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Chap.18 Dividend policy
1. Dividend usually refers to a cash distribution of earnings.
2. Type: cash dividends—will reduce cash and retained earnings—except in the case of a liquidating dividend(where paid-in capital may be reduced); stock dividend, no cash leaves firm, increase the number of shares outstanding, thereby reducing the value of each share. Often expressed as ratio.
3.
4. It is worthwhile to note that the share price will therefore fall on the ex-dividend date(assuming no other events occur), this drop is an indication of efficiency, because the market rationally attaches value to a cash dividend. In the world with neither taxes nor transaction costs, the share price would be expected to fall by the amount of the dividend.
5. MM paper proves that investors are indifferent to dividend policy in a more general setting.
6. Homemade Dividends
由于公司和投资者均能沿着图中斜线移动,因此,本模型中股利政策是无关的。公司的股利政策变化,投资者可通过股利再投资或出售部分股票而使其失效,最终达到斜线上他所期望的股利额。
7.
8. Share repurchase
Dividend versus Repurchase: Conceptual example:
Instead of paying dividends, a firm may use cash to repurchase shares of its own equity. If commissions, taxes and other imperfections are ignored in example, the shareholders are indifferent between a dividend and repurchase. In perfect market, the firm is indifferent between a dividend payment and a share repurchase. This result is similar to the indifference propositions established by MM for debt versus equity financing and for dividends versus capital gains. Repurchase agreement is beneficial because earnings per share increase. Because the drop in shares after a repurchase implies a reduction in the denominator of the EPS ratio. In perfect market, the total value to the shareholder is the same under the dividend payment strategy as under the repurchase strategy.
Dividend versus Repurchase: real-world example:
Flexibility
Firms often view dividends as a commitment to their shareholders and are quite hesitant to reduce an...