To see why the cost of capital is considered to be a significant influence on firms’ investment, we can consider first the capital budgeting decision of firms It would have been beneficial to note why investment and therefore understanding the determinants of investment is important –for example investment is a key element for economic growth,… Continue reading Examine the view that cost of capital is the most important influence on the level of investment
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
Explain how dividend policy may be achieved?
The decision of dividend is made by the board of directors. The chronology of dividend is as follows.1. Declaration date : the board of directors passes a resolution to pay dividends.2. Ex-dividend date : The stockholders who trade before this date are entitled to receive the dividend. On the date of ex-dividend, the stock price… Continue reading Explain how dividend policy may be achieved?
What is meant by ‘dividend policy’?
When companies make earnings, they should decide to reinvest in the company or payout to the shareholders out of earnings. Decision process on how much to reinvest and how much to payout is dividend policy. If dividend policy does not affect the change of the company value, dividend policy dose not matter.According to the research… Continue reading What is meant by ‘dividend policy’?