Learning How to Set a Dividend Policy

Turki AlshammariCollege of Business Administration

Finance dept.

What is the issue ?

Developing an educational scientific argumentative case in the issue of setting a dividend policy by firm managers and how shareholders respond at the annual meeting after considering all the scientific empirical evidence developed by finance scholars over the last 60 years in order to enhance the comprehension of finance students in this respect

Intended audience

• MBA students• To some extent, senior finance students• Training seminars for executives

Objectives

• Peer discussion to reach an optimal decision• Demonstrating the issue of “all decisions are

correct in certain settings”• Create challenging arguments to audience• Enhance the understanding process rather

than rattling scientific evidence• Developing new interactive ways in teaching

Empirical Evidence

• Dividend Irrelevance to Value• Dividends are relevant to value (risk or bird-in-

the-hand, tax, clientele, signaling, agency, bankruptcy )

• Share repurchase adds another dimension• Contagion or herding• Factors such as (growth, life cycle, debt, asset,

………etc)

Structure

• Several teams; each defends one point of view and supports with circumstances

• This proves: nothing is correct all times but different point of views except weaker point of views

• Role playing changes among individual shareholders, institutional shareholders, creditors (considering covenants), and managers

• Timing length relates to audience nature

Structure

• Add a hypothetical numerical example with concrete assumptions (simulation is employed for each point of view and results are distributed for discussion), then calculate ROA and ROE for each point of view

• Each team should support and defend his point of view regardless of the calculated ROE by proposing an objective positive side of his point of view considering factors such as growth, debt, ………..etc

Structure

• Each team attacks the other team based on numerical analysis as well as objective judgment

• Instructors should watch timing carefully. Timeouts is usually necessary for consulting among team members

• Time limit is usually specified (Max of a 5-miniute talk sessions is preferred)

Structure

• In case of students being audience, instructors can invite a firm manager (but not necessary)

• A written summary is necessary for grading purposes

• All team members should participate equally • I found that preparing from a standard

textbook is very beneficial to enhance learning