BU393 Chapter Notes - Chapter 13: Systematic Risk, Dividend Policy, Weighted Arithmetic Mean
Document Summary
Distributions come in 2 forms: dividends and share repurchases. Companies should retain cash when there"s positive npv projects cash to finance projects: shareholders will earn internal rate of return > required return, companies distribute cash when irr < shareholders" required return (negative npv projects) Asymmetric information: information that"s not shared equally across individuals. Value of dividends and repurchases has increased considerably since 1999. Repurchases more volatile and appear to follow business cycle. Distribution yields: value of cash distributed during the year dividend by the market value of the company"s equity. Most companies (56%) have yield of 0% = companies distribute nothing to shareholders mostly small, young companies that"re reinvesting in growth and those enduring difficult business times and can"t afford distributions. Small # of companies pay most dividends and generate most earnings. Shareholders must pay tax on dividend in year the dividend was paid.
