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Underpricing

Underpricing Finally, the MM hypothesis would also not be valid when conditions are a to be uncertain because of the prices at which the firms can sell shares to raise funds to investment programmed consequent upon the distribution of earnings to the...

Preference for Current Income

Preference for Current Income The third aspect of the uncertainty question relating to dividends is based on the desire of investors for current income to meet consumption requirements, The MM hypothesis of irrelevance oi dividends implies that in case dividends are...

Near Vs Distant Dividend

Near Vs Distant Dividend One aspect of the uncertainty situation is the payment of dividend now or at a later the used to near dividend. If, however, the net earnings are retained. This shareholders, would be entitled to receive a return after some time in the form of...

Institutional Restrictions

Institutional Restrictions The dividend alternative is also supported by legal restrictions as to the type of ordinary shares in which certain investors can invest. For instance, the life insurance companies are permitted in terms of section 27-A (1) of the Insurance...

Transaction and Inconvenience Costs

Transaction and Inconvenience Costs Yet another assumption which is open to question is that there are no transaction costs in the capital market. Transaction costs refer to costs associated with the sale of securities by the shareholder investors. The costs postulate...

Flotation Cost

Flotation Cost Another assumption of a perfect capital market underlying the MM hypothesis is dividend irrelevance is the absence of flotation costs. The flotation cost refers to the cost involved in capital from the market, for instance, underwriting commission,...