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Essay / Research Paper Abstract
This 5 page paper discusses dividend policy and how it pertains to value of the firm. The thesis is that dividend policy has no impact on firm valuation, and this paper supports the theory. Bibliography lists 3 sources.
Page Count:
5 pages (~225 words per page)
File: D0_MTdivpol.rtf
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Unformatted sample text from the term paper:
the stock price increases, so does the value of a firm. The further assumption is that as a stocks price increases, and a company decides to issue dividends for that
stock, the value of the firm must be increasing as well. While this should be true, it doesnt always hold. Just because a company pays out a dividend on its
stock doesnt necessarily mean that the value of the firm has increased. This was borne out with Enron, the energy firm that went bankrupt because the stock increases - and
the dividends paid out - hid the fact that the firm was carrying a load of debt on its books and was, therefore, worth a whole lot less than the
companys stock indicated. This paper examines dividend policy, its impact on the value of a firm and what factors actually do maximize shareholder wealth.
Before discussing what, if any, impact a dividend has on the actual value of a firm, lets first examine what, exactly, a dividend is. In its most basic form,
a dividend is a payout to those who had enough confidence in a particular firm to purchase stock in it. The dividend, basically, is a rewards, or a "thank you"
to those investors who have decided to put their hard-earned money toward a corporation. Dividends are payments that are made from a firms earnings, however, those earnings dont necessarily need
to be generated in a current period (Dividend Policy, 2002). In other words, a dividend could be paid out in the fourth quarter of a particular year, based on earnings
from the first quarter. Dividend policy, on the other hand, is what happens to the value of a firm as the dividend increases,
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