Dividends reduce managerial discretionpower

In examining debt policy, we noted that one reason for increasing debt levels was to induce managers to be more disciplined in their project choice. Implicit in this free cash flow argument is the assumption that cash accumulations, if left to the discretion of the managers of the firm, would be wasted on poor projects. If this is true, then forcing a firm to make a commitment to pay dividends would be an alternative to forcing managers to be disciplined in project choice and to reducing the cash that is available for discretionary uses. If this is the reason stockholders want managers to commit to paying larger dividends, then in firms where there is a clear separation between ownership and management, managers should pay larger dividends than in firms with substantial insider ownership and involvement in managerial decisions.

Retirement Planning For The Golden Years

Retirement Planning For The Golden Years

If mutual funds seem boring to you, there are other higher risk investment opportunities in the form of stocks. I seriously recommend studying the market carefully and completely before making the leap into stock trading but this can be quite the short-term quick profit rush that you are looking for if you am willing to risk your retirement investment for the sake of increasing your net worth. If you do choose to invest in the stock market please take the time to learn the proper procedures, the risks, and the process before diving in. If you have a financial planner and you definitely should then he or she may prove to be an exceptional resource when it comes to the practice of 'playing' the stock market.

Get My Free Ebook

Post a comment