BP is one of the world’s leading international oil and gas companies. BP was founded in 1908. Today, BP has its headquarters in London. BP provides their customers with energy for heat and light, fuel for transportation and a lot more services.
At one of BP’s oilrigs, “Deepwater Horizon” in the Gulf of Mexico, an accident occurred on 20 April 2010. A gas release and subsequent explosion cost 11 people the land resulted in 4.9m barrels of oil being discharged, threatening marine life and hundreds of miles of coastline.
After this accident, the US government wanted BP to use the profit to pay for the Gulf of Mexico clean up instead of paying dividends to their shareholders, which put BP under intense pressure.
Table of Contents
- Introduction
- The irrelevance of payout policy
- Information effects and signaling
- Homemade dividends and transaction costs
- Share Buybacks
- Conclusion
Objectives and Key Themes
This text explores the impact of the 2010 Deepwater Horizon accident on BP's dividend decision. It analyzes the potential benefits and drawbacks of paying dividends, considering factors like the irrelevance of payout policy, information effects and signaling, homemade dividends and transaction costs, and share buybacks.
- Dividend policy in a perfect capital market
- Information effects and signaling
- The role of transaction costs
- Share buybacks as an alternative to dividends
- Impact of the Deepwater Horizon accident on BP's dividend decision
Chapter Summaries
- Introduction: This section provides background information on BP, its operations, and the Deepwater Horizon accident. It sets the context for analyzing BP's dividend decision in the aftermath of the disaster.
- The irrelevance of payout policy: This chapter discusses the Modigliani-Miller (MM) theorem, which proposes that dividend policy is irrelevant in a perfect capital market. It examines the assumptions behind this theorem and how they relate to BP's situation.
- Information effects and signaling: This section explores the role of information effects in dividend decisions. It considers how BP's dividend policy could signal its future profitability and ability to recover from the accident.
- Homemade dividends and transaction costs: This chapter examines the concept of homemade dividends, where shareholders can create their own cash flow streams by selling shares. It discusses the implications of transaction costs in this context.
- Share Buybacks: This chapter explores share buybacks as an alternative to dividends. It analyzes the potential benefits and drawbacks of share buybacks for BP in light of the Deepwater Horizon accident.
Keywords
Key terms and concepts discussed in this text include dividend policy, irrelevance theorem, information effects, signaling, transaction costs, homemade dividends, share buybacks, Deepwater Horizon accident, BP, and shareholder wealth.
- Quote paper
- Anonym (Author), 2016, Dividends in a Real-World Setting. BP’s situation and dividend decision after the Deepwater Horizon accident in 2010, Munich, GRIN Verlag, https://www.grin.com/document/371068
