Bird-in-hand theory, Finance Basics

Bird-in-hand Theory

Advanced via John Leitner in year 1962 and furthered with Myron Gordon in year 1963. Argues such shareholders are risk averse and prefer specific. Dividends payments are more specific than capital gains that rely on supply and demand forces to determine share prices.

Hence, one bird in hand as certain dividends is better than two birds in the bush as uncertain capital gains. Consequently, a firm paying high dividends or certainly will have higher value as shareholders will require using lower discounting rate.MM argued against the above proposition. They argued such the required rate of return is independent of dividend policy. They kept such an investor can realize capital gains created by reinvestment of retained earnings, where they sell shares. If this is probably possible, investors would be indifferent between capital gains and cash dividends.

Posted Date: 1/31/2013 2:33:22 AM | Location : United States







Related Discussions:- Bird-in-hand theory, Assignment Help, Ask Question on Bird-in-hand theory, Get Answer, Expert's Help, Bird-in-hand theory Discussions

Write discussion on Bird-in-hand theory
Your posts are moderated
Related Questions
Describe how society's interests can influence financial managers. Occasionally the interests of a business firm's owners are not similar as the interests of society.  For exam

Find the costs of financing for two schedules of monthly payments on a 25-year mortgage. The cash value of the house today is $500,000. You are paying monthly at a fixed rate of 6%

what will happen to the loss on account of premium redemption of debenture through sinking fund? Where do i close this account to?

Compute the Payback Period - Example Cedes restriction has the following details of two (2) of the future production plans. Just one of these machines will be purchased and su

Imagine Joy is the manager of a bank named Money Talks Bank of Virginia . This bank has recently issued new loans to customers. Joy wants you, the business analyst to prepare a re

Sam start business with his savings $20000, a gift from his parents $10000 and a personal loan from his friends of $5000. All money is deposited in a bank account.

Foreign Trade Balance If the Government buys or imports much more than it sells or exports there will be a trade deficit such will require financing.The most important source

You are asked to select three variables for a sensitivity analysis of weighted average cost of capital, what would you choose and why? Weighted average cost of capital is th

1. Each project has RM 10,000, and the cost of capital for each project is 12%. The projects' expected cash flows are as follows: Expected Net Cash Flows YEAR

Why should Roche care about the spreads on debt instruments