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Sir
The market value of a share depends on the expected dividends and the shareholders’ required return. How does this work in real life? Doesn’t the shareholder just buy the shares based on the market value? Or does he fix with the company the return that he is expecting and then the market value in the stock exchange is determined?
Is this applicable to existing or new investor?
The market value is the price on the Stock Exchange, and this is determined by investors buying and selling. If they expect that the company will do well in the future (and therefore that dividends will rise) then they are likely to be prepared to pay more, and the share price will increase.
The company has no direct input into the market value of the shares, but they will always want to improve the prospects of the company and if shareholders believe this then the share price will increase.
No one shareholder can affect the share price – it is shareholders in general that matter.
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