İŞLETME FİNANSI II - Deneme Sınavı - 4

The date the board of directors announces to pay the dividend is the declaration date. After declaring this date, the company is obligated to make the payment. The company will pay the dividend only to the registered shareholders of record on a specific date which is called record date. While registration takes three business days, anyone purchasing the company’s stock at least three business days before the date of record can claim the right to receive the dividend. Therefore, the date two business days before the date of record is called ex-dividend date. The company sends a dividend check to each of the registered shareholders at the date which is called payment date. Doğru cevap " A " dır.

Stock repurchase is the distribution of earnings to shareholders by repurchasing
shares of its stock. Doğru cevap " B " dir.

Advantages of Repurchases
The principal advantages of repurchases are as follows;
1. A company can repurchase stock to distribute excess cash without changing the amount of dividends. Because managements are reluctant to increase the dividends unless management is confident in the future. Also, they are reluctant to decrease the dividend because of the negative signal.
2. When a company has more equity than its target capital structure, the company can directly change its capital structure by repurchasing. For instance, a company may issue debt and use the proceeds to repurchase stocks for adjusting its capital structure.
3. A company can repurchase stock to minimize the “dilution effect” associated with exercising the stock options that have been given to employees as bonuses.
4. Due to the signaling effects, stock repurchase is perceived as a positive signal that the company’s stock is undervalued in the financial markets; therefore when a company engages in the stock repurchase, investors prefer to purchase additional shares.
5. Repurchases have a tax advantage over dividends due to the deferred tax on capital gains. Doğru cevap " C " dir.

Stock split involves exchanging old shares of stock more than one new share. When a stock split is declared, each old share of stock is split up into more than one new shares. Stock split is an action taken by a company to increase the number of shares outstanding. Doğru cevap " D " dir.

Optimal payout must strike a balance between cash dividends and capital gains.

Dividend irrelevance theory states that a company’s dividend policy has no effect on whether its value or its cost of capital. This is called a dividend irrelevance theory set in a perfect world where
(1) investors can buy and sell stocks without any transaction costs,
(2) companies can issue stocks without any costs,
(3) there are no taxes and transaction costs,
(4) the markets are perfectly efficient,
(5) investors are completely rational and
(6) there are no conflicts of interest between managers and owners. Doğru cevap " E " dir.

Stock dividend is a dividend paid in the form of additional shares of stock rather than cash.

While stock dividend increases the number of shares of current shareholders, there will be no impact on their fundamental wealth position.

Bird-in-the-hand dividend theory states that a company’s value will be maximized by setting a high dividend payout ratio. Doğru cevap " A " dır.

While a risk, time value, and taxation which are discussed in the previous part is important, managers have to consider some additional factors in setting the company’s optimal dividend payout policy. Three of these views are discussed in this section. Doğru cevap " B " dir.

Book value per share after the split is is less than the book value per share before the split

Clientele effect is a tendency of a company to attract a set of investors whose particular needs for current versus future cash flow match with company’s dividend payouts. Doğru cevap " C " dir.

Dividend Irrelevance Theory was proposed by Merton Miller and Franco Modigliani.

According to the bird-in-the-hand dividend theory, investors prefer to make an investment on companies who pay regular dividends. Thus, they are NOT indifferent between dividends and capital gains.

While capital gains taxes are deferred until the stock is actually sold, taxes on dividend income is immediately paid when the dividends are received.

Conflicts of interests that exist between the company’s managers and shareholders arise due to the separation of ownership and control. The recognition of this potential agency costs can be overcome with dividend payout policies that are set by managers. Managers generally pursue company policies that benefit themselves at the expense of minority shareholders, by retaining cash flow rather than pay it out to shareholders. Doğru cevap " D " dir.

Dividend information content hypothesis states that if there is a larger than expected dividend increase, it signals to investors that managers anticipate bright future prospects of the company. On the contrary, if the dividend decreases or it is less than expected, it signals to investors that managers forecast poor future earnings.

In the previous parts, the theories of investors’ preferences for dividends and the other dividend policy issues are described. In this section, the factors that affect the dividend decision are discussed as follows;

1. Constraints on dividend payments:

2. Investment opportunities: 

3. Alternative sources of capital: 

4. Ownership dilution:

5. Effects of dividend policy on the cost of common stock equity:

Doğru cevap " E " dir.

The economic effects of stock dividends and stock splits are virtually identical.

Managers generally pursue company policies that benefit themselves at the expense of minority shareholders, by retaining cash flow rather than pay it out to shareholders, which leads to agency costs.