Clientele Effects Essay

Submitted By chriskong2009

Words: 463

Pages: 2

Open Document

Clientele Effects
Despite the implications of the MM theory which states that investors are able to engage in ‘home-made’ dividends in order to attain their preferred cash flow, in a world with transaction costs and more importantly, taxes, the dividend policy of a firm is generally tailored to the interests of its investors (DeAngelo & DeAngelo, 2004).
Lintner (1965) states that once a firm initiates a dividend they are unlikely to reduce it many shareholders will likely sell their shares as they have come to expect and are mainly interested in owning said shares for the dividends they provide.
Value-orientated institutional and long-term retirement minded individual investors are investors partial towards receiving high levels of dividends regularly. Conversely, the growth-orientated institutional and short term trading-orientated individuals would prefer their income from holding shares to come from capital gains. As seen in Chart X, those investors with known motives would prefer to receive a high dividend rather than see their income arrive in the form of capital gains. (Elton & Gruber, 1970)
As for the chart area referring to unknown/unspecified, this area corresponds to investors in which there are not enough available information to determine which policy they would be partial to. It can be assumed that being the heirs to a multinational company the founding families would be fairly wealthy individuals as well as being long-term investors. On the basis of this it would be reasonable that as dividends are taxed higher than capital gains then these investors would be partial to capital gains rather than dividends. However, if these shares are to be kept in the family and the members are not interested in selling their shares in the family company, capital gains might not be an option and they would prefer to see a dividend.
As for employees and their families, not enough

Dividend and Payout Ratio Essay

various theories that make the dividend policy relevant. What do you think the pricing behavior for a $ 1 dividend? On the announcement day On the ex-div day? Table How should Linear return cash to its shareholders? EPS effects: Back to the MM world, what are the different effects on stock price and the EPS under the following payout policy? (data from Ex-2 in 2002) Retain all cash Repurchase stock Pay dividend Table How should Linear return cash to its shareholders? Taxes: What is the price behavior…

Words 822 - Pages 4

Essay on FiningTractor solution

an opportunity to understand and appreciate numerous dividend policy related issues. It considers most of the conventional factors in dividend policy decisions such as cash needs, target capital structure, sources of financing, signaling effect, clientele effect, and trend in the market. Questions to be answered: 1. What are the arguments for paying dividends? (Theory question; consult finance book) Signal. It signals to investors that the firm has cash in hand to pay cash dividend The company…

Words 753 - Pages 4

253 Sample Essay

Bernardo, and Welch pay an attention on clientele of duty-free institutions who are neutral between dividends and capital gains, their model predicts that both firm’ dividend policies and large-block shareholders’ investment decisions affected by the shareholders’ dividend tax status. Elton and Gruber (1970) find that exdividend day stock returns are decreasing in a stock’s dividend yield, which they interpret as evidence supporting tax-based dividend clienteles. Elton and Gruber note that investors…

Words 1124 - Pages 5

Essay on Dividend Payout policy

borrowing plan, any additional funds required for dividends can only be attained through share issues. Similarly if dividends are being lowered the only use for the extra capital is through share buy-backs. Both of these alternatives create a $0 net effect to shareholder wealth (Miller & Modigliani, 1961). The glaring criticism for MM’s theory is that the assumptions underlining the chosen payout policy being inconsequential are themselves arguably irrelevant. However the fact that the assumptions…

Words 1360 - Pages 6

Essay on Presentation: Recording Studio and Studio

Description Los Studio is a company that will provide Recording, mixing and mastering services to artist who are interested in making a demo/albums of music. Studio will be equipped with Standard software recording “Pro tools” and the best instrument/effects plugins at this time. Los studio will also be equipped with Great Studio Recording Microphones and Keyboards for those who are in need of it. Mission Statement Our Mission is to provide excellent Music studio service…

Words 1141 - Pages 5

The Possibility Restaurant Essay

preparing meals. Kitchen staff has a set amount of time that their labor can be exonerated for, which in this case is a total availability of 20 hours daily. Angela and Zooey having degrees in food and nutrition believe that a portion of their clientele will be very health conscious. This will be a constraint of how they believe how much of each type of dinner will be sold. With keeping health in mind the decision makers conclude that for every two beefs dinners ordered there will be at least three…

Words 1630 - Pages 7

CASE STUDY The Fork And Dagger Pub Essay

approximately 10% LBGT. Furthermore, Bradley understands opportunities for differentiation, which can set the Fork and Dagger Pub apart from the rest, with its current LGBT crowd, and the fact that currently no bar or pub focuses on this demographic of clientele in Straun, Ontario. As well as that, Bradley also learned that his current LGBT regulars at the Fork and Dagger Pub pay on average 10% more for foods on and drinks. Hoping to direct the bar’s attention at the homosexual demographic, Bradley believes…

Words 1476 - Pages 6

Essay on Finance and Debt Tax Shields

hopes to reap an investment gain. The larger issue is whether or not Wrigley is inefficiently financed. If so, how much capital structure change will bring it to more efficient operation? 2a. A recapitalization based on a dividend will have no effect on the number of shares…

Words 2118 - Pages 9

Essay about Citibank - Performance Evaluation

while the clientele of the bank ranges from Households on one end to sophisticated Business customers on the other and Mom and pop store to the sophisticated retail store on the other. Now this diverse clientele has equally diverse customer service requirements. Customer service requirements of one are different from those of the others. So with a employee bas of just sixteen employees it was practically impossible for the branch to provide a very high level of customer service to the clientele. What…

Words 2549 - Pages 11

Final Project Paper

general analysis of this proposal will show some key strengths and weaknesses. First the strengths, the successful implementation of the remodeling will give Atlantic City Airport a competitive edge and if that success continues an influx of new clientele from word-of-mouth and other promotion. The weaknesses, like most, are if the clients are resistant to the change or the plan cannot be implemented efficiently it will fail and Atlantic City Airport will need to rework another proposal. The environmental…

Words 1530 - Pages 7