Does it matter whether or not firms pay dividends Why Essay - 1

Does it matter whether or not starchys pay dividends Why - Essay ExampleTherefore, managers should make dividend payouts genuinely consciously regarding the increase of dividend payouts. If they make any wrong decision regarding revised dividend payout, then they have to scrub the increase in dividend in a special announcement to the shareholders. This is substantial impact of change in dividend payout in course price of companies as well as perceived value and goodwill of a strong. This is one of the most important and debated topic of behavioural finance. Dividend payout also signals the confidence of the companies, which directly affect the stock price. But the main fact that needs to be analysed is that whether dividend allowance matters to the companies or not. This topic receives ample of arguments from investors, monetary analysts etc. Three different types of views have been found over the argument on this topic. People, who are on the right site of this argument, clai m that higher(prenominal) dividend payout generally makes the shareholders and investors better off. At the same time the quite a little who are on the left side on this argument, believe that higher dividend payout may reduce the firm value in future. The people in the middle of the road of this argument say that change in dividend policy does not affect the firms value (Brealey, Myers and Allen, 2011, p.35). Irrelevance of dividend policy This topic of whether dividend payment matters the firms had sparked much debate by the financial analysts and the investors. Some individual investors argued that there is no positive or negative relationship between dividend payment and firms value. One of the most important theories cerebrate to this financial argument was Miller and Modigliani theory which is referred as MM theory of dividend signalling. These two researchers had published their... harmonize to the MM hypothesis, market value of a company determines the market value of asse ts that the company has and cash eat of the company. Therefore, if total payout increases then shareholders have to fill up gap and generally it can be make up by issuing new shares. However, if the company wants to unchanged the dividend payout then dividend payout will decrease as no of issued share increases. Therefore, the shareholders can repurchase shares to get the same money back as dividend. In this way, it can be said that increasing dividend payment may reduce shareholders gain. Before the publication of MM theories, people who are in the right side of this argument believed that higher dividend leads to increase in firm value as well as shareholders payoffs. These people prefer to invest only those companies that pay higher dividend because they think there are some natural calamities in the stocks of higher dividend payouts. Shareholders are more sleepless in their investments and they generally prefer profitable as well as safe investment in terms of the large multin ational companies.