The Relationship Between Institutional Holdings And Dividend Policy

1. Discuss the nature of stock as an investment. Do most stockholders play large roles in the management of the firms in which they invest? Why or Why not?

The private equity investors known as the general partners, use their capital along with the money borrowed from banks, to buy companies that they believe could be notably more successful with the right combination of talent, strategy and capital. Private Equity investment market has been the fastest growing market in the past 15 years for corporate finance, compared to other markets such as the public equity and bond markets. George (1996) wrote a book called ?The economics of the private equity market ' that examines the reasons for the market 's unpredictable growth over the past fifteen years and highlights the key features of that growth. It examines the economic basis of the private equity market, analyzes the market 's current role and development in corporate finance, and describes the market 's institutional structure. However despite its rapid growth and increased significant for corporate finance, it has received little attention in the academic literature or press.

This question is designed to focus the class on the share repurchase program as a critical use of funds for 2006. The primary advantage of share repurchases using dividends is that management can turn share repurchases off and on as allowed by cash flow. The other projected uses of funds, however, are largely driven by business issues that are not as flexible for management. Students should notice that

Since the emergence of the so-called irrelevance theorem by Miller and Modigliani (1961), many corporations are puzzled about why some firms pay dividends while others do not. They were the first to study the effect of dividend policy on the market value of firms by assuming that there are no market imperfections. Miller and Modigliani (1961) proposed that divided policy chosen by a firm has no significant relationship in as far as the market valuation of the firm is concerned. They went further to explain that; the shareholders wealth remains unchanged irrespective of how the firm distributes it income because the firms’ value is rather determined by their investment policies and the earning power of its assets. They further stated that the opportunity to earn abnormal returns in the market does not exist, that is, owners are entitled to the normal market returns adjusted for risk.

Baker et al. (2012) investigate factors that lead to the decision not pay cash dividends from Canadian mangers' perspective. The evidence shows that growth expansion opportunity, low profitability and cash constraints as the major causes underlying firms' decision not pay dividends. Also the results suggest taxations is at best second order as determinants of dividends.

Next this essay will examine factors driving US firms to distribute more of their cash to shareholders. Mitchell & Robinson (1996) suggests that the following are factors driving the distributing of more cash to shareholders by US firms this include excess liquidity, capital structure , information signaling, wealth transfers and miscellaneous motivations which will now be discussed in detail. Excess liquidity which would otherwise have been distributed as dividends are distributed through a share buy-back strategy, this is usually an option when the issue of personal tax payment is under consideration.

In practice, dividend policy will be affected by taxes as tax rates for different categories of investors will differ. Also, a firm’s dividend policy is perceived by the financial markets to be a signaling mechanism. A cut back in dividends may signify that the firm perceives tough

FPL Group, Inc. is Florida's largest electric utility company. In 1925, through the consolidation of numerous electric and gas companies, they formed Florida Power & Light Company (FP&L). FP&L grew steadily over the next 50 years until rising fuel costs, operating issues, and construction costs began to decrease profitability. In the mid-1980s, FPL diversified with four major acquisitions - Colonial Penn Life Insurance Company, Telesat Cablevision, Inc., CBR Information Group Inc., and Turner Foods Corporation- in order to minimize the potential risk within the utilities industry.

Highly levered firms look forward to maintaining their internal cash flow to fulfill duties, instead of distributing available cash to shareholders and protect their creditors. This is because firms with high leverage ratios have high transaction costs, and are in a weak position to pay higher dividends to avoid the cost of external financing. While firm value can be increased by financial leverage, too much leverage leads to a shrinking company value as bankruptcy costs start to outweigh tax shield benefits. The higher risk makes debt holders asking for higher returns to compensate them for the increase in bankruptcy risk. Since dividend payments reduce the amount of capital available to secure the debt, many debt contracts include restrictions on dividend payments. Bond indentures restrict dividend payments subject to minimum safety ratios. These two effects, the higher costs of debt and the restrictions to pay dividends have, of course, a direct effect on the company’s ability to pay dividends. The high leverage of Georgia Atlantic, which is well above its industry average, reduces the possibilities for the firm in terms of its dividend policy. Holding Georgia Atlantic’s dividend payout history in mind, it might seem to be a bad time to start thinking about a policy change.

more firms exhibit characteristics similar to those of non-dividend-paying firms), Fama and French nonetheless report that once they control for these characteristics, they still find a significant decline in the residual propensity to pay dividends. This evidence poses a further challenge to dividend theories in so far as candidate theories should be able to explain time series changes in the propensity to pay dividends. We extend this literature by examining cross-sectional and time-series evidence on the propensity to pay dividends in several developed financial markets - the United States (U.S.), Canada, the United Kingdom (U.K.), Germany, France, and Japan - over the period 1989 to 2002. Specifically, we examine (i) whether the characteristics of dividend payers and nonpayers are common across countries; (ii) whether these characteristics have changed over time; and (iii) whether firms in other countries exhibit a declining propensity to pay dividends in recent years. In addition, the use of international data allows us to provide further tests of the life cycle, signaling, clientele, and catering explanations by analyzing the concentration of dividend payments as well as the association between Baker and Wurgler’s (2004a,b) dividend premium and the propensity to pay dividends in other countries. Our evidence reveals common determinants of dividends across countries. Like Fama and French (2001), we find

Gainesboro Machine Tool Company (Gainesboro) is an enterprise in transition. Ashley Swenson is the Chief Financial Officer (CFO) of Gainesboro, who has to make a difficult recommendation to a divided board about the company’s shareholder distribution strategy as the company begins to emerge from that transition. The following analysis will provide a brief history of the company, a discussion of the underlying concepts related to Ms. Swenson’s decision, an examination of the company’s strategic and financial position and forward looking options, and finally a suggested recommendation for Ms. Swenson to present to the board of

Dividend payout ratio has been an issue of interest in daily financial literature. An example, many academicians and researchers have devoted their time to develop several theoretical models to provide some insights into the dividend policy puzzle. Dividend theories are developed with some of empirical support.

The researches employed the ordinary partial correlation to examine the relationship between ownership structure and the level of voluntary disclosure among publicly-listed banking and financial institutions. The following tables are estimated:

For the firm specific return prediction, a firm level monthly share prices, turnover and paid-up value data on KSE over eleven year period – January 2002 through December 2012 is collected from the websites of “Business Recorder and Karachi Stock Exchange” that are authentic sources of information. The data consists of monthly share prices of a large sample of 300 firms of 132 months. For risk free rate of return interest rate on 6-month Treasury bond is used. Accounting data has been collected from various bulletins of “balance sheet analysis” published by State Bank of Pakistan (SBP) Data set on “close prices” does not contain information on dividends. Mills and Coutts (1995) find that the exclusion of dividend payments is not a significant problem. This idea is, again supported by both Lakonishok and Smidt (1988) and fishe et al. (1993), who concludes that any dividend bias is relatively small and will not impact on the statistical significance of any results evidence from Draper and Paudyal (1997) adds further to this statement. However, it is noteworthy that Philips- Patrick and Schneeweis (1988) found conflicting evidence.

To increase and maximize the wealth/value of shareholders, it is necessary that the company is competitive in their market and can reliably “earn a considerable return on its investments above their cost of capital” (Doyle, 2000). The increasing rates of return of well performing companies attract new investors who invest money to become shareholders. These outside funds from investors are essential for growth of businesses and the expansion into new markets. Measurements of generated shareholder returns over a certain time period deliver the company useful information on whether their objectives have been achieved or should be new adjusted (Atrill, 2009).