Dividend policy and firm value

The dividend decision is an integral pct of the firms strategic financing decision. It basically 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 oft should be retained to finance future growth and development. (Sterk and Vandenberg 2004 441-55)The conception of the firms dividend decision, like all financial decisions, should be the maximisation of shareholder wealth. If an optimal dividend polity does exist then clearly managers should liven up themselves with its determination; if it does not, then any dividend constitution lead do, as one policy ordain be equal to another. It should be noted that the dividend decision and dividend policy relate only to popular share capital. (Asquith and Mullins 2003 77-96)The payment of election share dividends is not considered stir up of a firms dividend policy, as the level of, or method of calculating, the penchant dividend is fixed in advance by the terms and conditions of the commanding preference share offer. Once a dividend policy has been formulated, range of a function out the amount and timing, etc. of dividend payments, it should be followed with stability and coincide as its guiding principles.

As we shall discuss later, changes to a firms dividend policy can be interpreted in various slipway 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 tightfitting to senior managers - at board of director level. It is the d irectors who will buckram down the amount ! and timing of dividend payments. Under UK company justice the directors cannot be compelled to recommend a dividend and shareholders cannot vote themselves a higher(prenominal) dividend than that recommended by the... If you want to get a full essay, company it on our website: OrderEssay.net

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