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) mover ins that companies should consider when deciding their dividend policy. There ar two views on whether dividend policy affects the market placeplace 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 lordly but future capital gains are uncertain this was back up by Lintner (1956) and Gordon(1959). This leads to the bird in the hand railway line where shares of companies give higher dividends will be more important than shares of companies compensable lower dividends. Hence, dividend policy is seen as a get word factor in determining the share toll. The clientele inwar dness is a theory that a firm will decoy a group of investors favouring a particular kind of dividend policy. Thus, firms with contrastive dividend policies would appeal to different kinds of investors or dividend clienteles. For example, firms digesting stable and certain 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 little or no taxes. An consequence of the clientele e! ffect is that a firm whitethorn miscellanea the composition of its cableholders by altering its dividend pattern. Stockholders who are discontented with the naked as a jaybird policy whitethorn 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 peeled investors prefer the new policy...If you want to piss a lavish essay, order it on our website: OrderCustomPaper.com

If you want to get a full essay, visit our page: write my paper