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) performer ins that companies should consider when deciding their dividend policy. There argon two views on whether dividend policy affects the groceryplace value of a company; traditional 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 dogmatic but future capital gains are uncertain this was certify up by Lintner (1956) and Gordon(1959). This leads to the bird in the hand financial statement where shares of companies give higher dividends will be more expensive than shares of companies compensable lower dividends. Hence, dividend policy is seen as a discover factor in determining the share worth. The clie ntele result is a theory that a firm will pluck a group of investors favouring a particular kind of dividend policy. Thus, firms with diametric dividend policies would appeal to different kinds of investors or dividend clienteles. For example, firms neting stable and predictable 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 much(prenominal) as pension plans that pay little or no taxes. An consequence of the clientele effect is that a firm may miscellanea the composition o! f its cableholders by altering its dividend pattern. Stockholders who are miserable with the naked as a jaybird policy may sell the stock and buy stock of companies having dividend policies more consistent with their dividend preferences. As a result, the firms stock price may decrease due to change pressure. If, however, more parvenue investors prefer the new policy...If you want to piss a lavish essay, order it on our website: OrderEssay.net

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