Waiting for answer This question has not been answered yet. You can hire a professional tutor to get the answer.
I need some assistance with these assignment. constraints affecting dividend payouts Thank you in advance for the help!
I need some assistance with these assignment. constraints affecting dividend payouts Thank you in advance for the help! Different dividend policies have different reactions. The determination of dividend policy is a sensitive issue and dependent upon a number and variety of factors or constraints surrounding the company and capital market. In this write up such different factors that affect in the determination of dividend payout policy have been examined basically with a view to establish or find out the best approach to determine a suitable dividend payout policy. The factors that mostly affect the dividend policy of the company are legal constraints, contractual obligations, companies' internal constraints, growth prospects of the company, market factors, and owners’ considerations.
A legal constraint is “a source of potential divergence between corporate payout policies in emerging and other markets arises from possible restrictions on the maximum or minimum amounts that companies payout to shareholders and from constraints on how these payments may take place.”(H. Kent Baker, page 500)i. Legal constraints on minimum or maximum dividend payouts by a company are one of the major factors affecting the dividend policy of a company. Every state is concerned about the safety of investors, creditors, and others connected with the affairs of corporate bodies in order to maintain healthy economic conditions. Accordingly, states make laws putting certain restrictions on the companies in respect of the declaration of dividends to its stakeholders. For example, some states prohibit companies from distributing dividends in cash of any portion of its legal capital.
Legal capital is often considered by state laws as the par value of the equity or common stocks. There are many states that also consider premium (paid-in capital in excess of par value) paid as part of legal capital besides the face or par value of common stock and put the restriction in paying out cash dividend in excess of .that par value and premium paid on shares. These restrictions are called capital impairment restrictions. .
