Bird-in-hand theory, Finance Basics

Assignment Help:

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.


Related Discussions:- Bird-in-hand theory

How can you analysis organization position, The organization performed very...

The organization performed very well during the last year and generated profit in each segment. In the food and beverage segment, the company has made 30% net profit and in rooms a

The importance of tax, Discuss business taxes and their importance in finan...

Discuss business taxes and their importance in financial decisions

Characteristics of investment - venture capitalists, Characteristics of Inv...

Characteristics of Investment - Venture Capitalists Venture capitalists, will just invest in a company whether there is a reasonable chance such the company will be successful

Accounts payable turnover ratio, Accounts Payable Turnover Ratio Ratio...

Accounts Payable Turnover Ratio Ratio for Account Payable Turnover is as Follow: Creditors/accounts payable turnover = Annual credit purchases /Average creditors

Stewardship accounting, Stewardship Accounting Shareholders contribute...

Stewardship Accounting Shareholders contribute capital that is provided to the directors that they employ and at the end of each accounting year render an explanation on the a

Draw a budget constraint , The price of bread is $0.50 per pound, and the p...

The price of bread is $0.50 per pound, and the price of butter is $0.25 per ounce. Channing spends all of her income, buying 12 pounds of bread, 7 ounces of butter, and nothing els

Evaluate the companys financing strategy, For any company that is quoted on...

For any company that is quoted on the London Stock Market, you are required to write a report to existing shareholders on any TWO of the following issues. Each answer carries equal

Agency theory - finance, Agency Theory The agency problem between mana...

Agency Theory The agency problem between managers and shareholders can be resolved via paying high dividends. If retention is low, managers are necessary to increase additiona

Timing of investment a stock exchange, Timing of Investment a Stock Exchang...

Timing of Investment a Stock Exchange The ideal way of creation profits on the stock exchange is to buy on the bottom of the market or lowest M.P.S and sell at the top of the

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd