Audit Risk Essay

970 words - 4 pages

OPINION SURVEY OF THE FACTORS IMPACTING ON DIVIDEND POLICY OF FIRMS OPERATING IN THE FINANCIAL SECTOR OF MAURITIUS

1. In which sub-sector does your company operate in? Please tick the appropriate
Banking Offshore Banking Insurance Re-Insurance Investment Leasing

2. Approximately how many employees work in your company? Please encircle the appropriate
• Less than 10
• 10 – 19
• 20-49
• 50-99
• 100 and above

3. What type of dividend payout does your company distribute every year? Please encircle the appropriate
• We do not pay dividend at all
• We distribute a constant dividend pay out every year
• We offer an ...view middle of the document...

Different companies have different views on the dividend setting process. The following are some views on the matter, discussed in the finance literature. Please rate the following. (1=strongly disagree; 2=disagree; 3=no opinion; 4=agree; 5=strongly agree)
• A firm should avoid to increasing its regular dividend if it expects to reverse in a year or so. (…..)
• A firm should strive to maintain an uninterrupted record of dividend payments. (…..)
• The market places grater value on stable dividend than stable payout ratios. (…..)
• A firm should change dividends based on sustainable shifts in earnings. (…..)
• A firm should set a target dividend payout ratio and periodically adjust the current payout toward the ratio. (…..)

7. Modigliani and Miller (MM) have argued that, under perfect market conditions and a no-tax world, dividend policy does not affect the value of a firm. What is your view on this statement? Rate these possible explanations. (1=strongly disagree; 2=disagree; 3=no opinion; 4=agree; 5=strongly agree)
• The value of a firm depends on the latter’s earnings which results from its investment decisions, so dividend policy is irrelevant. (…..)
• When the firms pays dividend, shareholders get cash in their hands but the firm’s asset are reduced. Consequently, when the shareholders gain in the form of cash dividend, they lose it in the form of their claims on the assets. Hence value of firm is unchanged. (…..)
• MM’s assumptions are unrealistic since market conditions are imperfect and taxes do exists. Therefore dividend policy may affect a firm’s value. (…..)
• Dividend announcements help investors assess firm’s value hence showing the relative importance of dividend policy. (…..)

Any other suggestions
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

8. Firms have to set up a dividend policy so as to suit the tax considerations of their shareholders. With regard to this statement, how far do you agree with the following? (1=strongly disagree; 2=disagree; 3=no opinion; 4=agree; 5=strongly agree)
• Investors are indifferent to tax considerations. (…..)
• A firm should be responsive to the dividend preferences of its shareholders. (…..)
• Investors generally prefer to invest in firms whose dividend policies complement their particular tax circumstances. (…..)
• High tax payers would prefer less dividends whereas low tax payers prefer high dividend pay out (the clientele effect). (…..)
• Investors take into account the fact...

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