FINANCE AND GROWTH STRATEGIES

Finance and Growth Strategies

Finance and Growth Strategies

Firms rely on both current earnings and past dividends

- Dividends tend to be more sensitive to current earnings than prior dividends.

- Any variability in the earnings of the corporation is directly reflected in the level of dividends.

-dividend policy does vary across financial and non-financial industries. (Prezas 1988)

Non-financial institutions adopt therefore a more smoothing dividend policy.

HERE IS SOME highlight OF factors that may influence the dividend policy pattern.

First, riskier firms with high financial leverage pay out fewer dividends and have lower dividend yields.

Furthermore, high-profitability firms with more stable earnings can also afford more dividends.

However, larger investment opportunities deprive firms from higher dividends. (Martin 1991)

Similarly, growing firms distribute fewer dividends.

Additionally, dividends serve to reduce agency costs between the shareholders themselves only whereas the conflicts between insiders and outsiders seem to be not resolved with dividends. This matter holds true only in non-financial firms. In this vein, it should be noted that our analysis does show significant differences throughout financial versus non-financial industries. (Rozeff 1982)

Finally, the size of corporations has a systematic negative effect on dividend policy.

AS A FINANCE MANAGER, HERE ARE SOME OF MY COMMENTS.

The blemishes in the traditional dividend policy

There are some blemishes existing in the making and the process of carrying out the traditional policy:

1. The traditional dividend policy is not devoted to the maximization of enterprise value

The traditional dividend policy is not devoted to the maximum of enterprise value, but to the maximum of the profit or shareholder's wealth. The main blemish of taking the maximum of profit as the final goal of dividend policy is that it only considers the interests of enterprise's operator to emphasize the amount of profit of enterprise to reach most top in a certain period, but it did not go to consider the enterprise itself. When pursue the maximum of profit unilaterally, it may cause the acts and efforts for expediency of enterprises and is unfavorable to enterprise's long-term development. While, when we regard the maximum of shareholder's wealth as the goal, the weak point is that the maximum of shareholder wealth is related to the maximum of the market value of the stock, but in fact, the factor influencing the change of the stock price, not merely include enterprise's business performance, but also include investor's psychology expectation and economic policy, political situation etc. .All these make it lose standard and objective Dimensions. (Subrahmanyam 1997)

2. There is no consideration about the sustainable development of enterprises in traditional dividend policy

First, it doesn't take “maximizes the enterprise value”as the final goals when establish firm's dividend policy. Just as we have stated, while set down the policy, firms only pursue the short-term interests such as the maximum of profit and shareholder's wealth, and neglect the long-term income and the effect to the sustainable development of enterprise. To a great extent, we cannot say it is stable and relative independent as a policy. Secondly, it lacks the whole, overall and long-term planning while establish the dividend ...