DIVIDEND POLICY AND STOCK REPURCHASES
MBA PROGRAMME
MASTER OF BUSINESS ADMINISTRATION
Graduate School of Business
Universiti Kebangsaan Malaysia
GROUP PRESENTATION
CLASS: Corporate Finance
LECTURER: Prof. Dr Fauzias Mat Nor
DIVIDEND POLICY AND STOCK REPURCHASES
TEAM MEMBERS:
NO.
NAME
I.C. NO.
STUDENT NO.
1.
Mohd Hatta Ahmad
641225-05-5601
ZP00664
2.
Azizul Azrin Mahmor
761117-04-5189
ZP00580
3.
Hazri Zan Abu Kassim
ZP00398
4.
Fazriman Fazli Othman
ZP00665
Date: 10.10.11
INTRODUCTION
Dividends and stock repurchases are firm’s payout policy where a firm pay cash to shareholders
Dividend Policy
Dividend policy is a decision to pay out earnings versus retaining them.
Dividend policy issues include pay or not to pay, high or low dividend, stable or irregular dividends, how frequent to pay dividends dan effect on the market equity value of a firm’s stock
Stock Repurchases
Stock repurchases are firm’s buying own stock back from the stock holders.
Reasons for repurchase :-
Alternative to distributing cash as dividend
To dispose of one-time cash from an asset sale
To make large capital structure change
For illustration, consider if a firm distributes the $100,000 as a cash dividend, the balance sheet will look like this:
In An Ideal Market :-
Stock repurchases reduce a firm’s outstanding shares but no effect on the market prices of the shares. If they distribute the $100,000 through a stock repurchase, the balance sheet will look like this:
THE IRRELEVANCE OF DIVIDENDS AND STOCK REPURCHASES IN IDEAL CAPITAL MARKET
Irrelevance Theory was developed by Modigliani & Miller (M & M)where
Investors are indifferent between dividends and retention-generated capital gains. Investors can create their own dividend policy;
If they want cash, they can sell stock BUT If they don’t want cash, they can use dividends to buy more stock.
Implication: Any DIVIDEND payout policy is OK.
M&M stated that the value of a firm is dependent on the cash flow that is generated by the firm’s assets. Thus it is the
MASTER OF BUSINESS ADMINISTRATION
Graduate School of Business
Universiti Kebangsaan Malaysia
GROUP PRESENTATION
CLASS: Corporate Finance
LECTURER: Prof. Dr Fauzias Mat Nor
DIVIDEND POLICY AND STOCK REPURCHASES
TEAM MEMBERS:
NO.
NAME
I.C. NO.
STUDENT NO.
1.
Mohd Hatta Ahmad
641225-05-5601
ZP00664
2.
Azizul Azrin Mahmor
761117-04-5189
ZP00580
3.
Hazri Zan Abu Kassim
ZP00398
4.
Fazriman Fazli Othman
ZP00665
Date: 10.10.11
INTRODUCTION
Dividends and stock repurchases are firm’s payout policy where a firm pay cash to shareholders
Dividend Policy
Dividend policy is a decision to pay out earnings versus retaining them.
Dividend policy issues include pay or not to pay, high or low dividend, stable or irregular dividends, how frequent to pay dividends dan effect on the market equity value of a firm’s stock
Stock Repurchases
Stock repurchases are firm’s buying own stock back from the stock holders.
Reasons for repurchase :-
Alternative to distributing cash as dividend
To dispose of one-time cash from an asset sale
To make large capital structure change
For illustration, consider if a firm distributes the $100,000 as a cash dividend, the balance sheet will look like this:
In An Ideal Market :-
Stock repurchases reduce a firm’s outstanding shares but no effect on the market prices of the shares. If they distribute the $100,000 through a stock repurchase, the balance sheet will look like this:
THE IRRELEVANCE OF DIVIDENDS AND STOCK REPURCHASES IN IDEAL CAPITAL MARKET
Irrelevance Theory was developed by Modigliani & Miller (M & M)where
Investors are indifferent between dividends and retention-generated capital gains. Investors can create their own dividend policy;
If they want cash, they can sell stock BUT If they don’t want cash, they can use dividends to buy more stock.
Implication: Any DIVIDEND payout policy is OK.
M&M stated that the value of a firm is dependent on the cash flow that is generated by the firm’s assets. Thus it is the