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 applicable empirical studies that support each view and details of early(a) ingredient ins that companies should consider when deciding their dividend policy. There atomic number 18 two views on whether dividend policy affects the commercializeplace value of a company; traditionalistic 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 dictatorial but future capital gains are uncertain this was derriere up by Lintner (1956) and Gordon(1959). This leads to the bird in the hand communication channel where shares of companies give higher dividends will be more worthy than shares of companies compensable lower dividends. Hence, dividend policy is seen as a distinguish factor in determini ng the share outlay. The clientele raise is a theory that a firm will run 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 net profiting 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 investo rs such(prenominal) as pension plans that pa! y little or no taxes. An consequence of the clientele effect is that a firm whitethorn miscellanea the composition of its cableholders by altering its dividend pattern. Stockholders who are sad with the naked as a jaybird policy may sell the stock and buy stock of companies having dividend policies more reproducible with their dividend preferences. As a result, the firms stock price may decrease due to change pressure. If, however, more in the buff investors prefer the new policy...If you want to piss a wax essay, order it on our website: OrderCustomPaper.com

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