Like Walter’s model and Gordon’s model, the Miller and Modigliani model also rests upon some assumptions. The MM model is much celebrated one due to the flexibility and exclusiveness of the theories included, which are discussed below.Perfect Capital MarketsThe MM model considers the capital markets to be perfect. This means ... Read More

Gordon’s dividend model is a progression of Walter’s model as it adds some more restrictions to the theory. Gordon’s model however rests on the same assumptions Walter’s theory proposes in the very first place.Assumptions of Gordon's TheoryThe assumptions of Gordon’s theory are discussed below.All-Equity FirmGordon considers the firms to be ... Read More

There are certain advantages of paying stable dividends over time. Some of these advantages are discussed below.Resolution of the Uncertainty of Investors’ IncomeInvestors usually get to know about the performance of a company via the dividends they earn.When a company pays stable dividends over the years, the investors understand that ... Read More

The Miller Modigliani model of dividend evaluation is one of the most influential theories in finance. It shows the relation of dividend payout and shareholder’s preferences in a new light. It asserts that shareholders prefer current payout over capital gains for a host of reasons. The most powerful among the ... Read More

According to Myron Gordon, uncertainty increases with futurity. That is, with lapse of time, the certainty of getting a certain dividend gets diminished in value. Gordon argues that as the appropriate discount rate cannot be constant in the longer term, the payouts in the near future would be worth more ... Read More

Although bonus shares do not increase the wealth of shareholders, it has certain advantages that make them more attractive than dividends. Some of the advantages of issuing bonus shares are mentioned below.Tax BenefitBonus shares are not taxable, however dividends are. Shareholders like to get bonus shares which they may sell ... Read More

There are various forms of equities and debts that are used as financial instruments in India. Some of these instruments are given below.Ordinary SharesOrdinary shares offer a certain part of the ownership of the company to the shareholders. These shareholders offer permanent capital for the company’s projects. They have voting ... Read More

What is Information Asymmetry?In an organization, there are many layers of managerial positions and the managers have information of different aspects about the business model and operations, and financial issues. The shareholders may not be aware of all the situations in operations as well as the finance segments of the ... Read More

By buying back the shares, companies usually see a positive effect on the utility of their surplus funds. As the shares bought back are extinguished and not re-issued, the value of outstanding shares in the market goes up. This imparts a positive effect on the valuation of both the companies ... Read More

Bonus shares are additional shares issued by a company to existing shareholders based on their current stake in the company. When a company is unable to pay a dividend to its shareholders due to a lack of funds, it is common for them to issue Bonus shares. In such cases, ... Read More