Why do firms with diverse shareholder bases typically pay higher dividends than private firms or public firms with more-concentrated ownership structures? How are fixed dividends used as a bonding (commitment) mechanism by managers of firms with dispersed ownership structures and large amounts of excess cash flow?
Answer to relevant QuestionsHow is the residual theory of dividends used to explain observed dividend payments? How is this theory in conflict with evidence suggesting that corporate managers smooth dividends? General Manufacturing Company (GMC) follows a policy of paying out 50% of its net income as cash dividends to its shareholders each year. The company plans to do so again this year, during which GMC earned $100 million in ...Sunshine Pageants decides that it will use a Dutch auction to repurchase 2 million shares. Investors have submitted the following bids on the price and quantity they are willing to sell shares to the firm: Price ($) ...Assume it is now January 1, 2012, and you are examining two unlevered firms that operate in the same industry that have identical assets worth $80 million that yield a net profit of 12.5% per year, and that have 10 million ...Sam Sharp purchased 100 shares of Electric Lighting Inc. (ELI) one year ago for $60 per share. He also received cash dividends totaling $5 per share over the past twelve months. Now that ELI’s stock price has increased to ...
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