Dividend Policy
Dividend Policy: Clientele Effects and Signalling Model
Literature Review
Sharon Theresia
17132233
Corporate Finance 307
Singapore Campus
Abstract
Two of the most influential dividend policies are being reviewed and compared. in this paper, clientele effects and signalling model are two chosen policies. Findings implied that clientele is shaped by tax preferences of shareholders which in the end will determine companies’ ideal dividend policies. It is also believed that amount of paid dividend reflects firms’ quality when asymmetric information exists (signalling model). However, information asymmetries are often caused by agency problems and make signalling model less reliable. Signalling model gives mix conclusion when r studies are utilising different research methods. Furthermore, signalling model is a less ideal dividend policy when it applies to non U.S. market such as Japan. Existed signalling model gives glimpses of possible explanations, but precise model is still yet to be found. Statement claims about dividend policy as puzzle seem to be the truest and valid explanation so far.
1. Introduction and Background
Corporate dividend policy has puzzled economists and researchers for a long time. Ongoing meticulous researches have been conducted through various empirical studies in order to understand companies’ dividend behaviour and shareholders’ preferences towards dividend payouts. Many theories have been stated and established as an effort to understand dividend policy better, however the relevance is still questionable and the issue is still yet to be resolved (Bhattacharyya 2007, 4). Dividend policy has a strong tie with the decision of utilizing company cash flows. Companies should determine their choices whether to retain cash flows and do reinvestment or distribute it to shareholders as payouts. Payouts themselves can be done in two ways which are dividend payments or shares repurchase.
Economists and researchers’ interests concerning
Literature Review
Sharon Theresia
17132233
Corporate Finance 307
Singapore Campus
Abstract
Two of the most influential dividend policies are being reviewed and compared. in this paper, clientele effects and signalling model are two chosen policies. Findings implied that clientele is shaped by tax preferences of shareholders which in the end will determine companies’ ideal dividend policies. It is also believed that amount of paid dividend reflects firms’ quality when asymmetric information exists (signalling model). However, information asymmetries are often caused by agency problems and make signalling model less reliable. Signalling model gives mix conclusion when r studies are utilising different research methods. Furthermore, signalling model is a less ideal dividend policy when it applies to non U.S. market such as Japan. Existed signalling model gives glimpses of possible explanations, but precise model is still yet to be found. Statement claims about dividend policy as puzzle seem to be the truest and valid explanation so far.
1. Introduction and Background
Corporate dividend policy has puzzled economists and researchers for a long time. Ongoing meticulous researches have been conducted through various empirical studies in order to understand companies’ dividend behaviour and shareholders’ preferences towards dividend payouts. Many theories have been stated and established as an effort to understand dividend policy better, however the relevance is still questionable and the issue is still yet to be resolved (Bhattacharyya 2007, 4). Dividend policy has a strong tie with the decision of utilizing company cash flows. Companies should determine their choices whether to retain cash flows and do reinvestment or distribute it to shareholders as payouts. Payouts themselves can be done in two ways which are dividend payments or shares repurchase.
Economists and researchers’ interests concerning