Applied Corporate Finance DIVIDEND POLICY参考.ppt

When dividends are compared to the stock price drop that occurs on the ex-dividend day, this fallacy is exposed. At that point in time, the investor has a choice between receiving the dividends or cashing out on the stock (and getting the higher price). Excess cash might be a temporary phenomenon. To initiate dividends with the cash will create the expectation that the firm will continue to pay those dividends, which might be unsustainable. Stock buybacks provide more flexibility in terms of future actions. An alternative is issue a special dividend. If a small firm has excess cash and is uncertain about its future investment needs, it is prudent to hold the cash rather than return it to its stockholders. Larger firms with more access to capital markets should be more inclined to use the cash to buy back stock. Given how many firms pay dividends, there must be good reasons for companies to start paying dividends, continue paying dividends or increase dividends. To add: Class B shares can be converted into class A shares at any time. In effect, investors are being offered dividends or an equivalent capital gain. Since the tax rate on dividends vastly exceeded the tax rate on capital gains over this period, you would expect the capital gains shares to trade at a premium. When the ratio is greater than one, class A shares trade at a premium on class B shares. Over this period, class A shares consistently traded at a premium over class B shares, ranging from 5-15%. The same phenomenon seems to apply to these Canadian utilities, with cash dividend and capital gain shares, that were studied in a paper a few years ago. Here again, our conclusions should be restricted to stockholders holding this stock. For whatever reason, they prefer dividends to capital gains. What type of stockholders do you think hold these companies? Young or Old Rich or Poor Mutual Funds or Pension funds Older, poorer investors and pension funds are big investors in high dividend paying stocks. I