Plekhanov Russian Economic Academy The theme of the report Going public and the dividend policy of the company.By Timofeeva M. V. The supervisor Sidorova E. E. Moscow 2001. Introduction I. Going Public and the Securities Market1. Going Public 2. Types of Shares 3. The Stock Exchange and the Capital Market 4. Issue of Securities 5. Equity Share Futures and Options II. Dividend Policy and Share Valuation 1. Dividends as a Residual Profit Decision 2. Costs Associated with Dividend Policy 3. Other Arguments Supporting the Relevance of Dividend Policy 4. Practical Factors Affecting Dividend Policy 5. Alternatives to Cash Dividends Summary References 15 Introduction In this report we focus on the long-term financing by issuing shares and dividend policy of the company.
We consider the institutional design of capital market, Stock Market Exchange and Alternative Investment Market fundamental theories of paying dividend and factors which influence Dividend Policy of the companies.
The main objective of this report is to develop a better understanding of the problems faced by start-up firms seeking capital financing and paying percentage dividends. In addition, we try to identify the consequences of shortcoming and overplus of the dividend payouts for value of corporation for value of share and individuals shareholders. The urgency of this question is obvious, because firms need capital to finance product-development or growth and must, by a lot of factors interest rate, time period and etc, obtain this capital largely in the form of equity rather than debt. So the issuing of shares and dividend policy is one of the widest research overseas and I hope Russian economists don t be backward in that list. I. Going Public and the Securities Market 1. Going Public Most private companies that experience the rapid growth have reached the stage when existing shareholders private resources are exhausted, retained profit is insufficient to cope with the rate of expansion, and further borrowing on top of your current amount of loans will probably be resisted by lenders until you have a more substantial layer of equity capital.
One solution to this financial problem is to retain the services of a financial intermediary usually a merchant bank to find a few private individuals or financial institution such as an insurance company or an investment trust that is willing to subscribe more capital.
This is known a private placing.
And, of course, there are some advantages and disadvantages of going public. Advantages access to the capital market and to larger amounts of finance becomes possible by having shares quoted on the Stock Exchange institutions are more likely to invest on the public listed company, and additional borrowing becomes possible shareholders will find it easier to sell their shares in the wider market the company attains a higher financial standing provides an opportunity for public companies to introduce tax-efficient employee share option scheme.
Disadvantages cost of a public flotation of shares are high as much as 4 - 10 of the value of the issue because outside shareholders are admitted, some control may be lost over the business publicly quoted companies are subject to more scrutiny than private the risk of being taken over by purchasing of company s shares on the Stock Exchange as the market tends to be influenced more by the short- then long-term strategy of listed companies, a company committed to a long-term plan may find its stock market performance disappointing.
The going public company is required minimum issued capital of 50.000 minimum market capitalization of 500.000 25 of your equity shares available to the public sign a Stock Exchange listing agreement, which binds you to disclose specified information about your company in future. 2.
Types of Shares. There are two main classes of shares are ordinary and preference Ordin... Whilst they are part of the share capital, the holders are not normall... There is an implied right to accumulation of dividends if they are unp... 3.
4. lower price at which they are prepared to buy and a higher price at wh... The main participants on the Stock Exchange are Retail Service Provide... It provides the primary facility fir marketing new issues of shares an... Procedure for an.
II. Both futures and options are used by investors for hedging i.e. Traditional options have been dealt in for over 200 years, and are usu... . Equity Share Futures and Options These are traded at the London Intern...
They can invest the 140.000 received as dividends to earn a higher rat... Activity The LTD Company has the chance to invest in the five projects... It would seem sensible for a company to continue to reinvest profit as... 2. .
Costs Associated with Dividend Policy. Capital floatation costs are a deterrent substituting external finance... Indeed, if the company does not currently pay this type of tax, the de... By comparison, dividends in the hands of shareholders attract higher r... And would consequently affect share values, which seem to support the ...
If a company, in whose shares you invest, increases or decreases its d... . An investor will almost certainty pay higher price for earlier rather ... Investors tend to believe that dividend changes provide information re... Other Arguments Supporting the Relevance of Dividend Policy. Activity ...
Whatever dividend policy is thought to be best for a company in theory... This can arise for different reasons. It may already have been expecte... Other restrictions The company s articles association may limit the pa... A company s dividend policy cannot be so outrageously different from p... However corporations willingly make issues of shares and pay dividends...