tailieunhanh - Impacts of dividend policy on prices of stocks of Vietnamese firms

The paper aims at clarifying effects of dividend policy on market prices of Vietnamese firms reflected in changes in the stock prices after dividend payment is declared. To determine whether the current dividend policy is suitable or not, the paper also examines connections between dividend policy and internal factors of the firm. | ECONOMIC DEVELOPMENT No. 207, November 2011 IMPACTS OF DIVIDEND POLICY ON PRICES OF STOCKS OF VIETNAMESE FIRMS by Dr. TRAÀN THÒ HAÛI LYÙ* The objective of decision to pay dividend as well as other financial decisions is to maximize the firm value. Under normal conditions, this objective may be realized by increases in the firm stock price. The paper aims at clarifying effects of dividend policy on market prices of Vietnamese firms reflected in changes in the stock prices after dividend payment is declared. To determine whether the current dividend policy is suitable or not, the paper also examines connections between dividend policy and internal factors of the firm. Keywords: Dividend, dividend policy, stock prices, internal factors 1. Introduction The objective of financial decisions in general, and decisions on dividend policy in particular, is to maximize values of the firm value and owners’ assets. Under normal conditions, this objective may be realized by increases in the stock price caused by decisions to pay dividend. This is a great challenge to the firm managers because there are different and even contradictory arguments about impacts of dividend policy on the firm value. Generally, these arguments either support or refute such impacts. - Dividend policy has no effect on the firm value: In 1961, Merton Miller and Franco Modigliani (M&M) publicized their theory, that is, dividend policy has no effect on the firm value. 54 RESEARCHES & DISCUSSIONS Their theory is based on three important assumptions: an efficient capital market, the rational behavior of investors and the absence of asymmetric information. An efficient capital market implies the absence of taxes, transaction costs, agency costs, and difference in terms of taxes between dividend and capital gain. Investors’ rational behavior means that investors want to maximize their asset value without wondering if it comes from dividend or capital gain. The absence of asymmetric information implies .