Unformatted text preview: effect: A resolution to real world factors? Many investors may prefer a high dividend pay‐out ratio Does this mean that a firm can boost its share price by having a higher dividend payout ratio? What about investors who prefer a low pay‐out ratio? Clientele effect: Argument that stocks attract particular groups with different preferences based on dividend yields and their resulting tax effects 38 Clientele effect: A resolution to real world factors? Suppose 20% of the investors demand high payout ratios but only 10% of the firms provide them Low dividend firms will find it profitable to switch policies and enjoy higher prices until the dividend market is in equilibrium There are natural clients for high‐payout stocks, but it does not follow that any particular firm can benefit by increasing its dividends The high dividend clientele may already have plenty of high dividend stock to choose from. IPO’s 39 An unseasoned new issue made available to the general public Raises capital for the firm: taps a wider market Provides a ready measure of performance Diversify sources of finance BUT public issues are expensive and there are continuing costs of administering a public company Underwriters 40 Services provided by underwriters Formulate method used to issue securities Price the securities Sell the securities Price stabilization by lead underwriter Syndicate – group of investment bankers that market the securities and share the risk associated with selling the issue Spread – difference between what the syndicate pays the compa...
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- Spring '12