Therefore, 'on balance, much empirical evidence supports the view of dividends as a signaling device'. There have been reported instances when the management has deliberately reduced the expected worth of the dividend, considered to be a strategic decision aimed at the improvement of the financial flexibility and growth prospects on long-term scale.
However the managers of the company have practiced such options, where they have 'used dividend actions to convey useful information, keeping in view the fact that dividend changes may not be perfect signals'. It has been agreed the by economic and strategic advisory of the company that 'dividend increases may be ambiguous signals unless the market can distinguish between growing firms and disinvesting firms, i.e., those with a lack of investment opportunities', therefore the Linear Technology has ensure that there is no compromise over the reputation of the company.
Several interesting patterns have been identified which are widely practiced by the Linear Technology. Earlier it was observed that 'dividends tend to lag behind earnings i.e. increases in earnings are followed by increases in dividends, and decreases in earnings sometimes by dividend cuts'. It has been also observed that the dividends are 'sticky because firms are typically reluctant to change dividends; in particular, firms avoid cutting dividends even when earnings drop'. The trend predicts that 'dividends tend to follow a much smoother path than do earnings'.
The Tax-Preference Explanation
The tax effect has further deeply influenced the dividend related policy of the company. The policy of the company in this regard is in lieu with the proposals drafted in the theory of the tax-preference as per which, 'the investors may favor retention of funds over the payment of dividends because of tax-related reasons', the favorable treatment of capital gains over dividends is another factor well-monitored by the Linear Technology, which assist the investors in preference of the low dividend payout to a high payout. The company believes that the dividend payment shall be kept low to ensure that maximum prices. However, the tax effect has varied impact on various types of investors, there is a strong possibility that some of the investors may be attracted towards the Linear Technology only if it had offered 'dividend policies appropriate to their particular tax circumstances', the practice has been regarded as 'the tax clientele effect', whereas there is also a possibility that the 'stocks with low payouts should attract investors in high tax brackets, leaving high payout stocks to investors subject to low or zero tax rates'.
The Agency Explanation
The concept of agency theory is considered to be void with reference to the dividend payment policy of the Linear Technology. The theory is based upon 'the conflict of interests between corporate managers and outside shareholders'. Considering an example where 'management can consume excessive perquisites out of undistributed corporate earnings and invest the retained funds sub-optimally, such an conflict can result to agency costs' which is adopted and practiced rarely in the case of the Linear Technology. The company has never devised dividend mechanism that offers 'an incentive for managers to reduce the costs related to the principal/agent relationship, in this regard, there is a possibility to increase the dividends i.e. 'paying larger dividends reduces the internal cash flow subject to management discretion and forces the firm to seek more external financing'. Another common practice of 'raising costly outside capital subjects the firm to the scrutiny of the capital market for new funds and reduces the possibility of suboptimal investment' has been ignored by the Linear Technology due to the fact that the 'monitoring by outside suppliers of capital also helps to ensure that managers act in the best interest of outside shareholders' is not essential owing to the limited numbers of the shares.
Consideration of General Trend
Consequently, the change in the policy was expected to develop more accommodative stance which reduced the risks associated with the residual supply, the risk was deterred by imposing limitation on the ' unexpected noncompetitive rollover decisions could affect the final price'. It is speculated that the within the share market the final price of the share is less predictable and difficult to determine because public is unfamiliar about the rollover plans, and 'the randomness in these plans, from the perspective of the dealer' makes it difficult for the public to make serious efforts, these are the serious considerations marked by the company.
The supplies are dependent upon the standard deviation of the monthly per capita...
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