Question

Discussion Post: Please answer with 1 paragraph each

25. what are the advantages of a stock split over a cash dividend?

32.Discuss clientèle effect hypothesis

Answer 1

25. Stock split also known as stock dividend is basically increase in the number of shares the shareholder is holding by reducing the price of the share. Overall value remains the same. Cash dividend is simply the cash dividend company pays to shareholders. There are several benefits of stock dividend over cash dividend.

1. Firstly, shareholders get option with the stock dividend. They can keep the newly generated shares and can reap the benefits in future if company perform well on market or they can sell these additional share and can reap the benefit now

2. Second benefit is that they do not have to pay dividend tax on stock dividend which they have to pay on cash dividends. Even if stock dividends has cash dividend option, then also tax need to be paid

32.

Clientele effect hypothesis states that the change in share price of a company is directly effected by the policy decisions the company makes. This is due to the fact that investor's demand for that share changes as the policy change. So if the change in policy is favorable to investors, they will buy more shares, demand will increase and eventually share price increase. Similarly if policy change has negative effect on investor's goals, they will decrease their holdings and price will decrease.

For example, if company increase is dividends in its policy revision, this will be a positive sign for investors and they will more likely to buy the shares of that company leading to increase in price.