Chapter+15+dividend6-1财务管理.pptVIP

CHAPTER 15Distributions to shareholders: Dividends and share repurchases Investor preferences on dividends Signaling effects Residual model Dividend reinvestment plans Stock repurchases Stock dividends and stock splits What is dividend policy? The decision to pay out earnings versus retaining and reinvesting them. Dividend policy includes High or low dividend payout? Stable or irregular dividends? How frequent to pay dividends? Dividend irrelevance theory Investors are indifferent between dividends and retention-generated capital gains. Proposed by Modigliani and Miller and based on unrealistic assumptions (no taxes or brokerage costs), hence may not be true. Need an empirical test. Bird-in-the-hand Theory Capital gains are less certain than dividend payments. Investors value a dollar of expected dividends more highly than a dollar of expected capital gains. Tax Preference Theory Dividends are taxed now but capital gains are not taxed until sold. Investors may prefer to have companies retain most of their earnings. Other Theories Agency Theory Signaling Theory Reputation Theory Agency Theory Firms pay dividends to alleviate the agency problem between shareholders and managers. Dividends act as a mechanism to pay out free cash flows to shareholders so that there is less chance of investing the money on negative NPV projects. What’s the “information content,” or “signaling,” hypothesis? Investors view dividend changes as signals of management’s view of the future. Managers hate to cut dividends, so won’t raise dividends unless they think raise is sustainable. Therefore, a stock price increase at time of a dividend increase could reflect higher expectations for future EPS. Reputation Theory It incorporates the time aspect in the analysis of dividends. Unlike signaling theory, a onetime payment of dividends cannot fully separate high value firms from low value firms in the financial market. As a firm continues to pay dividends through time, the firm establishes a