Corporate Finance

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Table of Contents

1.        Introduction        

2.        How a firm can pay out cash to its shareholders. What can be the forms of payout.        

2.1.        Ways that a firm uses to pay out cash to it’s shareholders        

2.1.1.        Cash Dividend        

2.1.2.        Share repurchase        

2.2.        Stock Split        

3.        Dividend and share repurchase comparison(Motivations and impacts on share price)        

3.1.        Similarity        

3.2.        Differences        

3.2.1.        Motivation for Stock Repurchases in Practice        

3.3.        Conclusion        

4.        Forms of Dividend and their Motivations        

4.1.        Cash Distribution        

4.1.1.        Regular Cash Dividend        

4.1.2.        Extra Dividend        

4.1.3.        Liquidating Dividend        

4.1.4.        Preferred Dividend        

4.2.        Non –Cash Distribution        

4.2.1.        Stock Dividend        

4.2.2.        Reverse Stock Split        

4.2.3.        Dividend in kind        

5.        Factors influence the payout policy of a firm        

5.1.        Legal constraints        

5.2.        Restrictive covenants        

5.3.        Tax considerations        

5.4.        Liquidity and cash flow considerations        

5.5.        Borrowing capacity        

5.6.        Access to capital markets        

5.7.        Earnings stability        

5.8.        Information signaling        

5.9.        Growth prospects        

5.10.        Shareholder preferences        

6.        Conclusion        

7.        Bibliography(of Dividend in Viet Nam’s market)        

1. Introduction

The net income obtained by successful companies could be invested in either current assets or in gaining stock exchange or in repaying the debts or being distributed between the shareholders. Dividend policy is one of the critical subject in financial literature in recent years and until now different researches have been done regarding to explain the reasons and the way distributing the profit between the shareholders and their attention to dividend profit.

Cash  shares  profit  has  a  good position  for  the  company  owners  due to objectivity  and tangibility and the company investors have a significant interest in the field in order to recognize the capacity creating liquidity and distributing it between the shareholders because the data not only reflect an obvious figure of actual enterprise situation, but  also create the possibility to predict next situation. Furthermore,  the subject is essential to the companies managers since it provides helpful information  about  the  company  management  process  and  market assessment  of  their  operation.  Thus, the companies managers pay attention to it as 'Dividend Policy', but it is more controversial to find why the  companies  have  a  selected  the  'Dividend  Policy'  than  the  'Policy'  itself;  this  may  solve  the problems  regarding to  take  important  economical  decisions  for  different  beneficent  groups specially the investors because the defining reasons and factors from finding the root not only help to explain the companies behavior, but also provides some methods to predict the next movement and  direction  in  the  field.    The  'Dividend  Policy'  issue  can  be mentioned  in  field  of  information  asymmetry  and signaling theory; from this point, information  asymmetry  comes from a potential  conflict  between  managers‟  and  stockholders‟  profits;  Thus,  when  the  managers who are owner sell some of their shares to the investors without any role in the management the information  asymmetry  rises.

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