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Dividend and Share Price Relationship

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Added on  2020-04-29

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Project report: Corporate finance Contents Introduction 3 Analyze the dividend polices and analytical view 3 Low dividend payout or high dividend payout 4 Analysis over dividend and share price relation 5 Analytical evidences 6 Conclusion7 References9 Introduction: Dividend payment strategy and share price relation is directly related to each other. Companies’ take the help of various dividend policies to make a better decision about how much dividend must be paid to the investors to keep them satisfied and attract other investors to invest into the operations of the company (

Dividend and Share Price Relationship

   Added on 2020-04-29

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Running Head: Corporate Finance 1Project report: Corporate finance
Dividend and Share Price Relationship_1
Corporate Finance 2ContentsIntroduction.......................................................................................................................3Analyze the dividend polices and analytical view............................................................3Low dividend payout or high dividend payout.................................................................4Analysis over dividend and share price relation...............................................................5Analytical evidences.........................................................................................................6Conclusion........................................................................................................................7References.........................................................................................................................9
Dividend and Share Price Relationship_2
Corporate Finance 3Introduction:Dividend payment strategy and share price of a company is directly related to each other. If the company would offer high dividend payout or low dividend payout than it directly affects the share price of a company. Mainly, both the policies which are high dividend policies and low dividend policies make the different impact over the performance and the stock price of a company. Companies’ take the help of various dividend policies to make a better decision about how much dividend must be paid to the investors to keep them satisfied and attract other investors to invest into the operations of the company (Zhang, 2012). Various dividend policies such as relevant theory, residual relevant theory, expectationtheory etc have been analyzed. Usually making a decision about the high or low dividend is important for an organization. An organization is required to look over various factors and then make a better decision about the dividends. In this report, various dividend policies of the company have been analyzed and than a better decision have been made (FIRRER 2012). Analyze the dividend polices and analytical view:Dividend policies are mainly of two types which are relevant dividend polices and irrelevant dividend policies. Relevant dividend policies depict that mainly investors look overthe market and dividend offered by the company to make a decision about the investment intothe company. Relevant dividend theories are bird in hand theory, expectation theory and residual dividend theory whereas irrelevant theories are MM theory. Dividend relevant theories brief that the tax and the transaction cost of the company are also applied and considered while making the decision of the investment. Inflation rate do not exist in this theory (Tucker, 2011). Bird in hand theory mainly considers that high dividend payout ratio must be adopted by the company as it attracts the investors more due to the thought process of the investors that they would be able to earn the more return from the stock of the company. Further, the residual dividend theory depict that the company must manage all the expenditure, capital expenditure before distributing the divided amount to its shareholders. This depict that the total amount of profit must be distributed to the shareholder but after paying all the capital expenditure (DEEPTEE and ROSHAN, 2009). Expectation theory states that long term interest rate depict about the short term performance of the company. Further, it has been found that all of these theories depict the company to take the use of all the net profit to attract the investors (Davies and Crawford, 2011).
Dividend and Share Price Relationship_3
Corporate Finance 4Further, irrelevant dividend policies have been analyzed. It depict that mainly investors do not look over the market and dividend offered by the company to make a decision about the investment into the company whereas they analyze the financial performance and stability of the company (Breuer, Rieger and Soypak, 2014). Miller and Modigliani have invested this approach. They have analyzed through this research that it is not necessary for the investors of a market to consider the dividend payout of the company (Masum, 2014). They have also approached that the dividend payout of a company could never be enough to analyze about the stability and performance of the company. This theory also briefs that the tax and the transaction cost of the company are also not applied and do not considered while making the decision about the investment (CORRERIA, 2013). This theory mainly considers that it is not required for an organization to deliver high dividend to the investor because this could not depict about the performance of the company (Travlos, Trigeorgis and Vafeas, 2015).The hypothesis of dividend theory depict that various factors are there which makes an impact over the management and organization choice about the dividends. Leverages, debtconstraints, capital rules impairment, cash availability and investment opportunities in front of the company (Barman, 2008). For instance, if the company has a great investment opportunity and for that company wants to raise the fund than company could retain some amount of dividend for further use and it would impact over the dividend policies of the companies. Further, according to the study of Brealey, Myers and Marcus, (2007), it has been found that the factors are quite important for an investors as well as organization to understand. Many times, the dividend is lowered by the company to raise the profits of the company through some other ways. Investors must look over these points and make a decision accordingly (Bradford, Chen and Zhu, 2013). It would also help the company to maintain the stock price. Though, from various studies and the reports of the analyst, it has been analyzed that the investors are not well informed and do not have enough knowledge to analyze and evaluate the performance of the company (Bodie, 2013). They only analyze the current performance and the position of the company which could only be analyzed through the current market share price of the company (STEEN et al, 2012).
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