清华公司财务讲义.ppt

Chapter 11Dividend Policy Main Content Different Forms of Dividends Theories of Dividend Policy and Their Implications Managerial Consideration Repurchase Stock Dividends and Stock Splits Different Forms of Dividends Cash dividend Share repurchase Stock dividend Basic Theories of Dividend Policy and Their Implications Does dividend policy matter? Dividend Irrelevance:  Modigliani and Miller MM argued that dividend policy has no effect on either the price of a firm’s stock or its cost of capital. Dividend Irrelevance: Modigliani and Miller (continued) Reasons: The value of a firm is determined by its basic earning power and its risk class, therefore, the value of a firm depends on its asset investment policy rather than on how earning are spilt between dividends and retained earning. Dividend Irrelevance: --Modigliani and Miller (continued) Implication: If this theory is true, financial managers need not to care about any particular pattern of dividend payout. “Bird-in-hand”: Gordon and Lintner KS increases as the dividend payout is increased. “Bird-in-hand”: Gordon and Lintner Reason: D1 is less risky than g, therefore investors value a dollar of expected dividend more highly than a dollar of expected capital gains. Implication: Cash dividend is preferable. Tax Differential Theory:  Lintzenberger and Ramaswamy Capital gains have the advantages of deferring tax payment. Implication: If this theory is true, what kind of dividend payout the financial managers will take determines on the tax policy. Tests on Basic Theories None of tests support one theory more strongly than does to the others. Other Dividend Policy Theories And Their Implications Signaling Hypothesis A higher-than-normal dividend increase is a signal to investors that the firm’s management forecasts good future earning. Conversely, a dividend reduction or a small-than-normal increase is a signal that management is forecasting poor earnings in the future. Thus