Theory (Week 3) Flashcards
What’s M&Ms theory on paying dividends?
Paying dividends doesn’t make the shareholder wealthier.
According to M&M, what makes the shareholders wealthier?
Investing in projects that have a positive Net Present Value.
What is strong market efficiency?
When all info for a stock’s price is accounted for whether- public or private.
What are two limitations of M&Ms theory?
- Assumes shareholders act rationally
- Assumes strong market efficiency
What is the “bird i’th hand theory” ?
That shareholders prefer to receive a dividend today rather wait for an share price growth in the future.
What is the “signalling theory” ?
Some investors may see changes in dividends as a signal of the financial health of the company.
What’s the “clientelle effect”
Changes to a dividend policy may deter investors who invested based on the existing dividend policy
What’s efficient market hypothesis?
Share prices should reflect all of the information available to investors.
What information should share prices reflect in a weak form market?
Share prices only reflect past information
What information should share prices reflect in a semi-strong market?
Share prices reflect past and public information
What information should share prices reflect in a strong form market?
Share prices reflect past, public and private information
