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Essay / Research Paper Abstract
This 12 page paper looks at the argument that the stock markets do not value firms in an effective manner. Using Tesco, a UK supermarket as an example and five years of results the performance of the firm is assessed against the market prices and then the use of book prices, P/E ratios and the dividend discount model are used to determine the effectiveness of the markets in assessing the value of a firm. The bibliography cites 8 sources.
Page Count:
12 pages (~225 words per page)
File: TS14_TEeffshare.rtf
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Unformatted sample text from the term paper:
there us the use of dividend signalling; a tool used by the directors of a firm to seek a way of overcoming the asymmetry of information that exists as a
result of the stock market not having access to all the information regarding the internal plans of an organization, which may impact on its performance. Therefore, dividend signalling may be
used by directors in order to signal their confidence future of the company, especially times of poor performance where it is expected to improve, even maintaining or increasing dividends to
demonstrate this view (Anderson, 2009). It is not only the directors that have degree of concern regarding the way in which the stock market values these companies through the share
prices, it is notable that many investors are surprised at the level of volatility seen in a stock market. Volatility can be a source of benefit, as it facilitates profit
making, but it is also a source of risk, seen in the way that he beta is generally perceived as a measure of risk, when in actuality it measures volatility
of a share price compared to the stock market as a whole (Howells and Bain, 2007). Therefore, there appears to be some degree of agreement between these two stakeholders with
in the stock market that the stock markets are not efficient in the way that they value shares. There have been many theorists that have considered this, such as Fama
and the development of efficient market hypothesis, however, this has been controversial and there has been mixed evident to support these ideas. This paper will take a different approach,
in order to assess if the markets are valuing firms efficiently in relationship to the performance of a firm, the performance of a major company that is traded on a
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