Carry out your own research to find a non-financial firm that changed Essay

Carry out your own research to find a non-financial firm that changed its dividend policy over the last few years. Assess the (p - Essay Example One of the key theories that explain the relationship between dividend policy and stock price is the irrelevance of dividend policy, in which Miller and Modigliani (1961) suggest that dividend policy is immaterial when it comes to determination of the shareholders’ wealth. They specifically argued that, without considering market imperfection and taxes; the shareholders’ wealth is not affected in any way. Hakansson (1982) supported the views of Miller and Modigliani by maintaining that dividend do not play any role in the value of the firm, regardless of whether they are informative or not; but this applies only when investors possess time additive utility and homogenous belief as well as when the market is fully efficient. Different empirical studies associated with dividend theory policies do not show consistent results. As such, it is not possible to give a general view as to whether the investors prefer dividend or capital gain. Brigham (2010) asserts that it is the prerogative of the management to decide the dividend policy based on industry trends and the long-term objectives of the organisation, a view that squarely explains the reasons why the management of Apple has dramatically changed its dividend policy. Even so, it is imprudent for the management to rely on any specific theory in determination of dividend policy for the corporations they head, because the best policy depends on different circumstances and times. Irrelevance theory is neutral with regard to preference of either capital gain or dividend payout (Miller and Modigliani, 1961). In this model MM concluded that capital structure does not have any effect on the value of the firm. However, MM II, argued that by introducing corporate taxes in to the first model, it gives rise to tax shields which in turn leads to optimal capital structure (Black, 2006). The paper puts into perspective the issue of dividend policy in the context of Apple Inc. The paper also gives a brief overview of the company, as well as putting into perspective the imminent change in divided policy that has been lined up, and those that have already been implemented. The analysis will also incorporate different theories that have been put across by several researchers regarding the relationship between dividend policy and share price volatility. Company Overview The Apple Company designs, manufactures and markets computers, networking solutions, software, peripherals and services. Among the many available products are portable music players, which they both design and develop. Notwithstanding, they engage in online distribution of television shows, audio books, short films, third-party music-both audio and videos. Apple Inc. (Apple) was founded by Stephen Wozniak and Steve Jobs in the latter’s garage. January 3, 1977 saw the incorporation of Apple. The Apple II computer was then later introduced by the duo later that year at a West Coast Computer Fair in San Francisco (Linzmayer, 1999). Dividend Policy Trend in the Technology Industry Distribution policy refers to Companies’ policies put in place to govern issues of dividend payout. For instance, a company can have either high or low dividend distribution policy to its both preference and ordinary