...The term ‘dividend policy’ refers to “the practice that management follows in making dividend payout decisions or, in other words, the size and pattern of cash distributions over time to shareholders” (Lease et al., 2000, p.29). This issue of dividend policy is one that has engaged managers since the birth of the modern commercial corporation. Surprisingly then dividend policy remains one of the most contested issues in finance. Dividend policy is concerned with financial policies regarding paying cash dividend in the present or paying an increased dividend at a later stage. Whether to issue dividends and what amount, is determined mainly on the basis of the company's unappropriated profit (excess cash) and influenced by the company's long-term earning power. When cash surplus exists and is not needed by the firm, then management is expected to Payout some or all of those surplus earnings in the form of cash dividends or to repurchase the company's stock through a share buyback program. Management must also choose the form of the dividend distribution, generally as cash dividends or via a share buyback. Various factors may be taken into consideration: where shareholders must pay tax on dividends, firms may elect to retain earnings or to perform a stock buyback, in both cases increasing the value of shares outstanding. Alternatively, some companies will pay "dividends" from stock rather than in cash. Our group have selected 3 journals related to the dividend policy in...
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...Theories for Dividend Policy and Factors Affecting Dividend Payout A Review of the Literature Prepared for, 11038 Corporate Finance 307 School of Economics and Finance Curtin Business School Curtin University Miri Sarawak Campus Abstract The main objective of this literature review is to highlight the major theories for dividend policy that have been discussed and argued by many researchers over the years. It is aim to helping firms’ management to set their dividend policy and provide additional knowledge to investors. The theoretical aspect is agency theory which has negative relationship between percentages of insiders and ratio of dividend payout. The signaling theory is applicable in the real world but there is no evidence to support changes in dividend payout signaling the current and future performance of the firm. Bird-in-the-hand theory which risk adverse investors prefer receive dividend now instead of sell their shares in future for capital gain and this theory was not agreed by MM. Next is tax preference theory to study whether the level of firm leverage ratio will affect the dividend payout but it is not applicable for Indian firms. Lastly will discuss about how firm size and financial leverage can affect the firms’ dividend payout. In conclusion, since firms are free to choose whether to distribute dividend or retained their earnings, so there are not right or wrong theories and factors for dividend policy. Government regulations on firms and corporate...
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...com/locate/econbase Corporate governance, dividend payout policy, and the interrelation between dividends, R&D, and capital investment Klaus Gugler * Department of Economics, University of Vienna, WP No. 9803, Br€nnerstrasse 72, 1210 Vienna, Austria u Received 12 October 2000; accepted 5 November 2001 Abstract This paper investigates the relationship between dividends and the ownership and control structure of the firm. For a panel of Austrian firms over the 1991/99 period, we find that statecontrolled firms engage in dividend smoothing, while family-controlled firms do not. The latter choose significantly lower target payout levels. Consistently, state-controlled firms are most reluctant and family-controlled firms are least reluctant to cut dividends when cuts are warranted. The dividend behavior of bank- and foreign-controlled firms lies in between stateand family-controlled firms. This is consistent with the expected ‘‘ranking’’ of information asymmetries and managerial agency costs. The above results hold for firms with good investment opportunities. We find that firms with low growth opportunities optimally disgorge cash irrespective of who controls the firm. Ó 2002 Elsevier Science B.V. All rights reserved. JEL classification: G3; L2; D9 Keywords: Corporate governance; Dividend policy; Simultaneous equations 1. Introduction In March 1999, Richard Schenz, the CEO of OMV AG, the largest Austrian corporation, announced a dividend increase of 10% despite the fact that ordinary...
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...Administration ISSN: 1451-243X Issue 9 (2010) © EuroJournals, Inc. 2010 http://www.eurojournals.com Dividend Policy: A Review of Theories and Empirical Evidence Husam-Aldin Nizar Al-Malkawi Corresponding Author, Faculty of Business, ALHOSN University P.O. Box 38772 - Abu Dhabi, UAE E-mail: h.almalkawi@alhosnu.ae Michael Rafferty Senior Research Analyst, WRC, University of Sydney, Australia E-mail: m.rafferty@econ.usyd.edu.au Rekha Pillai Faculty of Business, ALHOSN University, Abu Dhabi, UAE E-mail: r.pillai@alhosnu.ae Abstract The literature on dividend policy has produced a large body of theoretical and empirical research, especially following the publication of the dividend irrelevance hypothesis of Miller and Modigliani (1961). No general consensus has yet emerged after several decades of investigation, and scholars can often disagree even about the same empirical evidence. This paper aims at providing the reader with a comprehensive understanding of dividends and dividend policy by reviewing the main theories and explanations of dividend policy including dividend irrelevance hypothesis of Miller and Modigliani, bird-in-the-hand, tax-preference, clientele effects, signalling, and agency costs hypotheses. The paper also attempts to present the main empirical studies on corporate dividend policy. However, due to the enduring nature and extensive range of the debate about dividend policy which has spawned a vast amount of literature that grows by the day, a full review of all debates...
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...Domestic risk 4. It is the cost of capital that is expected to raise funds to finance a capital budget or investment proposal. a. Future cost 5. This concept is helpful in formulating a sound & economical capital structure for a firm. c. Designing optimal corporate capital structure 6. It is the minimum required rate of return needed to justify the use of capital. b. Firms point 7. It arises when there is a conflict of interest among owners, debenture holders and the management. d. Agency costs 8. Some guidelines on shares & debentures issued by the government that are very important for the constitution of the capital structure are: a. Legal requirement 9. It is that portion of an investments total risk that results from change in the financial integrity of the investment. b. Default risk 10. _____________ measure the systematic risk of a security that cannot be avoided through diversification. a. Beta Part Two: 1. What do you understand by wealth maximization? Wealth maximization is a modern approach to financial management. The wealth maximization strategy generally involves making sound financial investment decisions which take into consideration any risk factors that would compromise or outweigh the anticipated benefits. Maximization of profit used to be the main aim of a business and financial management till the concept of wealth...
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...ACKNOWLEDGEMENT We gratefully acknowledge permission to quote from the past examination papers of the following bodies: Kenya Accountants and Secretaries National Examination Board (KASNEB); Chartered Institute of Management Accountants (CIMA); Association of Chartered Certified Accountants (ACCA). We also wish to express our sincere gratitude and deep appreciation to Mr. Geoffrey Ngene MBA, B.COM (Finance), CPA (finalist), CFA (East Africa). He is a senior lecturer at Strathmore University, School of Accountancy. He has generously given his time and expertise and skilfully co-ordinated the detailed effort of reviewing this study pack. INSTRUCTION FOR STUDENTS This study guide is intended to assist distance-learning students in their independent studies. In addition, it is only for the personal use of the purchaser, see copyright clause. The course has been broken down into eight lessons each of which should be considered as approximately one week of study for a full time student. Solve the reinforcement problems verifying your answer with the suggested solution contained at the back of the distance learning pack. When the lesson is completed, repeat the same procedure for each of the following lessons. At the end of lessons 2, 4, 6 and 8 there is a comprehensive assignment that you should complete and submit for marking to the distance learning administrator. Submission Procedure 1. After you have completed a comprehensive assignment clearly identify...
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...permission in writing from the publishers. Library of Congress C atalo g C ard No.: 71-140760 Printed in the United States of America Current Printing (last digit): 1 0 9 8 7 6 5 4 3 2 13-315309-6 PRENTICE-HALL, INTERNATIONAL, LONDON PRENTICE-HALL OF AUSTRALIA PTY. LTD., SYD NEY PRENTICE-HALL O F CAN AD A, LTD., TO RONTO PRENTICE-HALL OF INDIA PRIVATE LTD., NEW DELHI PRENTICE-HALL OF JAPAN, INC., TO KYO 1 To Mimi, D rew , Stuart, and Stephen Preface Though significant portions of Financial Management and Policy have been changed in this revision, its purpose remains: first, to develop an understanding of financial theory in an organized manner so that the reader may evaluate the firm’s investment, financing, and dividend deci sions in keeping with an objective of maximizing shareholder wealth; second, to become familiar with the application of analytical techniques to a number o f areas o f financial decision-making; and third, to expose the reader to the institutional material necessary to give him a feel for the environment in which financial decisions are made. In revising, I have attempted to reflect changes that have occurred in financial theory and practice since the first edition as well as to sharpen and update existing material so that it is better structured and more easily comprehended. There is an increased emphasis upon valuation and upon linking various financial decisions with valuation. In this regard,...
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...Licensed to: iChapters User Eugene F. Brigham UNIVERSITY OF FLORIDA Joel F. Houston UNIVERSITY OF FLORIDA Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Eugene F. Brigham UNIVERSITY OF FLORIDA Joel F. Houston UNIVERSITY OF FLORIDA Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Licensed to: iChapters User This is an electronic version of the print textbook. Due to electronic rights restrictions, some third party content may be suppressed. Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. The publisher reserves the right to remove content from this title at any time...
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...Modigliani and Miller proposition one (Modigliani & Miller 1958) assume that the composition of the firm's capital Structure is unimportant on the market value of all firms' securities, and consequently the firm's performance and shareholders' value. “The market value of any firm is independent of its capital structure and is given by capitalizing its expected return at the rate appropriate to its class. “This model depends on two keys, arbitrage and homemade alternative (borrowing on personal account). Arbitrage is the process that ensures that two firms differing on laying their capital structure must have the same performance. At the same time the homemade alternative describes that an investor holding an equity stake in a levered firm can sell his stake, raise a personal loan equal to the share that he held in the levered firm, spend the proceeds in a firm that is not levered and increase his income without additional cost. They assume that the shares of the firms within a given class both have the same expected return and the same probability distribution of expected return, and therefore can be considered perfect substitutes for each other. Modigliani and Miller proposition two This proposition is derived from the first one and it concerns he performance of a Common stock in companies whose capital structure contains some debt. The expected rate of return of a stock of any company belonging to a class is a linear function of the firm's leverage. “The expected...
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...STANDARD EDITION Ross Westerfield Jordan FUNDAMENTALS OF CORPORATE FINANCE tenth edition StuDEntS... Want to get better grades? (Who doesn’t?) Prefer to do your homework online? (After all, you are online anyway…) Need a better way to study before the big test? (A little peace of mind is a good thing…) With McGraw-Hill's Connect Plus Finance, ® StudentS get: • Easy online access to homework, tests, and quizzes assigned by your instructor. • Immediate feedback on how you’re doing. (No more wishing you could call your instructor at 1 a.m.) • Quick access to lectures, practice materials, eBook, and more. (All the material you need to be successful is right at your fingertips.) • A Self-Quiz and Study tool that assesses your knowledge and recommends specific readings, supplemental study materials, and additional practice work.* *Available with select McGraw-Hill titles. Less managing. More teaching. Greater learning. InStRuctoRS... Would you like your students to show up for class more prepared? (Let’s face it, class is much more fun if everyone is engaged and prepared…) Want an easy way to assign homework online and track student progress? (Less time grading means more time teaching…) Want an instant view of student or class performance? (No more wondering if students understand…) Need to collect data and generate reports required for administration or accreditation? (Say goodbye to manually tracking student learning outcomes…) Want to record...
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...Journal of Financial Economics 61 (2001) 000-000 The theory and practice of corporate finance: Evidence from the field John R. Grahama, Campbell R. Harveya,b,* aFuqua School of Business, Duke University, Durham, NC 27708, USA bNational Bureau of Economic Research, Cambridge, MA 02912, USA (Received 2 August 1999; final version received 10 December 1999) Abstract We survey 392 CFOs about the cost of capital, capital budgeting, and capital structure. Large firms rely heavily on present value techniques and the capital asset pricing model, while small firms are relatively likely to use the payback criterion. A surprising number of firms use firm risk rather than project risk in evaluating new investments. Firms are concerned about financial flexibility and credit ratings when issuing debt, and earnings per share dilution and recent stock price appreciation when issuing equity. We find some support for the pecking-order and trade-off capital structure hypotheses but little evidence that executives are concerned about asset substitution, asymmetric information, transactions costs, free cash flows, or personal taxes. JEL classification: G31, G32, G12 Key words: Capital structure; Cost of capital; Cost of equity; Capital budgeting; Discount rates; Project valuation; Survey *Corresponding author, Tel: 919 660 7768, Fax: 919 660 7971 E-mail address: cam.harvey@duke...
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...PART 1 Introduction to Managerial Finance CHAPTERS IN THIS PART 1 2 3 The Role and Environment of Managerial Finance Financial Statements and Analysis Cash Flow and Financial Planning INTEGRATIVE CASE 1: TRACK SOFTWARE, INC. CHAPTER 1 The Role and Environment of Managerial Finance INSTRUCTOR’S RESOURCES Overview This chapter introduces the student to the field of finance and explores career opportunities in both financial services and managerial finance. The three basic legal forms of business organization (sole proprietorship, partnership, and corporation) and their strengths and weaknesses are described, as well as the relationship between major parties in a corporation. The managerial finance function is defined and differentiated from economics and accounting. The chapter then summarizes the three key activities of the financial manager: financial analysis and planning, investment decisions, and financing decisions. A discussion of the financial manager's goals – maximizing shareholder wealth and preserving stakeholder wealth – and the role of ethics in meeting these goals is presented. The chapter includes discussion of the agency problem – the conflict that exists between managers and owners in a large corporation. Money and capital markets and their major components are introduced in this chapter. The final section covers a discussion of the impact of taxation on the firm's financial activities. PMF DISK This chapter's topics are not covered on the PMF Tutor,...
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...Baruch College, Indiana University, Ohio State University, Penn State University, Rice University, Rutgers University, Southern Methodist University, University of Georgetown, University of Houston, University of Illinois, and University of Pittsburgh for helpful comments. All errors are the responsibility of the authors. The Impact of performance-based compensation on misreporting Abstract This paper examines the effect of CEO compensation contracts on misreporting. We find that the sensitivity of the CEO’s option portfolio to stock price is significantly positively related to the propensity to misreport. We do not find that the sensitivity of other components of CEO compensation, i.e., equity, restricted stock, long-term incentive payouts and salary and bonus have any significant impact on the propensity to misreport. Relative to other components of compensation, stock options are associated with stronger...
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...| | |Chapter 18: Operating & Financial Leverage | |Chapter Review Solutions | Note: Answers contain the new company tax rate of 30%. 1. | | |( i ) |( ii ) |( iii ) | | |E.B.I.T. | 400,000 | 400,000 | 400,000 | |Less |Interest | < 0 > | < 240,000 > | | | |E.B.T. | 400,000 | 160,000 | 280,000 | |Less |Tax @ 30% | < 120,000 > | < 48,000 > | < 84,000> | | |E.A.T. | 280,000 | 112,000 | 196,000 | |÷ |No. of Ordinary Shares |5,000,000 |3,000,000 |4,000,000 | |( |E...
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...Solution Manual to accompany Accounting: Business Reporting for Decision Making 4e Jacqueline Birt, Keryn Chalmers, Suzanne Byrne, Albie Brooks & Judy Oliver Prepared by Jacqueline Birt John Wiley & Sons Australia, Ltd 2012 Chapter 1: Introduction to accounting Comprehension Questions 1.1 What is a business transaction and how does it relate to the accounting process? Illustrate the concept of a business transaction with five examples relating to a mobile phone distributor. A business transaction can be defined as external exchanges of resources between the entity and another entity or individual that affects the assets, liabilities and owners’ equity items in an entity. The accounting process is the identifying, measuring and communicating of economic information about an entity to a variety of users for decision-making purposes. The first component of the process is the identification of business transactions which are then measured and communicated to the different users of financial reports. Business transactions for a mobile phone distributor include the following: 1. The contribution of capital by the owner to commence the business. This transaction would increase cash (asset) and increase capital (equity). 2. The purchase of inventory (mobile phones) on credit. This transaction would increase inventory (asset) and increase creditor (liability). 3. The payment of office rent. This transaction would decrease cash (asset) and decrease...
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