Dividends are the distribution of profits in the company. It depends on the type of dividend policy made by companies. Dividend policy will affect the behaviours and attitudes of investors towards the company. Many economists or financial experts have constructed different theories to interpret the effects of a dividend policy to the society. But these theories are contestable since they are not tested in the real world. Managers’ decision on determining the size and time of a company’s next dividend payment is also important for both companies and shareholders. They will affect the company to distribute an appropriate amount of dividends in a right time. This essay will discuss whether theories of dividend payment, such as the dividend irrelevance and signalling effects are applicable in the real world. It will then describe some key factors that managers should consider on deciding the time and size of a company’s next dividend payment. Finally, it will conclude with the significance of a company’s decision on dividend payments.
Discussion of availability of theories in real world
Many theories such as the dividend irrelevance, tax and clientele effects and information content and signalling effects are controversial in financial studies. Economists often argue whether they are applicable and reliable in reality. Miller and Modigliani’s (1961) dividend irrelevance theory would be the typical one. MM suggested shareholders are indifferent with the changes of dividend policy in the company. The dividend policy of a firm will not affect the present value of its shares and shareholder’s wealth. A firm’s value depends on the profitability of its assets and its investment projects but not how it is “packaged for distrib...
... middle of paper ...
...tion of Incomes of Corporations Among Dividens, Retained Earnings, and Taxes. The American Journal Review, 46(2), pp. 97-113.
Mackenzie, M., 2012. US investors fret over dividend tax. Financial Times, [online] November, 12, 2012. Available at:
Miller, M.H. and Modigliani, F., 1961., Dividend Policy, Growth, and the Valuation of Shares. The Journal of Business, 34(4), pp. 411-433.
Naser, K., Nuseibeh, R. and Rashed, W., 2013. Managers' perception of dividend policy: Evidence from companies listed on Abu Dhabi Securities Exchange. Issues in Business Management and Economics, 1(1), pp. 001-012.
Ross, S.A., Westerfield, R.W., Jaffe, J. and Jordan, B.D., 2008. Modern Financial Management: International Student Edition. 8th Edition. New York: McGraw-Hill Companies.
Need Writing Help?
Get feedback on grammar, clarity, concision and logic instantly.Check your paper »
- Dividend policy is considered to be a very puzzling area in corporate finance and it has attracted the interest of many financial economists during the last decades. In order to explain this puzzle, various theories have been developed and can be separated into two major schools of thought. The first one refers to dividend irrelevance with main supporters Miller and Modigliani(1961) where dividends do not affect the value of the firm and the second one refers to dividend relevance where dividends have an impact on the firm's value.... [tags: firms, value, markets]
1643 words (4.7 pages)
- The Prince is a handbook that depicts how to obtain political power which was written by Niccolo Machiavelli in 1505 with the purpose of securing him a political position in the Medici family. (Prince) Machiavelli had been a political leader between 1498 and 1512 as a secretary of the commune of Florence and worked with internal and war affairs, thus allowing him a large amount of political experience. After the republican government of Florence fell, Machiavelli lost his position and was exiled from the city and later the entire city-state.... [tags: politics, ethics, goverment, argumentative]
1085 words (3.1 pages)
- The study makes use of the financial data on Pakistani listed firms for 2001-2008 to look at the objective behind distribution of cash dividends. Based on the analysis it is found that poorly performing firms listed on Karachi Stock Market (KSE) having larger portion of non-tradable shares pay cash dividends. Because the holders of non-tradable shares (directors and block-holders) do not/cannot realize capital gains from positive change in the price of their holdings. The study finds that cash dividend distribution behavior of the poorly-performing firms is subjected to what the directors and block-holders prefer.... [tags: Business, Stocks, Cash Dividends]
2440 words (7 pages)
- ... This therapy is now commonly known as cognitive behavioral therapy. Like Beck, Ellis practiced psychoanalysis in the 1940’s however he began practicing his own innovation rational emotive behavior therapy in 1955 (“About Ellis,” 2014). He observed that clients could modify their irrational beliefs through logical-empirical questioning, challenging, disputing and debating (Knapp & Beck, 2008, pp.55). Although Becks’ research into depression and Ellis’ observations helped lead them to this theory, other factors influenced their work.... [tags: Cognitive behavioral therapy, Psychotherapy]
1240 words (3.5 pages)
- Cherry, Kendra. (2013). Theories of Motivation: A closer look at some important theories of motivation. http://psychology.about.com/od/psychologytopics/tp/theories-of-motivation.htm The Incentive Theory of Motivation states that people do things, such as work because of the rewards that come with. For example, a child might help his grandmother clean in order to receive cookies. His motivation is the reward of the cookies. In the working world, people get rewarded by other rewards. Some of these rewards are salary, security, and health benefits.... [tags: Motivational Theories]
3360 words (9.6 pages)
- A dividend tax is an income tax paid on the earnings from a corporation that is distributed to its shareholders. Dividend payments are treated as ordinary income, and they are taxed as if the taxpayer had earned income through active work. Presently, there is much controversy surrounding the tax. The government taxes dividends twice: It first taxes corporate income, then taxes the same income again when shareholders receive dividends paid out of corporate income. Which is a “double taxation”( http://pages.stern.nyu.edu/~byeung/dividend%20taxation.pdf).... [tags: Finance ]
1368 words (3.9 pages)
- Dividends are commonly described as the distribution of earnings in real assets among the shareholders of the firm in proportion to their ownership. Dividend policy therefore refers to the payout policy which a company uses in deciding the size and pattern of cash distribution to its shareholders over time. (Kapoor, 2009:5). Mullin plc clearly used a stability strategy from 2003 to 2007 with the annual dividend rate being five shillings per share. The current economic conditions have clearly affected its ability to pay dividends to its shareholders.... [tags: financial, rates, shareholders]
568 words (1.6 pages)
- Conspiracy Theories Conspiracy theories, are they a bunch of made up old wives tales or are they reality as we know it. Well, first of all, let’s take a look at the definition of a “theory”. A “theory” or “theories” are analytical tools for understanding and explaining a given subject manner however, they aren’t always true, but they are generally expected to follow principles of rational thought or logic. Most conspiracy theories cause paranoia in certain people; it gives you the reality of this actually being true because they are published in books, written in large serious segments in websites etc.... [tags: Conspiracy Theories]
1055 words (3 pages)
- ... This however does not affect any other tax liabilities paid by Vodafone in its worldwide operations. Brennan (1970) pointed out that high levels of payout lead to increases in tax paid, thus share prices will fall to reflect this and the corresponding amount of tax liability. Thus, he proposed companies should decrease or reduce dividend paid in order to increase the value of shares. Because of this, Vodafone took an initiative by repurchasing shares to reduce its’ tax burden. In addition, Grullon and Michaely (2002) published a paper in which they described firms nowadays prefer share repurchases rather than dividends due to a favourable tax shield.... [tags: bodafone, share buyback program ]
1780 words (5.1 pages)
- Though Marx’s theories were first conceived over 150 years ago, his work continues to be tremendously influential and is perhaps the most well known scholarship within the sociological canon. Despite their prominence, some of Marx’s most famous ideas have yet to be proven by the course of history. Neo-Marxists may insist that the revolution is coming, but the fact remains that the overthrow of capitalism has yet to materialize. I argue that the communist revolution has not yet occurred because the proletariat has been unable to develop the universal class consciousness that Marx asserts is a necessary condition for his predicted mass uprising.... [tags: Neo-Marxist Theories, Marxist Ideology]
1564 words (4.5 pages)