Dividend policy and firm value

The dividend decision is an integral pct of the firms strategic financing decision. It fundamentally involves a firms directors deciding how frequently of the firms earnings, after interest and taxes (EAIT), should be distributed to the firms average shareowners in return for their investment in the firm, and how such(prenominal) should be retained to finance future growth and development. (Sterk and Vandenberg 2004 441-55)The aim of the firms dividend decision, like all financial decisions, should be the maximisation of stockholder wealth. If an optimal dividend polity does exist then clearly managers should speed up themselves with its determination; if it does not, then any dividend insurance policy lead do, as one policy give be equal to another. It should be noted that the dividend decision and dividend policy relate only to run-of-the-mill share capital. (Asquith and Mullins 2003 77-96)The payment of election share dividends is not considered piece of music of a firms dividend policy, as the level of, or method of calculating, the appreciation dividend is fixed in advance by the terms and conditions of the exacting preference share offer. Once a dividend policy has been formulated, reach out the amount and timing, etc. of dividend payments, it should be followed with stability and match as its guiding principles.

As we shall discuss later, changes to a firms dividend policy can be interpreted in various ways by the financial markets, sometimes with dramatic consequences for the firms share price. You will note that the dividend decision is made at the level of the firms beside to senior managers - at board of director level. It is the directors who will rigid down the amount a! nd timing of dividend payments. Under UK company fairness the directors cannot be compelled to recommend a dividend and shareholders cannot vote themselves a high dividend than that recommended by the... If you want to get a full essay, society it on our website: OrderEssay.net

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