the shareholders, whereas some have the opinion that the decisions about dividend policy will affect the shareholder’s wealth and the firm’s valuation. “Dividend policy refers to the decision regarding the magnitude of the dividend payout, the percentage of earnings paid to the stockholders in the form of dividends. The central, and as yet unresolved, issue concerning dividend policy is whether changes affect firm value” (Dividend Policy 2012). Following are the factors which influence the dividend policy: • Market deficiency for example taxes, agency costs, asymmetric information, flotation costs and transaction costs. • Behavioral considerations for instance illogical shareholder behavior, behavioral desires of shareholders and usual behaviors of firms. • Industry characteristics for example profitability, size, investment opportunities, availability of cash on probable cash flows and future earnings. • Managerial likings for example smoothing of dividends and the disinclination to decrease future dividends. ...
Download paper
Not exactly what you need?

Related papers

Event Study for Efficient Market Hypothesis- Ex dividend Data
Anomalies in the expression of the standard, tax centric theory of stock performances have been noted and described. While a tax centric hypothesis has explanatory power, this study examines evidence that there are additional forces of corporate governance, ownership concentration, and market capitalization that can adjust the performance of dividends independent of taxation. This study is a…
The Effect of Recession on Dividend Policy.
Some of the logical explanations on how the various sectors were affected by the recession in terms dividend payout. …
For and Against the Irrelevance of Dividend Policy
When earnings are dispensed as dividends, the company is deprived of funds which are needed for augmentation and development, and this might result in the company looking for supplementary capital from external sources. Firms are not legally required to pay dividends to stockholders. Similarly, the stockholders cannot officially compel the Board of Directors to declare dividends. In addition to…
DIVIDEND POLICY
The management increased both the interim and final dividend throughout the four-year period. In 2007 the company paid an interim dividend of 6.5p which increased to 6.75p in 2008, 6.9p in 2009,7.6p in 2010 and finally 7.9p in 2011. For the case of the final dividend, the amount paid in 2008 was 13.5p, which was increased to 14.1p, 16.2p, 16.85p in 2009,200 and 2011 respectively (Associated…
Dividend Policy Corporate Finance Essay
Dividend policy are a very important and crucial decision for any firm and needs to be taken in a planned manner so as to have a positive impact on all stake holders. The dividend policy needs to be clearly defined and may change every year depending upon the dynamic nature of the business. The firm can choose to retain all the earnings or pay them out as dividends or even strike a balance in the…
Corporate Valuation, Capital Structure and Dividend policy.
News Corporation is one of the top television groups in the world. Its business includes the best broadcasting company of United States called Fox Broadcasting Company. News Corporation’s cable network programming segment produces and issues licenses for programming to be broadcast on satellite. In addition to this News Corporation is one of the best motion picture producers. Fox Filmed…
Carry out your own research to find a non-financial firm that changed its dividend policy over the last few years. Assess the (p
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…