The payment of cash dividend may help to minimize possible conflicts of interest between managers and shareholders, and between managers and holders of the firm’s debt

In general, the managers may pursue selfish strategies if the firm has plenty of cash flow. So, dividends can reduce agency costs by reducing cash flows and serving as a discipline mechanism on management.With large dividends, the firm may fall short of cash to invest in profitable new project. Then another way to make fund… Continue reading The payment of cash dividend may help to minimize possible conflicts of interest between managers and shareholders, and between managers and holders of the firm’s debt

discuss the significance of varying cash dividend payments for large firms quoted on stock markets

Empirically companies payout dividends with high ratio, and they spend much time and energy on deciding how much to pay out as dividends to maximize firm’s value.According to Gordon(1959)’s dividend discount model, firm’s value goes positively with the change of dividend payout, because capital gains are more risky than dividends.(1)But in 1961, Modigliani and Miller… Continue reading discuss the significance of varying cash dividend payments for large firms quoted on stock markets

Capital Asset Pricing Model(CAPM)

The core idea of the Capital Asset Pricing Model (CAPM) is that on the assumption of homogeneous expectation on financial markets, a security’s return is related linearly with beta, which is sensitivity of the capital asset to market return of equilibrium.The CAPM is developed by Sharpe W F., Lintner J., Mossin J. respectively. Sharpe published… Continue reading Capital Asset Pricing Model(CAPM)