İŞLETME FİNANSI II

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.

A company can repurchase stock to minimize the “dilution effect” associated with exercising the stock options that have been given to employees as bonuses

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

A company can not  repurchase stock to distribute excess cash without changing the amount of dividends. Because managements are reluctant to decrease the dividends unless management is confident in the future. Also, they are reluctant to decrease the dividend because of the negative signal.

The bird-in-the-hand dividend theory

Dividend information content hypothesis

Dividend irrelevance theory

 

The dividend signaling hypothesis

investors can buy and sell stocks without any transaction costs

companies can issue stocks without any costs

There are no conflicts of interest between managers and owners

Dividend signaling hypothesis

Stock split hypothesis

Stock dividend hypothesis

Determine the amount of equity needed to finance this budget

Use retained earnings to meet equity requirements to the extent possible

Pay dividends only if more earnings are available than are needed to support the optimal capital budget

Effects of dividend policy on the cost of common stock equity

İnvestors’ desire for current versus future income

The perceived riskiness of dividends versus capital gains

Tax differences on capital gains versus dividends

Information (signaling) content in dividend announcements