Business Finance Homework Help

1: A dividend is a payment made by a firm to its shareholders, either in cash or in kind. Dividends can be paid in a variety of ways, including cash, stocks, or other assets. The board of directors decides on a company’s dividend, which must be approved by the shareholders. A firm is not required to pay dividends, though. A dividend is a portion of a company’s profit that it distributes to its shareholders. Some companies, such as Sun Microsystems, Cisco, and Oracle, do not pay dividends and instead reinvest their entire profit back into the business. The underlying worth of a company’s share price is usually unaffected by dividend payments.

If profits are expected to be very low or negative, a privately held corporation should not offer cash dividends. Dividends are often thought of as a distribution of a portion of a firm’s profits to those who own stock in the company. As a result, no profits usually imply no dividends. Even when a corporation makes a profit, it is sometimes in the best interests of the company and its shareholders to keep the gains rather than distribute them as dividends. If a company is expanding and needs money to spend, for example, keeping earnings may be more cost effective than obtaining loans or more investors.

Public corporations, regardless of how profitable they are or how much cash they have, are not required by law to pay dividends to common shareholders. By 2013, Apple, for example, had amassed more than $100 billion in cash and was still defying shareholder demands to declare a dividend. For private companies regulations and law are different and stringent then public companies to pay dividend. Hence it’s always easy to get dividend from private firm.   

Reference :-

Investing Basics: How Do Dividends Work? – Miranda Marquit, Benjamin Curry – Updated: Mar 30, 2021, 10:54am – Forbes.

2:A dividend is the distribution of the earnings of a company to its shareholders. Dividends are paid to shareholders in form of an additional shares of stock and dividend checks. Companies are able to pay dividends when they have a surplus as dividends(Tahir, Masri,& Rahman, 2020). Therefore, most companies have dividend policies, and those that pay dividends are really attractive to investors since they seem to have more stables than those that do not have.

It is simpler for private companies to pay dividends to shareholders since the directors of private companies are entrusted with the responsibilities of deciding who to give or not to give dividends to the best of their knowledge(Juhandi,  Fahlevi,  Abdi, & Noviantoro, 2019). However, on the other hand, in public companies, every share in a share class has the same rights to receive dividends since each share in each and every share class has equal rights to dividends unless otherwise stated in the company constitution. Private company directors are able to decide on how to pay dividends more easily due to the small size of the company, unlike the public company which is very large in size and poses great challenges to the directors when deciding on the dividend policy to use.

Private companies also have fewer shareholders and restrictions to shareholding than public companies. Public companies have very many shareholders who at times may be widely spread in the region making it more difficult to pay dividends to the shareholders due to many restrictions available. Also, for private companies, stock prices do not change since only a few shareholders are aware of the case of dividends making it very easy for directors to pay dividends(Munawar, 2018). Unlike public companies whose stock prices changes since intentions to pay dividends is announced to the public. Therefore, many shareholders may use the information to act to their advantage which may lead to changes in the stock prices of the company. This makes it quite difficult for the directors to carry out the dividend payment process effectively.

References

Juhandi, N., Fahlevi, M., Abdi, M. N., &Noviantoro, R. (2019, October). Liquidity, Firm Size and Dividend Policy to the Value of the Firm (Study in Manufacturing Sector Companies Listed on Indonesia Stock Exchange). In 2019 International Conference on Organizational Innovation (ICOI 19).

Munawar, A. (2018). The Effect of Leverage, Dividend Policy, Effectiveness, Efficiency, and Firm Size on Firm Value in Plantation Companies Listed on IDX. International Journal of Science and Research, 8(10), 244-252.

Tahir, H., Masri, R., & Rahman, M. M. (2020). Impact of board attributes on the firm dividend payout policy: evidence from Malaysia. Corporate Governance: The International Journal of Business in Society.