Emi Group Case Study

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While conducting the analysis of EMI group’s dividend policy, one factor that stood out to us was the clientele effect. The clientele effect shows us who holds most of our outstanding shares. High tax-bracket individuals would prefer zero-to-low dividend payout to save on taxes. Low tax-bracket individuals would prefer a low-to-medium dividend payout, which gives them additional income while helping them save on taxes. An investing corporation would prefer a higher dividend payout because if they own a significant amount of shares, say 1 million, the income stream from that dividend would provide the company with more monetary resources while benefitting from tax exemptions. So before setting a dividend policy for EMI group, we must first…show more content…
So, with net income projected to increase in the near future through restructuring, EMI will be able to service its debt obligations while satisfying its shareholders.

Teaching Note


This case examines the April 2007 decision of British music company EMI to suspend its annual dividend as the company struggled to respond to the effect of digital audio distribution on its core business. The EMI case is intended to serve as an engaging introduction to corporate financial policy and themes in managing the right side of the balance sheet. The case contrasts EMI’s storied success with artists such as the Beatles, the Beach Boys, Pink Floyd, and Norah Jones with its recent inability to succeed in financial markets. In light of takeover threats and restructuring costs, EMI’s CFO Martin Stewart must recommend EMI’s dividend policy.


The case serves to accomplish the following teaching objectives:

• Introduce the topics of financial policy, such as dividend policy and debt policy.

• Motivate the tension between investment policy and financial policy with respect to the sources and uses of cash.

• Prompt the Modigliani-Miller intuition of financial policy irrelevance and homemade
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