Dividend

CHAPTER 14 Corporations: Dividends, Retained Earnings, and Income Reporting ASSIGNMENT CLASSIFICATION TABLE Exercises A Problems B Problems 1, 2, 3 1, 2, 3, 4, 5, 6, 7 1A, 2A, 3A, 4A, 5A 1B, 2B, 3B, 4B, 5B 9, 10, 11, 12, 13, 14 4, 5 6, 8, 9 2A, 3A, 4A 2B, 3B, 4B Prepare and analyze a comprehensive stockholders’ equity section. 14, 15 6, 7 5, 6, 10, 11, 13, 15, 16 1A, 2A, 3A, 4A, 5A 1B, 2B, 3B, 4B, 5B 4. Describe the form and

eurojournals.com Dividend Policy: A Review of Theories and Empirical Evidence Husam-Aldin Nizar Al-Malkawi Corresponding Author, Faculty of Business, ALHOSN University P.O. Box 38772 - Abu Dhabi, UAE E-mail: h.almalkawi@alhosnu.ae Michael Rafferty Senior Research Analyst, WRC, University of Sydney, Australia E-mail: m.rafferty@econ.usyd.edu.au Rekha Pillai Faculty of Business, ALHOSN University, Abu Dhabi, UAE E-mail: r.pillai@alhosnu.ae Abstract The literature on dividend policy has produced

A dividend is the part of a firm`s earnings that are paid to the shareholder, either in monetary terms or as shares. In the UK, dividends are paid by UK-quoted companies semi-annually and are taxed depending on an individual`s income (Arnold, 2008 & GOV.UK, 2015). According to the Financial Times (2015) however, a dividend payment to shareholders is not an obligation, in fact a business`s board of directors are able to opt whether they desire to make a dividend payment or not, depending mostly on

Discounted Dividend Model First advantage of discounted dividend model is conservatism. The dividend discount model only values on what the company pays out to investors. Earnings of a company, the cash the company holds, or anything other than the dividend is not considered by this model. Second advantage is simplicity. The dividend discount model is one of the easiest ways to value a security. It requires only three inputs, which almost any investor can reasonably determine or forecast. Because

A dividend tax is an income tax paid on the earnings from a corporation that is distributed to its shareholders. Dividend payments are treated as ordinary income, and they are taxed as if the taxpayer had earned income through active work. Presently, there is much controversy surrounding the tax. The government taxes dividends twice: It first taxes corporate income, then taxes the same income again when shareholders receive dividends paid out of corporate income. Which is a “double taxation”( http://pages

2. DIVIDEND POLICY A dividend policy is a company’s way of distributing profits to shareholders. It is a guideline that companies use to make decisions concerning how much earnings will be paid to shareholders. Dividend policy only refers to ordinary shares. Before drafting a dividend policy, management needs to take a number of basics considerations into account, such as factors that influence the dividends policy. There are four factors to be considered, legal, contractual and internal constraints

2.4.1. Dividend irrelevance theory Miller and Modigliani (1961) proposed the dividend irrelevance theory, suggesting that the wealth of the shareholders is not affected by the dividend policy. It is argued that the value of the firm is subjected to the firm’s earnings, which comes from company’s investment policy. The literature proposed that, the dividend does not affect the shareholders’ value in the world without taxes and market imperfections or perfect capital market. Further they argued that

When deciding on changes to dividend pay-out ratio, there are several factors which must be considered. This piece looks at the different underlying theories which affect management’s decision, before looking at what policy would be considered best for FPL and how to implement a change. Perfect capital markets assume no taxes or market frictions, no agency costs and symmetric information. Dividend irrelevance arises because, for a given investment plan and holding capital structure constant, funds

pay a fixed dividend rate e.g. 40\% of earnings. The dividend per share would therefore fluctuate as the earnings per share changes. Dividends are directly dependent on the firm 's earnings ability and if no profits are made any dividends are paid. This policy creates uncertainty to ordinary shareholders, especially who rely on dividend income and might demand a higher required rate of return (Gitman, 1998). Constant Amount Per Share or Fixed Dividend Per Share is where the dividend per share (DPS)

generally accepted model describing payout policy. Moreover, empirical findings are often contradictory or difficult to interpret in light of the theory. In their seminal paper, Miller and Modigliani (1961) showed that under certain assumptions dividends are irrelevant; all that matters is the firm’s investment opportunities. Miller and Modigliani considered the case of perfect capital markets (no transaction costs or tax differentials, no pricing power for any of the participants, no information