Reader - Samenvatting verplichte artikelen Advanced Corporate Finance (Universiteit van Amsterdam) Verspreiden niet toegestaan | Gedownload door Bob Van de Worp ([email protected]) lOMoARcPSD|43874
Week 1: Corporate Dividend Policies: Lessons from Private Firms Michaely & Roberts (2011) ● Comparing private and public firms in terms of dividend policy ● Response to 1 GBP shock in earnings on dividend. i.e. Payout ratio policy is 20%, 1 extra GBP lets dividend increase by 0.20 GBP, % of payout ratio is 100%. Conclusion: the shock will have impact on dividend longer with public firms (dividend smoothing); shocks are possible with privately held firms. ● When there are no agency and information problems (wholly owned sample), dividends are highly sensitive to changes in investments: dividends decrease when cash is needed and vice versa. Further, dividend levels are relatively low among wholly owned firms. 1 Verspreiden niet toegestaan | Gedownload door Bob Van de Worp ([email protected]) lOMoARcPSD|43874
● Signaling: firms manage their dividend policy (both level and smoothing) because they care about market prices. Private firms have no publicly traded securities and therefore less concern over the current valuation of their securities. The great dividend smoothing found among public firms relative to wholly owned firms appears consistent with a signaling explanation. However, the signaling implication is less clear when comparing public and private dispersed firms. ● Tax: Influence of tax is not explained by this study ● Costly external finance: Public firms have greater (or less costly) access to external capital than private firms. Therefore private firms may be less willing to distribute cash than public firms. ● Owner diversification constraints: owner of private firm is more dependent on dividend payments. However the results show the opposite. Private firms pay less dividend than public firms. A reason could be that the needs of a single owner are fulfilled with a smaller absolute amount of dividend than the needs of a lot of shareholders of a publicly traded firm. ● Less asymmetric information => less dividend smoothing ● Lower costs of external finance => higher dividends The Information Content of Share Repurchase Programs Lowry (2003) Two reason for share repurchases are analyzed: 1. Repurchases are used to signal better prospects 2. Repurchases are used to reduce the amount of free cash flow at management's proposal (reducing agency costs) How measured?
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