Bài giảng Management theory and practice Financial: Chapter 13

Bài giảng Management theory and practice Financial: Chapter 13 được trình bày cụ thể với các vấn đề: Distribution level and firm value; Theories of investor preferences; Stock dividends and stock splits; Dividend reinvestment plans;... Mời các bạn cùng tìm hiểu và tham khảo nội dung thông tin tài liệu.
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Bài giảng Management theory and practice Financial: Chapter 13PowerPoint Presentation prepared by Traven Reed Canadore College chapter 13 Distributions toShareholders: Dividends and Repurchases Corporate Valuation and Distribution to ShareholdersCH13 Copyright © 2011 by Nelson Education Ltd. 13-3 Topics in ChapterCH13 • Distribution level and firm value • Theories of investor preferences • Signaling effects • Residual model • Stock repurchases • Stock dividends and stock splits • Dividend reinvestment plans Copyright © 2011 by Nelson Education Ltd. 13-4 What is “distribution policy”?CH13 • The distribution policy defines: – The level of cash distributions to shareholders – The form of the distribution (dividend vs. stock repurchase) – The stability of the distribution Copyright © 2011 by Nelson Education Ltd. 13-5 Dividend Yields for Selected CountriesCH13 World Stock Market (Index) Div. Yield % Egypt 17.0 New Zealand 4.6 Argentina 3.4 Britain (FTSE All Share) 3.1 France 2.7 Canada (S&P/TSX Comp) 2.5 United States (S&P 500) 1.9 Japan 1.4 India (BSE-500) 0.7 Copyright © 2011 by Nelson Education Ltd. 13-6 Do investors prefer high or low payouts? There are three theories:CH13 • Dividends are irrelevant: Investors don’t care about payout. • Bird-in-the-hand: Investors prefer a high payout. • Tax preference: Investors prefer a low payout, hence growth. Copyright © 2011 by Nelson Education Ltd. 13-7 Dividend Irrelevance TheoryCH13 • Investors are indifferent between dividends and retention-generated capital gains. If they want cash, they can sell stock. If they don’t want cash, they can use dividends to buy stock. • Modigliani-Miller support irrelevance. • Theory is based on unrealistic assumptions (no taxes or brokerage costs), hence may not be true. Need empirical test. Copyright © 2011 by Nelson Education Ltd. 13-8 Bird-in-the-Hand TheoryCH13 • Investors think dividends are less risky than potential future capital gains, hence they like dividends. • If so, investors would value high payout firms more highly, i.e., a high payout would result in a high stock price. Copyright © 2011 by Nelson Education Ltd. 13-9 Tax Preference TheoryCH13 • Low payouts mean higher capital gains. Capital gains taxes are deferred. • This could cause investors to prefer firms with low payouts, i.e., a high payout results in a low stock price. Copyright © 2011 by Nelson Education Ltd. 13- Implications of 3 Theories for ManagersCH13 Theory Implication Irrelevance Any payout OK Bird-in-the-hand Set high payout Tax preference Set low payout Copyright © 2011 by Nelson Education Ltd. 13-11 Impacts on Stock Price andCH13 Cost of Equity Copyright © 2011 by Nelson Education Ltd. 13- Empirical Results of the Dividend TheoriesCH13 • Empirical testing has not been able to determine which theory, if any, is correct. Thus, managers use judgment when setting policy. • The portion of dividend-paying companies has declined • Payout ratio remains stable at about 26% to 28% • Older firms tend to pay cash dividends Copyright © 2011 by Nelson Education Ltd. 13- “Clientele effect”CH13 • Different groups of investors, or clienteles, prefer different dividend policies. • Firm’s past dividend policy determines its current clientele of investors. • Clientele effects impede changing dividend policy. Taxes & brokerage costs hurt investors who have to switch companies due to a change in payout policy. Copyright © 2011 by Nelson Education Ltd. 13- Information Content, or Signaling hypothesis?CH13 • Investors view dividend changes as signals of management’s view of the future. Managers hate to cut dividends, so won’t raise dividends unless they think raise is sustainable. • Therefore, a stock price increase at time of a dividend increase could reflect higher expectations for future EPS, not a desire for dividends. Copyright © 2011 by Nelson Education Ltd. 13- Implications forCH13 Dividend Stability • Clientele effect and inf ...