Corporate Dividend Policy Analysis

This assignment delves into the factors that determine corporate dividend policy. It utilizes Grain Corp Limited as a case study to illustrate these concepts. The analysis incorporates theoretical frameworks like capital market theory and considers empirical evidence from academic research. Specific references are cited, including studies by Denis & Osobov, Al-Malkawi, Chung et al., Wiemer & Diel, and Al-Kuwari. Data on Grain Corp Limited's share performance is sourced from Yahoo Finance, providing a practical dimension to the analysis.

Running Head: corporate finance
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Project Report: Corporate Finance

Corporate finance
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Que a)
Miler and Modigliani has depicted into their study that a firm must not announce the
entire profit as dividend. Firms are required to retain all the profits for further investment.
Information content hypothesis depict that the firm’s top level management and board of
directors of the firm known various private knowledge about the company which are helpful
for the investors and analyst to analyse the market condition of the company1. Information
content of dividend is a widely accepted theory of dividend. This theory further depict that
the information is confidential and that is why it is better for the firm to announce more
dividend so that investors get attracted towards the company. This theory forces over the
irrelevant theory of dividend.
Further, free cash flow hypothesis of dividend depict that the bigger debt level of a
company disciplines the managers and the directors of the company through pushing them to
make some fixed payments of the debt service and by reducing the level of the cash flow of
the company. This theory forces over the irrelevant theory of dividend. This theory further
depict that the investors look over the entire cash flow of the company before investing into
the company2.
Lastly, Clientele effect theory of dividend depict that the firm’s stock price always
move and vary according to the goals and demand of the analyst and investors in context with
the tax, dividend announcement and other changes into the policy. This effect assumes that
particular investors are attached with a company’s dividend policy and once it would be
changed they will switch. So the firm must make the changes into its dividend policy
accordingly3. And firm must pay the dividend amount on regular basis to the investor to make
them motivate.
1 D.J. Denis, and I, Osobov, Why do firms pay dividends? International evidence on the
determinants of dividend policy, Journal of Financial economics, 89(1), pp,62-82, 2008.
2 H. A., Nizar Al-Malkawi, Determinants of corporate dividend policy in Jordan: an
application of the Tobit model, Journal of Economic and Administrative Sciences, 23(2),
pp,44-70, 2007.

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Que b)
Why should company chose repurchase:
Potential tax advantages:
If a company repurchase its stock than company becomes eligible for getting
the tax advantage and this is the biggest reason due to which companies prefer to
repurchase their shares.
Signalling:
The repurchase of the shares give a signal in the market about the position of
the company and due to which more investors get attracted towards the company4.
Managerial flexibility:
Managerial flexibility is the main reason due to which company prefers to
repurchase the share as the buyback manages and make the managerial activities of
the company more attractive to manage entire process of the company.
Increase financial leverage:
If a company repurchase its stock than company the financial leverage
position of the company is enhanced by a great level and this is the biggest reason due
to which companies prefer to repurchase their shares5.
Offset dilution:
3 D. Al-Kuwari, Determinants of the Dividend Policy of Companies Listed on Emerging
Stock Exchanges: The Case of the Gulf Cooperation Council (GCC) Countries, 2009.
4 D,Y, Chung, D, Isakov, and C, Pérignon, Repurchasing shares on a second trading
line, Review of Finance, 11(2), pp,253-285, 2007
5 J., Wiemer, and S., Diel, Strategies for share buybacks, Journal of Corporate Treasury
Management, 1(4), 2008.

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Buying back the shares of the company offset various issues and dilutes of the
company and enhances the position of the company and this is the biggest reason due
to which companies prefer to repurchase their shares.
Que c)
Identify the dividend change:
1. Interim dividend change:
Interim dividend change of the company is 1.40056 according to the Nov 29, 2016
and the Nov 27, 2015.
Grain Corp limited Changes
Interim dividend 0.05 0.0357 1.40056
2. Final dividend change:
Final dividend change of the company is 2.00013 according to the Jun 30, 2016 and
the Jun 30, 2017.
Grain Corp limited Changes
Final dividend 0.2143 0.107143 2.00013
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Day return:
The Final dividend declaration of the company has been in Jun 30, 2016 and then Jun
30, 2017. Share price of the company has been analyzed from Jun 30, 2016 to Jun 30, 2017.
The day return of the company has been given in the appendix. The average return of the
company is 0.000258464.
6? Yahoo Finance, Grain Corp limited, Retrieved from
https://finance.yahoo.com/quote/GNC.AX/history?
period1=1318012200&period2=1507401000&interval=1mo&filter=history&frequency=1mo
, 2017.

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Market return:
The market dividend of the market has been analyzed from Jun 30, 2016 to Jun 30,
2017. The day return of the market has been given in the appendix. The average return of the
market is 0.000128.
Excess:
Through evaluating the market return and day return of the company, it has been
found that the day return of the company is more than the market return. The difference
between both the returns is of 0.0001307.
Analysis of other’s result:
The result of other student’s has also been analyzed and it has been found that my
friend’s result is almost similar to my result. The bit difference in company return has
occurred due to different companies. The market return is same.
Relevant theory:
Capital market theory has been evaluated to analyze the above result. This theory
depicts that the investor could analyse the market through analysing the market return and the
company return of a company. All investors must be the effectual investors and the borrows
the amount for investment on the risk free rate. This theory also depict that there are no
transaction cost and tax are applied over the investment amount of a company. No inflation
rate are exist according to the capital market theory.

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References:
Yahoo Finance, Grain Corp limited, Retrieved from
https://finance.yahoo.com/quote/GNC.AX/history?
period1=1318012200&period2=1507401000&interval=1mo&filter=history&frequency=1mo
, 2017.
Denis, D.J. and Osobov, I, Why do firms pay dividends? International evidence on the
determinants of dividend policy, Journal of Financial economics, 89(1), pp,62-82, 2008.
Nizar Al-Malkawi, H,A, Determinants of corporate dividend policy in Jordan: an application
of the Tobit model, Journal of Economic and Administrative Sciences, 23(2), pp,44-70, 2007.
Chung, D,Y,, Isakov, D, and Pérignon, C, Repurchasing shares on a second trading
line, Review of Finance, 11(2), pp,253-285, 2007.
Wiemer, J, and Diel, S, Strategies for share buybacks, Journal of Corporate Treasury
Management, 1(4), 2008.
Al-Kuwari, D, Determinants of the Dividend Policy of Companies Listed on Emerging Stock
Exchanges: The Case of the Gulf Cooperation Council (GCC) Countries, 2009.