As I suggest in Topic 9 of the new edition (page 147):
"There is always a great deal of pressure on companies to provide adequate rewards to their shareholders. This topic can be seen as part of the increased emphasis on “value-based management”. This is essentially a managerial approach to corporate strategy that puts the primary focus on maximising shareholder wealth. In response to this trend you will increasingly see a company’s annual report and accounts making some explicit reference to the goal of maximising shareholder wealth".
A key aspect of most companies’ attempts to maximise the wealth of their shareholders is the regular payment of income to them in the form of dividends. You will quickly find that this subject plays a vital role in nearly all aspects of corporate finance. A good example is in the topic of efficient markets theory (EMT) which you will usually come across in the first semester of a second year corporate finance course at University. During this topic you will quickly learn that the company’s dividend policy can have a significant impact on its share price. So that if a company is able to announce a sustainable increase in its annual dividends you expect a sharp rise in its share price wherever an efficient market exists.
A good example of this in practice was shown in the FT today. On the front page of the main section BP's new chief executive (Bob Dudley) indicates that the UK oil group is on course to restore its dividend payments next year. If you remember they had been suspended in response to the Gulf of Mexico oil spill. In an interview with the FT Mr Dudley said that "prospects for a resumption to pay-outs was encouraging". According to EMT we should expect this new announcement to have a positive impact on the company's share price. This is exactly what happened with BP's share price rising on this public announcement. When you learn more about the EMT you will See that this reaction supports the semi-strong form of the EMT (see page 124 to see this defined).
Oct 1, 2010
BP aims to restore dividend payments...
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