Companies are far more reluctant to cut dividend than to increase them. Why might this be the case? What are the implications for financial markets when firms announce that they will be cutting dividends?

Companies are far more reluctant to cut dividend than to increase them. Why might this be the case? What are the implications for financial markets when firms announce that they will be cutting dividends?

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter8: Fraud, Internal Controls, And Cash

Section: Chapter Questions

Problem 17MC: What would be a reason a company would want to understate income? A. to help nudge its stock price...

See similar textbooks

Related questions

Q: One of the three sources of capitol a firm has is offering new equity (stock) to the public. Unlike…

A: A corporation fulfills its capital and financing requirements through the issue of various financial…

Q: The issue as to whether dividend policy has an effect on share prices raises a question as to…

A: Bird in hand theory of dividend policy says that investors prefer dividend as compared to capital…

Q: What were the direct and indirect costs of the LIBOR scandal for Barclays? Are these costs only a…

A: The LIBOR Scandal: The LIBOR Scandal came to light in 2012 when Barclays and other banks admitted…

Q: Most managers try to "smooth" their dividends over time - they try to increase the dividend, but…

A: The dividends is the distribution of surplus profit by a company to its shareholders. It is given as…

Q: Carrington and Genevieve agree that they would like to try to increase the value of the company…

A: Stock valuation is referred as the technique that used for determining an intrinsic value of the…

Q: . On the day an IPO comes out, the market pricecan rise above the offering price or fall below…

A: Leaving the money in the table refer to deliberate under-pricing of stocks in initial public…

Q: Why might a company repurchase its own stock? A) It believes that the market undervalues its shares…

A: Introduction: Common stock is owners' capital contributed in the business. Holders of the common…

Q: The Discounted Dividend Model and the Corporate Valuation Model are two different ways to determine…

A: a.The Corporate Valuation Model can be used for companies with uneven cashflow growth rates and the…

Q: If stock dividends and stock splits don't give shareholders significant value/ amount, why do you…

A: Every publicly listed company has a defined amount of existing shares. A stock split is a measure…

Q: If payout policy is irrelevant or has no effect on firm value, then why do individuals have a…

A: Dividend Policy: A dividend policy refers to the strategy that a firm use to arrange its dividend…

Q: In examining investors’ preferences for dividends, it is useful to begin with the concept of…

A: Dividends are the amount which are distributed by the Company out of the profits earned during the…

Q: What is the difference between dividends that are declared and dividends that are paid

A: There exist difference between dividend that is declared and paid

Q: What is the lowest dividend a firm could pay? What types of firms generally pay high dividends?…

A: Dividend is not compulsory to pay, when the company earns good profits , Board of directors…

Q: If a company lowers its cash dividend payment, does that always send a bad signal? If not, provide…

A: Every company receives their capital in the form of equity or debt. Equity is from the shareholders…

Q: a future investment opportunities? or should maintain its liquidity to fund its investment rather…

A: Companies have cash from the operations of the company and they have options to use the cash one is…

Q: ith a decline in the number of publicly traded companies and the growth of other investment vehicles…

A: The high net worth individuals are those individuals which trade or invest in big amount and having…

Q: Which of the following statements is TRUE about the Modigliani and Miller Theory regarding dividend…

A: MM theory was proposed in 1961. It suggests that dividend and capital gain on shares are equivalent…

Q: Many companies that go public with an IPO don’t actually need additional cashto continue growing…

A: Companies go public mainly due to the expansion projects that are not fulfilled by the private…

Q: Why do firms still do stock dividends and stock splits if it doesn't give shareholders much value…

Q: Indicate whether the following statements are true or false. If the statementis false, explain…

A: true

Q: Company insiders who can earn excess profits on company stock based on their private knowledge…

A: Stock price depends on the information. As people get information, they start pricing the stock…

Q: Why do companies often repurchase stock instead of paying cash dividends? What is the effect for the…

A: Dividends are the returns that will be paid to the investors who hold the stock of the company. This…

Q: Which of the following statements is NOT true about Initial Public Offerings? A. An IPO occurs when…

A: Initial public offerings are the shares issued by private company for the first time to get itself…

Q: The cost of retained earnings is less than the cost of new outside equity capital. Consequently, it…

A: The cost of retained earnings is the cost to a firm for funds which the firm has generated…

Q: Companies are more apt to choose repurchases over dividends if doing so will enable them to I. take…

A: When a company decides to buy back its own stock from the market, this is known as a share…

Q: For a large public company, paying cash dividends to shareholders will ____; repurchasing shares…

A: Cash dividend are paid to shareholders that affect the retained earnings and ultimately the total…

Q: Preferred stock may be good for a company because it a. is not as costly as common stock or bonds.…

A: Stocks can be of preferred stock or common stock

Q: The history of the stock market shows that there are a large number of start -up corporations whose…

A: Investing in startups is quite risky. However, if the business is able to pull-off, the investment…

Q: State whether the following statement is true or false and provide a written explanation of your…

A: Dividend growth model A method that helps the investors to calculate the current price of the stock…

Q: Which is NOT a potential explanation for IPO short-term underpricing? Underwriters can unload more…

A: Underpricing is the practice of listing an initial public offering (IPO) at a price below its real…

Q: What are the company motives for declaring dividends or stock repurchase programs? 2. How would you…

A: Because you have asked multiple questions, we will solve the first question as per the policy of…

Q: (a). Large businesses spend millions of dollars annually on insurance. Why? Should they insure…

A: Note: Since you have asked multiple questions, we will solve the first for you. If you want any…

Q: In times of crisis companies are often seen to be paying stable dividends. The question however is,…

A: Introduction: Dividend is a part of profits which is distributed among its shareholders. In the…

Q: Assume that a company announces an unexpectedly large cash dividend to its shareholders. In an…

A: Dividend policy: The dividend policy of a company is an operation of diverse variables like…

Q: Which of the following statements is true? Group of answer choices a. Dividend payments are…

A: Option B is True. Executive and Insider have many non public or Insider information which can…

Q: A company might purchase treasury stock for all of the following reasons excepta. it wants to…

Q: If stock dividends and stock splits don't give shareholders much value, why do you think companies…

A: Stock split involves increasing the number of shares outstanding of the corporate entity by issuing…

Q: Which of the following is NOT a reason for a high-dividend-payout policy? A. convenient and…

A: High Dividend Policy: It refers to a company where the company declares more of the proportion as…

Q: Which one of the following statements is correct? A Modigliani and Miller argued that dividend…

A: Repurchase of shares are alternative procedure to issue dividend by distribution of wealth in the…

Q: Why do firms change their dividends policy?

A: Dividends are paid as a reward to the shareholders in lieu of the money given to the corporates for…

Q: Explain why the following statement is wrong (1 paragraph maximum): "The main reason why some…

A: Share repurchase is defined as transaction where the businesses purchases its own shares from the…

Question

Companies are far more reluctant to cut dividend than to increase them.

Why might this be the case?

What are the implications for financial markets when firms announce that they will be cutting dividends?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Introduction

VIEW

Answer

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

If a company’s market price rises above the IPO price, does that suggest that the company left money on the table and thus received less for the shares than it should have received? If most companies do leave money on the table, does that indicate the IPO market is inefficient? explain
Companies often are under pressure to meet or beat Wall Street earnings projections in order to increase stock prices and also to increase the value of stock options. Some resort to earnings management practices to artificially create desired results. Required: 1. How can a company manage earnings by changing its depreciation method? Is this an effective technique to manage earnings? 2. How can a company manage earnings by changing the estimated useful lives of depreciable assets? Is this an effective technique to manage earnings? 3. Using a fictitious example and numbers you make up, describe in your own words how asset impairment losses could be used to manage earnings. How might that benefit the company?
To what extent does the company’s dividend policies support or hinder their strategies? For example, if the company is attempting to grow, are they retaining and reinvesting their earnings rather than distributing them to investors through dividends? Be sure to substantiate claims.
If a company lowers its cash dividend payment, does that always send a bad signal? If not, provide an example of when a lower cash dividend would not send a bad signal.
A firm is planning to borrow money to make an equity repurchase to increase its stock price. It is basing its analysis on the fact that there will be fewer shares outstanding after the repurchases, and higher earnings per share. There are no taxes. a. Will earnings per share always increase after such an action? Explain.b. Will the higher earnings per share always translate into a higher stock price? Explain.c. Under what conditions will such a transaction lead to a higher price?
If the stock market is efficient, why do companies manage their earnings? O To avoid violating debt covenants. O To receive bonuses based on reported earnings. O Because companies do not believe the Efficient Market Hypothesis. O All of the above.
To what extent do you feel the company’s dividend policies support or hinder their strategies? For example, if the company is attempting to grow, are they retaining and reinvesting their earnings rather than distributing them to investors through dividends? Be sure to substantiate your claims.
In times of crisis companies are often seen to be paying stable dividends. The question however is, should companies retain these dividends in the firm to protect employment and investments? Should companies preserve their financial flexibility in times of financial crises? Discuss the ethics of dividends and illustrate how dividends and related issues (e.g. dividend taxation) can play a part in rethinking the capitalist paradigm.
Which of the following statements about payout policy is FALSE? a. Share repurchases concentrate ownership in the hands of the remaining shareholders, making their shares worth more than they were before the repurchase. b. Firms should generally pay out no more than their free cash flow to equity, unless they are in the process of paying out a large cash balance. c. Dividends typically increase at a slower rate than earnings. d. Firms today return more cash to shareholders through repurchases than through dividends. e. Dividends are lower for firms that have higher growth rates.
According to Modigliani and Miller, a firm's dividend policy is irrelevant: if the financial markets are inefficient if the financial markets are perfect if the financial markets are efficient if all investors are rational because dividends are discretionary
What would be a reason a company would want to understate income? A. to help nudge its stock price higher B. to lower its tax bill C. to show an increase in overall profits D. to increase investor confidence
The _______________theory hypothesizes that the amount of dividends should not be the focus of the company, but that the company should simply declare a dividend from the earnings not currently needed for earmarked projects. This theory leads to erratic and unpredictable dividends.