# coporate finance

Market reacts positively to dividend increases and negatively dividend decreases. Three explanations are provided for this notion.
i. Information content (signalling) hypothesis,
ii. Free cash flow hypothesis
iii. Clientele effect
Discuss these hypotheses related to dividend policy.
(30 marks) (b) Briefly discuss five reasons for companies to choose repurchases rather dividends under a classical tax system.
(30 Marks)
(c)
i. Identify (interim or final) dividend change announcement using “dividend history from the DatAnalysis Premium Database” for the company allocated to you for the assignment 2.
ii. Calculate three day return earned by your firm for the period from the day before the announcement continuing through the day after the announcement date; and two day return earned by your firm for the period from the day of the announcement to the day after the announcement date
iii. Calculate the market return for the corresponding periods in (ii).
iv. Calculate the excess: (ii) – (iii)
v. Check the results for any other two students in your tutorial class and report that result in your assignment 2
vi. Discuss the relevant theory with the findings in (iv) and (v).
(40 marks)
(30 + 30 + 40 = 100 marks)
Step 1
A dividend change is defined as the relative difference from the previous year’s level.
• Interim dividend change = interim dividend per share in year t minus interim dividend per share in year t-1.
• Final dividend change = Final dividend per share in year t minus Final dividend per share in year t-1.
Step 2
Announcement date for the dividend change can be identified from “ASX announcements from the
• Announcement date for interim dividend change: use the announcement date of half yearly
report
• Announcement date for final dividend change: use the announcement date of preliminary final
report
 Select “ASX announcements”
 select “Search option – Click here to refine your search by ASX Announcement Type
and/or text search”
 for Announcement Type: select periodic reports
 for Sub-Announcement Type: select preliminary – final statement for final dividend; half
yearly report interim dividend change
 specify the date range

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