This paper is an introduction to the effects that dividend payments have on the stock price and a discussion of various opinions about payment effects. One fundamental framework in this field of study has been the “dividend irrelevance theorem” by Modigliani and Miller (1961) that was published in the journal of business as a part of their analysis of “Dividend Policy, Growth, and the Valuation of Shares”. With a set of given assumptions they arrive at the conclusion that the dividend policy is irrelevant. As the second source I consult an article by the American stock exchange NASDAQ (2012) about the so-called “dividend capture strategy”, which I discuss skeptically. The third article I refer to interestingly holds the opposite of the NASDAQ article.
Inhaltsverzeichnis (Table of Contents)
- I. Introduction
- II. Discussion
- III. Conclusion
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper aims to explore the impact of dividend payments on stock prices. It examines existing theories and practical approaches to understand this complex relationship.
- The effect of dividend payments on stock valuation
- The "dividend irrelevance theorem" by Modigliani and Miller
- The "dividend capture strategy"
- Analysis of the dividend payment process
- Different approaches to investing based on dividend payments
Zusammenfassung der Kapitel (Chapter Summaries)
I. Introduction: This chapter introduces the concept of maximizing shareholder value through profitable business practices and the subsequent distribution of profits via cash dividends. It details the typical schedule of a dividend payment, outlining key dates such as the declaration date, ex-dividend date, record date, and payment date. The chapter explains the mechanics of dividend eligibility and the price adjustment of the stock on the ex-dividend date. The introduction also sets the stage for the paper's objective: to research the effects of dividend payments on stock prices, using Modigliani and Miller's general theory as a primary source and supplementing it with more practical analyses of the dividend payment process and its immediate impact on stock prices. The chapter emphasizes the dynamics of financial markets and the factors affecting institutions within them, focusing particularly on the effects of dividend payments.
II. Discussion: This chapter delves into the ongoing debate surrounding the impact of dividend payments on the overall valuation of a firm. It introduces the "Dividend Irrelevance Theorem" by Modigliani and Miller (1961) as a cornerstone study in this field. The chapter discusses the theoretical assumptions underlying Modigliani and Miller's model, including the concept of "perfect capital markets" with no transaction costs or tax differentials, and the assumption of rational investors. The chapter sets the stage for a critical examination of the effects of dividend policies. Further discussion of the “dividend capture strategy” and other practical applications would follow in subsequent sections (not included in this preview).
Schlüsselwörter (Keywords)
Dividend payments, stock price, shareholder value, dividend irrelevance theorem, Modigliani and Miller, dividend capture strategy, financial markets, investment strategies.
Frequently Asked Questions: A Comprehensive Language Preview
What is the purpose of this document?
This document provides a comprehensive preview of a paper exploring the impact of dividend payments on stock prices. It includes the table of contents, objectives, key themes, chapter summaries, and keywords.
What topics are covered in this paper?
The paper examines the relationship between dividend payments and stock prices, exploring various theories and practical approaches. Key themes include the effect of dividend payments on stock valuation, the Modigliani and Miller dividend irrelevance theorem, the dividend capture strategy, the analysis of the dividend payment process, and different investment strategies based on dividend payments.
What are the main chapters and their summaries?
Chapter I: Introduction: This chapter introduces the concept of maximizing shareholder value through dividends, details the typical dividend payment schedule (declaration date, ex-dividend date, record date, payment date), explains dividend eligibility and price adjustments, and sets the stage for researching the effects of dividend payments on stock prices using Modigliani and Miller's theory as a basis.
Chapter II: Discussion: This chapter delves into the debate surrounding the impact of dividend payments on firm valuation. It introduces the Modigliani and Miller (1961) dividend irrelevance theorem, discusses its underlying assumptions (perfect capital markets, rational investors), and sets the stage for a critical examination of dividend policies and practical applications like the "dividend capture strategy".
Chapter III: Conclusion: (Summary not included in this preview)
What are the key terms or keywords used in this paper?
Key terms include: Dividend payments, stock price, shareholder value, dividend irrelevance theorem, Modigliani and Miller, dividend capture strategy, financial markets, and investment strategies.
What is the Modigliani and Miller dividend irrelevance theorem?
The paper discusses the Modigliani and Miller (1961) dividend irrelevance theorem as a cornerstone study in the field. This theorem posits a relationship between dividend payments and firm valuation under specific assumptions (perfect capital markets, no transaction costs or tax differentials, rational investors).
What is the "dividend capture strategy"?
The preview mentions the "dividend capture strategy" as a practical application that will be further discussed in the full paper (not detailed in this preview).
What is the overall objective of the research?
The main objective is to explore and analyze the impact of dividend payments on stock prices, examining both theoretical frameworks and real-world applications.
- Quote paper
- Thomas Herdieckerhoff (Author), 2013, The Effect of a Dividend Payment on the Stock Price, Munich, GRIN Verlag, https://www.grin.com/document/294969
