Coursework Project

“Companies are paying out too much in dividends. Shareholders have too much power in corporate affairs. In addition, company law should be changed to allow more power for other “stakeholders” – customers and employees. So says Andy Haldane, chief economist at the Bank of England, in a critique that will be seized upon as compelling evidence of broken capitalism.” Bill Jamieson

The assertion within the above quote is that companies are not investing for the future as much as they should. Thus, pursuing short-termism – a focus on immediate gains rather than long-term prospects. Given this assertion, you are required to:

a) Evaluate dividend policy theories and whether companies should maximise shareholders wealth or satisfice stakeholders’ other objectives.

(25 marks)

b) Select a company of your choice from the top 250 UK listed companies for which you can easily access annual reports, especially information on dividend policy, share prices, and capital structure for a continuous period of not less than 11 years. Using this information, critically evaluate whether the firm’s dividend policy have had any impact on its share price.

(35 marks)

c) Using Fisher-Hirshleifer model, examine firms’ investment decisions, owners’ consumption decisions in relation to the role of capital markets. (20 marks)

d) Discuss the importance of merger and acquisition for developed economy (20 marks

Total marks (100 marks)

Your coursework should not exceed 3000 words. There is no fixed penalty for exceeding the word count, but students should be made aware that the marker will not consider any work after the +10% word count tolerance has been reached, within the allocation of marks. Students may therefore be penalised for a failure to be concise and for failing to conclude their work within the word count specified.

Indicative contents

a)

· Critically review / evaluate dividend policies

· What is the impact of dividend payment on companies’ investment practices and their capital structure?

· Who are stakeholders within a company and what are competing interests of stakeholders versus shareholders?

(35 marks)

b)

· Role of dividend in terms of signalling theory

· Use data to benchmark comparison between share price and firm’s dividend policy

· To carry out data analysis and comment what other factors than dividend pay-out impact on company’s share price

(35 marks)

c)

· Use HL model to explain the operation of the separation theorem.

· Infer the relationship between capital markets and consumption decision

· Relate the HL model with agency relationship

(30 marks)

d)

· Define merger and acquisition

· Discuss importance of merger · Why merger and acquisitions are more active in developed countries