Chapter 12 PPT - Chapter12presentation ByYongCao

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Click to edit Master subtitle style  4/20/11 Chapter 12 presentation                                              By Yong Cao
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 4/20/11 Managers can also use financing policies to  communicate effectively with external investors. Advantage: not provide potential proprietary information  to competitors Financing policies that are useful in this aspect: dividend  payouts, stock repurchases, financing choices, and  hedging strategies. Communication through 
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 4/20/11 A firm’s dividend payout decisions can provide information to  investors on managers’ assessments of the firm’s future prospects. Dividend payout reflects the extent to which a company pays out  profits or retains them for investment. Investors recognize that managers will only increase their firm’s  dividend rate if they anticipate that the payout will not have a serious  effect on the firm’s future financing options and managers will be  able to sustain the increased payout rate in the future years. Managers in high-growth firms tend to set low dividend payout  policies and retain funds for reinvestment; firms with high and stable  operating cash flows and few investment opportunities have high  Dividend Payout Policies
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 4/20/11 Managers can use stock repurchases to communicate with external  investors. A firm can buy back its own stock, either through a purchase on the  open market, through a tender offer, or through a negotiated  purchase with a large shareholder. Due to the premium and related fees, it is an expensive and  effective way for management to communicate with investors about  the level and risk of future earnings performance. Research findings also suggest that firms use stock repurchases to  communicate with investors have accounting assets that are less  reflective of firm value and have high general information  Stock Repurchase
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 4/20/11 Firms can provide proprietary information to a knowledgeable  private investor, or to a bank that agrees to provide the company  with a significant new loan.  First, the terms of the new financing arrangement and the credibility  of the new lender or shareholder can provide investors with  information to reassess the value of the firm. Second, the accompanying increased concentration of ownership  and the role of large block holders in corporate governance can  have a positive effect on valuation. In the extreme, the management can sell the firm through a 
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Chapter 12 PPT - Chapter12presentation ByYongCao

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