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John Moffat.
John Moffat.-
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Noah098
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sir I also do not understand the following statement:
“changes in dividend policy, such as reductions in dividend payouts may conflict with investors’ liquidity requirements. ”
Sir whether an individual gets regular dividends or has to sell off some of his shares to ‘manufacture dividends’ aren’t both options liquid??
John Moffat
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Yes, but the whole point is that some investors deliberately choose to invest in companies that pay high dividends (but have therefore little growth). If the company changes its dividend policy and reduced the level of dividends then those shareholders will not be happy if it means they have the hassle of having to sell shares to get the cash they want. In theory it should not matter (dividend irrelevancy) but in practice it does. Again, this is all explained in Chapter 4 of our lecture notes and the lectures that go with them.
Noah098
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