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Capital Market Considerations

Capital Market Considerations Yet another set of factors that can strongly affect dividend policy is the extent to which the has access to the capital markets. In case, the firm has easy access to the capital market because it is financially strong or large in size,...

Dilution of Ownership

Dilution of Ownership The financial manager should recognize that a high D/P ratio mar in the dilution of both control and earnings for the existing equity holders. The control aspect already been discussed, Dilution in earnings results because low retention may...

Opportunities

Opportunities The firm should not retain funds if the rate of return earned by it would be than one which could have been cameo by the investors themselves from external investors funds. Such a policy would obviously be detrimental to the interests of shareholders, It...

Owners Considerations

Owners Considerations The dividend policy is also likely to be affected by the owner’s considerations of (a) the tax status of the shareholders, (b) their opportunities of investment, and (c) the dilution of ownership. It is well nigh impossible to establish a...

Control

Control Dividend policy may also be strongly influenced by the shareholders or the management’s control objectives. That is to say, sometimes management employs dividend policy as an effective instrument to maintain its position of command and control. The...

Earnings Stability

Earnings Stability The stability of earnings also has a significant bearing on the dividend decision of a firm. Generally, the more stable the income stream, the higher is the dividend payout ratio. Such firms are more confident of maintaining a higher payout ratio....