FINANCE

Share Price and Dividend Policy

Table of Content

Executive Summaryiii

Question 11

Introduction1

Discussion2

Effect of Information Release on Share Price Volatility and Trading Volume2

Company's Bonus Announcement Impact on Share Price Volatility3

Quality Information and Efficient Market4

Conclusion7

References8

Question 211

Introduction11

Discussion11

The Dividend Irrelevance Theory - Residual Approach12

M&M Theory13

Birds-In-The-Hand Theory15

Other Factors that Impact on Dividend Payout Policies16

Conclusion17

References19

Appendix22

Executive Summary

The business world today is highly responsive and rapid in its advancement. Any information announcement made by the company, abruptly or with the passage of time, effects directly or indirectly on the price of company's stocks. Whether the information is about CEO resignation; stock dividend; price change; capital venture; project approval; or it is about some other related factors, the stocks of company always reacts to the information accordingly. This paper discusses the change in share price as per the information announcement by company's director. In addition to this, this paper also focuses on the irrelevance of dividend policy to the shareholders' wealth. Wide range of relevant theories and arguments is available regarding the relationship between dividend policy and shareholders' wealth, and still the issue is unresolved. This paper undertakes several theories and arguments in this regard and discusses the irrelevancy of dividend policy. Share Price and Dividend Policy

Question 1

When a company director announces new information, the company's share price will change accordingly.

Introduction

The accounting research gives evidences that investors highly rely on volunteer revelation of financial information by managers (Sletten, 2006, p.1). The shares of listed companies are sold and bought throughout the working day, where the share prices kept updated according to the news, events, and forecasts. According to the London Stock Exchange, sometimes prices barely change throughout the day; but at other times prices increase or decrease within the day and this change is highly the result of company announcements, economic announcements, and the flow of financial market (www.londonstockexchange.com). For instance, the share price of a company rises well when the director of a company announces victory of major contract by the company. The study of Mihir Dash and Sriram Gunti (2008, n.d) suggests that the investment announcements by a company are expected to impact on the long-term performance of its share prices. Though it is well known that the effect of new information announcements by a company is mostly not abrupt and spreads over a couple of days, however, this fact can be attributed to the efficiency of markets. So, the company announcements sometimes abruptly impacts on its share prices or at other times observe the effect after couple of days, depends on the market efficiency (Dash & Gunti, 2008, n.d). Hence, it is highly evident from various studies that company's announcements do have an impact on its share price, where the nature of announcement is also a major factor in determining the impact on stock price.



Discussion

The prices of share constantly affect by the company's new information announcements, either directly or indirectly. Examples of these can be the information release of quarterly financials; agreement with large new client; change of company's CEO; introduction of an innovative product; or FDA approval ...