the dividend puzzle fisher black(1976) 892606892644

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The Dividend The Dividend Puzzle Puzzle Fisher Black(1976) Fisher Black(1976) 892606 892606 892644 892644

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Page 1: The Dividend Puzzle Fisher Black(1976) 892606892644

The Dividend The Dividend PuzzlePuzzle

The Dividend The Dividend PuzzlePuzzleFisher Black(1976)Fisher Black(1976)

892606892606892644892644

Page 2: The Dividend Puzzle Fisher Black(1976) 892606892644

The Pros and Cons of paying Dividends

Pros: 1.Cash dividends can underscore

good results and provide support to stock price.

2.Dividends may attract institutional investors who prefer some return in the form of dividends.

Page 3: The Dividend Puzzle Fisher Black(1976) 892606892644

3.Stock price usually increases

with the announcement of a new or increased dividends.

4.Dividends absorb excess cash flow and may reduce agency costs that arise from conflicts between management and shareholder

Page 4: The Dividend Puzzle Fisher Black(1976) 892606892644

Cons: 1.Dividends are taxed as

ordinary income. 2.Dividends can reduce internal

sources of financing. Dividends may force one firm to forge positive NPV projects or to rely on costly external equity financing

Page 5: The Dividend Puzzle Fisher Black(1976) 892606892644

3.Once established, dividend cuts are hard to make without adversely affecting a firm’s stock price.

Page 6: The Dividend Puzzle Fisher Black(1976) 892606892644

如果公司有 1000 多餘的現金 ,

它可以選擇發放 dividend 或者是選擇投資於一個 10 percent 的 bill 為期 5 年 , individual tax rate 28 percent, corporate tax rate is 34 percent.

Page 7: The Dividend Puzzle Fisher Black(1976) 892606892644

(i) 現在發 dividend 1000 * (1-0.28)=720 720 * (1+0.1*(1-0.28))^5=1019.31 (ii) 五年後發 dividend 1000 * (1+0.1*(1-0.34))^5=1376.53 1976.53 * (1-0.28)=991.1

Page 8: The Dividend Puzzle Fisher Black(1976) 892606892644

In the Firm term

personal tax rate < corporate tax rate => pay dividends

personal tax rate > corporate tax rate => reduce dividends payments

Page 9: The Dividend Puzzle Fisher Black(1976) 892606892644

(i) 公司發放股利 100 ordinary tax rate 28 percent 付 100 * 28% = 28 稅 (ii) 公司 repurchase 價格在 100 原購買價格 60 capital gain rate 20 percent 付 (100-60)*0.2 =8 稅

Page 10: The Dividend Puzzle Fisher Black(1976) 892606892644

Repurchase vs Dividends 由簡單的例題得知 , repurchase 比發放 dividend

能夠躲掉更多的稅的負擔

Page 11: The Dividend Puzzle Fisher Black(1976) 892606892644

Real-world factors forcing a high-dividend policy

•Desire for current income

•Uncertainty Resolution

• Agent cost

Page 12: The Dividend Puzzle Fisher Black(1976) 892606892644

Corporations Smooth Dividends

Page 13: The Dividend Puzzle Fisher Black(1976) 892606892644

The Main points of this paper

• Why do corporations pay dividends?

• Why do investors pay attention to dividends?

Page 14: The Dividend Puzzle Fisher Black(1976) 892606892644

• The MM Theorem• If A Firm Pays No Dividends• Taxes• Transaction Costs• What Do Dividend Change Tell Us• How To0 Hurt The Creditors• Dividends As A Source Of Capital• Do Investors Demand Dividends• Portfolio Implications

Page 15: The Dividend Puzzle Fisher Black(1976) 892606892644

The Miller-Modigliani Theorem

Assumption: 1. no tax 2.no transaction cost

Page 16: The Dividend Puzzle Fisher Black(1976) 892606892644

Case 1: A Firm Pays dividend

假設公司今天發放 2 元的 dividend. 則其在市場的股票價值會下降 2 元

=>dividend paid does not affect the value of its shares or the return to investors

Page 17: The Dividend Puzzle Fisher Black(1976) 892606892644

Case 2:A Firm pays no dividend

There are many ways for the stockholders of a firm to take cash out without receiving dividends

Page 18: The Dividend Puzzle Fisher Black(1976) 892606892644

1.Repurchase its stocks. 2.Give stockholders jobs at inflated salaries 3.ordered goods from other

firms owned by the stockholder at inflated prices.

Page 19: The Dividend Puzzle Fisher Black(1976) 892606892644

Concluded in MM model: a firm that pays regular

dividend will be worth the same as an otherwise similar firm that pays no dividend.

Page 20: The Dividend Puzzle Fisher Black(1976) 892606892644

Taxes• In the investor aspect In real world dividends are t

axed more heavily than capital gains

=> 在股利方面有較重稅務負擔的投資人偏好不發放股利

Page 21: The Dividend Puzzle Fisher Black(1976) 892606892644

•In the firm aspect If a corporation insist on

paying out cash, it is better off replacing some of its common stock with bond.

Because the interest of bond can be deductible but dividend can not.

Page 22: The Dividend Puzzle Fisher Black(1976) 892606892644

Conclusion in Tax With taxes, investors and cor

porations both prefer small dividend or no dividend at all.

Page 23: The Dividend Puzzle Fisher Black(1976) 892606892644

Transaction Cost The transaction can be costly so

an investor may want to have dividend income.

However, the corporation that pays no dividend can arrange for automatic share repurchase plans.

Page 24: The Dividend Puzzle Fisher Black(1976) 892606892644

An automated system would probably cost about as much as a system for paying dividend.

=> The transaction cost does not tell us much about why corporations pay dividends

Page 25: The Dividend Puzzle Fisher Black(1976) 892606892644

What Do Dividend Change Tell us

•投資人看待 dividend 的角度 1. dividend becomes higher => 公司績效前景看好 => 股價高

Page 26: The Dividend Puzzle Fisher Black(1976) 892606892644

2.dividend becomes lower => 公司績效前景差 => 股價低

不過長期看來 , 公司的績效是符合市場上的股價

Page 27: The Dividend Puzzle Fisher Black(1976) 892606892644

The fact that dividends chan

ges often tell us things about the corporations making them does not explain why corporations pay dividends.

Page 28: The Dividend Puzzle Fisher Black(1976) 892606892644

Shareholders VS Creditors

When a company has debt outstanding the stockholder prefer firms paying dividends, and this is against creditor.

But, this explanation does not go very far.

Page 29: The Dividend Puzzle Fisher Black(1976) 892606892644

Dividend as a source of capital

1.Cuttingthe dividend is one of the lowest cost source of fund available to the company => This is a reason to expect company not to pay dividend.

Page 30: The Dividend Puzzle Fisher Black(1976) 892606892644

2.A company has no positive NPV projects and can not rise money externally should keep his dividend => There may be a reason

to keep dividend

Page 31: The Dividend Puzzle Fisher Black(1976) 892606892644

Do investors demand

dividends? Q: Is it rational to hold high dividend

stock? A: 必須考量自身的稅務負擔狀況 高稅務負擔者 => low dividend stock 低稅務負擔者 => high dividend stock

Page 32: The Dividend Puzzle Fisher Black(1976) 892606892644

In fact, it is difficult or impossible to tell whether investors demand dividends or not.

So it is hard for a corporation to decide whether to eliminate its dividend or not.

Page 33: The Dividend Puzzle Fisher Black(1976) 892606892644

Portfolio Implications

An investor who emphasizes a certain kind of stock in his portfolio is likely to end up with a less well-diversified portfolio than he would otherwise have.

Page 34: The Dividend Puzzle Fisher Black(1976) 892606892644

If investors demanding dividends dominate market => much more people buy high dividend stock => price is higher => Expected return is lower

Low Tax Rate Investors

Page 35: The Dividend Puzzle Fisher Black(1976) 892606892644

=> 低稅務負擔的投資者 , 為了追求

portfolio, 必須選擇低 dividend 的股票

Page 36: The Dividend Puzzle Fisher Black(1976) 892606892644

High Tax Rate Investor

•how much should they emphasize low dividend stocks?

•At what point will the loss of diversification offset the increase in expected return

Page 37: The Dividend Puzzle Fisher Black(1976) 892606892644

conclusion

Page 38: The Dividend Puzzle Fisher Black(1976) 892606892644

The harder we look at the dividend picture the more it seems like a puzzle