Question

Generally, a company will only pay dividends if it makes a profit, and high-growth companies should give priority to expansion and investment. However, there are many strange phenomena in the capital market. Some companies will borrow money to pay dividends to shareholders. Some high-growth companies that urgently need capital have been paying dividends. Do you think these phenomena are reasonable? What are the possible reasons behind them?

Answer 1

this phenomena is not good for the compan yb in long run:-

some of the reasons for the companies to pay such dividend are listed below:-

1. some companies consider it as a ritual and pays some fixed dividend every year and if they does not pay Any of the year it may cause the panic among the shareholders about the finbancial position of the company. and due to that this can be result in to decrease in the price of the shares of the company. so company pays the dividend to make the shareholders feel secure and avoid such panicful enviorment.

2. Shareholders prefer dividend rather than capital appreciation because the dividend is the tax free while for the capital appreciation capital gainn has to be paid.

there are some research outcome which can be present as the reason of such phenomena:-

1. most of the company have the target of the dividend payment so to achive that target they pay the dividend.

2. managers more focus on the changes than the actual value. thus paying $2.00 dividend is important financial decision if last year dividend is $1.00 that means managers always try to boost the dividend.

3. many times high level managers hold the high value of the organisations shares so they decide to pay highear decision so they can get higher return.

4. many times share holders takes dividend granted for the regular dividend paying companies and when comopany does not pay dividend there will be negative sentiments from the shareholders which result in to the decrease in share price so to maintain the positivity among the shareholders companies does so.