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) agentive role ins that companies should consider when deciding their dividend policy. There ar two views on whether dividend policy affects the groceryplace value of a company; tralatitious 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 imperious but future capital gains are uncertain this was backward up by Lintner (1956) and Gordon(1959). This leads to the bird in the hand literary argument where shares of companies give higher dividends will be more legal injuryless than shares of companies compensable lower dividends. Hence, dividend policy is seen as a let out factor in determining the share price. The clientele raise is a theory that a firm will appeal a group of investors favouring a particular kind of dividend policy. Thus, firms with varied dividend policies would appeal to different kinds of investors or dividend clienteles. For example, firms containing stable and inevitable 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 o! f the clientele effect is that a firm whitethorn miscellanea the composition of its cableholders by altering its dividend pattern. Stockholders who are unhappy with the naked as a jaybird policy may sell the stock and buy stock of companies having dividend policies more arranged with their dividend preferences. As a result, the firms stock price may decrease due to change pressure. If, however, more rude(a) investors prefer the new policy...If you want to piss a replete(p) essay, order it on our website: OrderCustomPaper.com

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