Question

1. How is a company's distribution to shareholders policy defined?

2. Has the number of publicly traded companies increased, over time? Please, explain.

3. What are some arguments in support of the dividend irrelevance theory?

Answer 1

1. Company's distribution to shareholders policy is also known as dividend policy. It is a set of decisions and a set of guidelines which is used by a company to decide the dividend payout ratio. Dividend policy is used to reflect how much a company is willing to pay to it's shareholders out of the profits and how much it wants to retain for reinvestment.

It is also an indicator of showing that how much a company is growing and is willing to provide to shareholders a source of uniform payments. A firm with high payout ratio of dividend is always preferable by investors.

2. Yes, With the time, The number of firms which are getting listed on the stock exchange and are publicly traded are significantly increasing .Getting publicly listed and traded is highly important if a firm wants to raise capital from the equity markets.

It is also important if a firm wants to grow and get a through a fair mechanism of price discovery .Investors are always looking to invest in firms which are publicly traded as they are highly transparent and subject to a high level of disclosure requirements.

3. A .Dividend irrelevence theory supporters agrue that investors donot need to concern about the dividend policy of company as they have a option to sell the equities as and when they need cash.

B. They also advocates that payment of dividend doesnot adds to the total stock price of a comapny.

C. They also advocates that a company who pays out the dividends doesnot have an adequate reinvestment policy which can beat the market rate of return so they opt for an easy route by paying out dividend.