股利政策外文翻译
外文文献翻译译文
一、外文原文
原文:
Dividend policy
Profitable companies regularly face three important questions: 1 How much of its free cash flow should it pass on to shareholders? 2 Should it provide this cash to shareholders by raising the dividend or by repurchasing stock? 3 Should it maintain a stable, consistent payment policy, or should it let the payments vary as conditions change?
When deciding how much cash to distribute to shareholders, finance manager must keep in mind that the firm’s objective is to imize shareholder value. Conquently, the target pay rate ratio?define as the percentage of net income to be paid out as cash dividends?should be bad in large part on investors’ preference for dividends versus capital gai ns: do investors prefer 1 to have the firm distribute income as cash dividends or 2 to have it either repurcha stock or el plow the earnings back into the busine
ss, both of which should result in capital gains? This preference can be considered in terms of the constant growth stock valuation model:
If the company increas the payout ration, the rais.This increa in the numerator, taken alone, would cau the stock price to ri. However, ifis raid, then less money will be available for reinvestment, that will cau the expected growth rate to decline, and that will tend to lower the stock’s price. Thus, any change in payout policy will have two opposing effects. Therefore, the firm’s optimal dividend policy must strike a balance between current dividends and future growth so to imize the stock price. In this ction, we examine three theories of investor preference: 1the dividend irrelevance theory, 2the "bird-in-the-hand" theory ,and3 the tax preference theory DIVIDEND IRRELEVANCE THEORY
It has been argued that dividend policy has no effect on either the price of a firm’s stock or its cost of capital. If dividend policy has no significant effects, then it would be irrelevance .The principal proponents of dividend irrelevance theory are Merton Miller and Franco ModiglianiMM.They argued that the firm’s is determined only by its basic earning power and its business risk. In other words, MM argued that the value of firm depends only on the income produced by its asts, not on how this income is split between dividends and retained earnings To understand MM’s argument that divi
dend policy is irrelevance, recognize that any shareholder can in theory construct his or her own dividend policy .If investors could buy and ll shares and thus create their own
dividend policy without incurring costs, then the firm’s dividend policy would truly be irrelevant. Note, though, that investors who want additional dividends must incur brokerage cost to ll shares, and investors who do not want dividends must first pay taxes on the unwanted dividends and then incur brokerage cost to purcha shares with the after-tax dividends. Since taxes and brokerage costs certainly exist, dividend policy may well be relevant.
In developing their dividend theory, MM made a number of assumptions especially the abnce of taxes and brokerage costs. Obviously, tax and brokerage costs do exist, so the MM irrelevance theory may not be true. However, MM argued that all economic theories are bad on simplifying assumptions, and that the validity of a theory must be judged by empirical test, not by the realism of its assumptions.
BIRD-IN-THE-HAND THEORY
The principal conclusions of MM’s dividend irrelevance theory is that dividend policy does not affect the required rate of return on equity, Ks. This conclusion has been hotly debated in the academic circ
les .In particular, Myron Gordon and John Lintner argued that Ks decreas as the dividend payout is increa becau investor are less certain of receiving the capital gains which are suppod to result from retaining earnings than they are of receiving dividend payments
MM disagreed .They argued that Ks independent of dividend policy,
which implies that investors are indifferent between D1/P0 and g and, hence, between dividends and capital gains. MM called the Gordon-Lintner argument the bird-in-the-hand fallacy becau, in MM’s view, most investors plan to reinvest their dividends in the stock of the same or similar firms, and, in any event, the riskiness of the firm’s c ash flows to investors in the long run is determined by the riskiness of operating cash flows, not by dividend payout policy.
TAX PREFERENCE THEORY
There are three tax-related reasons for thinking that investors might prefer a low dividend payout to a high payout: 1 Recall from Chapter II that long-term capital gains are taxed at a rate of 20 percent, whereas dividend income is taxed at effective rates which go up to 39.6 percent. Therefore, wealthy investors might prefer to have companies retain and plow earnings back into the business. Earnings growth would presumably lead to stock prices increas, and thus low- taxed capital gains would be
substituted for higher-taxed dividends. 2Taxes are not paid on the gains until a stock is sold. Due to time value effects, a dollar of taxes paid in the future has a lower effective cost than a dollar paid today.
3 If a stock is held by someone until he or she dies, no capital gains tax is due at all-the beneficiaries who receive the stock can u the stock’s valu e on the death day as their cost basis and thus completely escape the capital gains tax.
Becau of the tax advantages, investors may prefer to have companies retain most of their earnings. IF so, investors would be willing to pay more for low-payout companies than for otherwi similar high- payout companies.
There three theories offer contradictory advice to corporate managers, so which, if any, should we believe? The most logical way to proceed is to test the theories empirically. Many such tests have been conducted, but their results have been unclear. There are two reasons for this1For a valid statistical test, things other than dividend policy must be held constant; that is, the sample companies must differ only in their dividend policies, and2we must be able to measure with a high degree of accuracy each firm’s cost of equity. Neither of the two conditions holds: We cannot find
a t of publicly owned firms that differ only in their dividend policies, nor can we obtain preci estimates of the cost of equity.
Therefore, no one can establish a clear relationship between dividend policy and the cost of equity. Investors in the aggregate cannot be en to uniformly prefer either higher or lower dividends. Nevertheless, individual investors do have strong preferences. Some prefer high dividends, while others prefer all capital gains. The differences among in dividends help explain why it is difficult to reach any definitive conclusions regarding the optimal dividend payout. Even so ,both evidence
