Role of the Board in Determining Dividend, Financing, and Investment                Policies    Achieving Shareholder Weal...
Purpose: To explain the role of the board in determiningdividend, investment and financing policies to achieve thesharehol...
Learning Objectives: Understand the role of the boards in determining  dividend, financing and investment policies How t...
Strategic Role of the Board of Directors               Revisited                                           4              ...
Corporate GovernanceIs defined as:“the set of rules by which companies are  managed and supervised by its relevant  invest...
Key Fundamentals of CG Environment               Four Values of Corporate GovernanceTransparency     Accountability   Resp...
Ownership vs. ManagementInformation Needs        Different Objectives• Stock prices           • Managers vs.• Returns on  ...
Financial Markets           Primary           Markets          Funds                     Second OTC                       ...
Interactions Between Financial Market Participants                    Investors                                 Intermedi ...
Good Governance Improves PerformanceDisclosure and Transparency• Disclosure of financial position helps set clear targets•...
Competitiveness and Governance Adopting sound corporate governance practices help  firms compete more efficiently and eff...
Good Corporate Governance Focuses on             a Model in which…Shareholders Elect the BoardThe Board develops the strat...
Strategic Role of the Board of DirectorsOECD Principles (2004) on the strategic role of the Board Reviewing and guiding c...
Role of the Board in Finance FunctionOECD Principles (2004) on the strategic role of the  Board states that:“The board sho...
The Goal of the FirmTo maximize the wealth of shareholders.                                      15                       ...
Motivation to InvestWhy invest in a company?                           16                           16
Rate of Return Expectations• Key factors in attracting investment:• Firms must build investor confidence that a rate of  r...
Dividends in Mongolian Regulatory Framework Mongolian CG Code, Chapter 8 provides for dividend  policy.    8.1 Policy on...
Board’s Role in Wealth Maximization The Board represents the interests of shareholders  who demand a rate of return for t...
Dividend, Financing and Investment Policies             Dividend, Investment and Financing Decisions   20                 ...
Three Wealth Maximizing Decisions of the Board                          The optimal                           combination...
CORPORATE FINANCE FRAMEWORK                    • Allocating                                    • Implementing             ...
ROLE OF THE BOARD IN CORPORATE FINANCE           YES                  Initiate Plan                GOAL:         Plan     ...
A STRATEGIC INVESTMENT TOOL: CAPITAL BUDGETING                                                 INVESTMENT                 ...
Wealth Maximizing DecisionChoose the investment alternative that offers the highest possible Net Present Value.           ...
VALUATION            26
Role of the Board for Valuation in the MongolianCompanies Law Article 55. Determination of the Market Value of   Property ...
The Value of Common Stocks•   How To Value Common Stock•   Capitalization Rates•   Stock Prices and EPS•   Cash Flows and ...
What Is The Purpose Of Value Creation?Focusing on value creation will:• improve attractiveness of the company to  investor...
Scenarios For Uses Of Valuation• By companies to carry out their business:   – Strategic planning, investments, new busine...
Financial Information: Major Financial Statements                      (IFRS)   Balance            Income                 ...
Methods Of Business ValuationAsset Based Valuation•   Adjusted Book Value•   Net Asset Value•   Replacement Value•   Liqui...
Stocks & Stock Market• Common Stock - Ownership shares in a publicly  held corporation.• Secondary Market - market in whic...
Stocks & Stock Market• Book Value - Net worth of the firm according to the  balance sheet.• Liquidation Value - Net procee...
Investment Criteria for Valuation                  Cash                  flow:                Liquidity                Cri...
What Do Different Investors Seek from an              Investment?   Type of           What they                Expected  I...
Investor Risk Return Preferences• The valuation of an asset reflects the risk-return  preferences of an investor• Risk and...
Valuing Common Stocks• Expected Return –• The percentage yield that an investor forecasts from  a specific investment over...
Asset Valuation• Function of both return and risk   – At the center of security analysis• How should realized return and r...
Measuring Returns• For comparing performance over time or across  different securities• Total Return is a percentage relat...
Fundamental Analysis• Present value approach   – Capitalization of expected income   – Intrinsic value based on the discou...
Present Value Approach• Intrinsic value of a security is                                         n Cash       Flows    Val...
Required Inputs• Discount rate or the Required Rate of Return   – Required rate of return: minimum expected rate to induce...
Dividend Discount Model• Assume a constant growth in dividends   – Dividends expected to grow at a constant rate, g, over ...
P/E Ratio or Earnings Multiplier Approach • Alternative approach often used by security analysts • P/E ratio is the streng...
P/E Ratio Approach• To estimate share value  P    estimated earnings        justified P/E rati                            ...
P/E Ratio• P/E ratio can be derived from                                    D1                          Po                ...
Important Variables in Valuation1- Discount RateK = Risk adjusted discount rate (cost of capital)k= Risk Free Rate + Risk ...
Which Approach Is Best?• Best estimate is probably the present value of the  (estimated) dividends   – Can future dividend...
Which Approach Is Best?• Complementary approaches?   – P/E ratio can be derived from the constant-growth version of     th...
Other Multiples• Price-to-book value ratio  – Ratio of share price to stockholder equity as measured on    the balance she...
DIVIDEND DECISIONS                     52
Factors Affecting Dividend Decisions   Constraints on              Investment Dividend Payments            Opportunities  ...
Constraints on Dividend Payments1. Bond Indentures2. Preferred Stock Restrictions3. Impairment of capital rule4. Availabil...
Investment Opportunities1. Number of available profitable   investment opportunities2. Possibility of accelerating or dela...
Financing: Alternative Sources of Capital 1. Cost of selling new stock 2. Ability to substitute debt for equity 3. Control...
Effect of Dividend Policy on Cost of Capital1. Stockholders‟ desire for current versus future   income2. Perceived riskine...
Break Out SessionParticipants are divided into two groups (45 minutes)Group One: (1) Please discuss the four broad sets of...
Summary and Conclusion   The ultimate goal of the firm is SH wealth maximization. Board is charged    with the strategy f...
The End          60          60
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Finance invest-dividend policy&value creation-april 14 2012_final

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The role of the boards in dividend, finance and investment policies and value creation. Good corporate governance practices.

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  • Disclosure and transparency: On financials helps a company set clear targetsHolds all employees, from top management down, accountable for resultsAn audit committee:Is an essential check on the CFO and managementBrings a much needed market perspective to risk management strategies and techniquesA management compensation committee is critical for creating the right incentives.Independent outside directors:bring a fresh and objective perspective to the company which is critical for decisions that balances interests of the company insiders with the shareholders
  • Corporate governance focuses on a model in which: Shareholders elect board of directors who represent them; Directors vote on key matters and adopt the majority decision for strategy of the firm; Decisions are made in a transparent manner so that shareholders and other stakeholders can hold directors accountable; The company adopts accounting standards to generate information necessary for the directors, investors and other stakeholders to make decisions– all relevant, material and timely information is disclosed; The companies’ policies and practices comply with the applicable legal and regulatory frameworks.
  • The board evaluates major investment projects and strive to choose the ones that promise the highest net present value for the given cost of capital [Investment Policy]Cost of capital is a function of the way in which the firm’s capital structure is formed between SH equity and debt [Financing Policy]The board will also determine the dividend payout policy that will help maximize shareholder value [Dividend Policy]The optimal combination of the three important policies ensure the value maximization principle.Executive management is held responsible and accountable in implementing policies that result in SH wealth maximization
  • -why focus on shareholder wealth? Because they are the ultimate owners and have taken the most risk and have usually contributed the first dollar of capital, even before the banks
  • We have discussed the above statements early. Instructor at this point may ask the students to discuss each of the statements based on what was covered so far.
  • ASSET BASED VALUATION METHODSAdjusted Book Value: This is the historical value as it was entered in the books at the time of the acquisition of the asset less the depreciation;Net Asset Value: This is the net difference between the appraised value of fixed assets and liabilities on the balance sheet;Replacement Value: This reflects the net cost of assets if they were to be purchased today;Liquidation Value (break-up value): This value is the adjusted value of all the assets of the firm under an orderly liquidation.GOING CONCERN VALUEThe Earnings Multiplier Method (P/E): This approach uses the comparable Price per share to Earnings per share (P/E) ratio multiplied by the estimated earnings per share of the firm in order to arrive at a value for the enterprise. Discounted Cash Flow Method (DCF): Also known as the “income capitalization method,” the discounted cash flow (DCF) method is used to find the present value (PV) of the estimated future free cash flows from an investment
  • Individuals and institutions with funds to invest ("investors") usually have several investment opportunities to choose from  Three criteria define the value of an investment: Level of risk: Safety. how risky is the investmentLiquidity: how quickly can I get my investment back? (through cash flow or sale of the investment) Expected return. Yield. what is the return on the investment?  Investors should be aware of the trade-offs between these criteria
  • What are the investors looking for? Different types of investors seek different outcomes in utilizing specific valuation criteria
  • Behavioral Finance and InvestmentsInvestors’ decision criteria are based on their considerations relative to expected risk and return from an investment. The theory of finance attempts to explain the decisions of investors by viewing them as rational actors looking out for their self-interest, given the sometimes inefficient nature of the market. The “Efficient Markets Hypothesis” that had long been the basis for the assumption that investors are essentially rational decision makers in the markets has recently been refuted by the “Behavioral Finance” discipline, that fuses psychology with finance. One of the primary observations of the “behavioral finance” holds that investors (and people in general) make decisions on imprecise impressions and beliefs rather than rational analysis. A second observation states that the way a question or problem is framed to an investor will influence the decision he/she ultimately makes. These two observations largely explain market inefficiencies; that is, behavioral finance holds that markets are sometimes inefficient because people are not mathematical equations. The newly emerging field of behavioral finance, stands in stark contrast to the efficient markets theory. Behavioral finance combines psychology and economics to explain why and how investors act and to analyze how that behavior affects the market.Behavioral finance theorists point to the market phenomenon of hot stocks and bubbles, from the Dutch tulip bulb mania that caused a market crash in the 17th century to the more recent examples of junk bonds in the 1980s and Internet stocks in the 1990s, and to the 2000’s financial market crash to validate their position that market prices can be affected by the irrational behavior of investors.Behavioral finance is in conflict with the perspective of efficient market theory, which maintains that market prices are based on rational foundations, like the fundamental financial health and performance of a company.Source: Farlex Financial Dictionary. © 2009 Farlex, Inc. All Rights Reserved 
  • Factors affecting dividend decisions for a firm are grouped into four broad categories as discussed above.Each of these categories has several subparts which are discussed here.
  • Finance invest-dividend policy&value creation-april 14 2012_final

    1. 1. Role of the Board in Determining Dividend, Financing, and Investment Policies Achieving Shareholder Wealth Maximization Module 13 Dr. Demir YenerCorporate Governance Senior Corporate Governance and Development Center Finance Advisor USAID/BPI Project Ulaanbaatar, Mongolia
    2. 2. Purpose: To explain the role of the board in determiningdividend, investment and financing policies to achieve theshareholder wealth maximization objective.Outline: The role of the board in determining dividend, investment and financing policies The impact of these decisions on value creation Beneficiaries of value creation Lessons learned 2 2
    3. 3. Learning Objectives: Understand the role of the boards in determining dividend, financing and investment policies How the board set targets and determines the dividend, investment and financing policies Board responsibility to ensure value maximization for the shareholders 3 3
    4. 4. Strategic Role of the Board of Directors Revisited 4 4
    5. 5. Corporate GovernanceIs defined as:“the set of rules by which companies are managed and supervised by its relevant investor bodies such as the boards elected by shareholders.Practicing good corporate ensures investors a fair rate of return.” 5 5
    6. 6. Key Fundamentals of CG Environment Four Values of Corporate GovernanceTransparency Accountability Responsibility Fairness 6
    7. 7. Ownership vs. ManagementInformation Needs Different Objectives• Stock prices • Managers vs.• Returns on stockholders investment • Top mgmt vs.• Issues of shares operating mgmt and other securities • Stockholders vs.• Dividends creditors• Financing 7
    8. 8. Financial Markets Primary Markets Funds Second OTC arymarkets markets 8
    9. 9. Interactions Between Financial Market Participants Investors Intermedi Issuers aries Financial Markets 9
    10. 10. Good Governance Improves PerformanceDisclosure and Transparency• Disclosure of financial position helps set clear targets• Holds all employees responsible and accountable for resultsAudit Committee• Checks on executive management• Brings market perspective on riskManagement Compensation Committee• Critical for creating the right incentives to ensure the success of strategiesIndependent Directors• Bring fresh and objective perspective to board decision making process 10 10
    11. 11. Competitiveness and Governance Adopting sound corporate governance practices help firms compete more efficiently and effectively Market valuation improves as corporate governance is improved Focusing on wealth maximization (not profit maximization) is an attainable goal for the firm 11 11
    12. 12. Good Corporate Governance Focuses on a Model in which…Shareholders Elect the BoardThe Board develops the strategyS/Hs require that board is transparentAll relevant and material information isdisclosed to S/Hs and investorsAll actions of the firm are within the law 12 12
    13. 13. Strategic Role of the Board of DirectorsOECD Principles (2004) on the strategic role of the Board Reviewing and guiding corporate strategy Approving major plans of action Approving risk policy Approving annual budgets and business plans; setting performance objectives Monitoring implementation and corporate performance. 13 13
    14. 14. Role of the Board in Finance FunctionOECD Principles (2004) on the strategic role of the Board states that:“The board should fulfill certain key functions including:… overseeing major capital expenditures, acquisitions and divestitures.” 14
    15. 15. The Goal of the FirmTo maximize the wealth of shareholders. 15 15
    16. 16. Motivation to InvestWhy invest in a company? 16 16
    17. 17. Rate of Return Expectations• Key factors in attracting investment:• Firms must build investor confidence that a rate of return on invested capital can be assured to the investors.• There must be a conducive environment for corporate governance to protect the rights of shareholders 17 17
    18. 18. Dividends in Mongolian Regulatory Framework Mongolian CG Code, Chapter 8 provides for dividend policy.  8.1 Policy on dividend policy Mongolian Companies Law, Chapter 6: Dividend distribution and transfers of a company` s property provides for:  Article 46 Payment of dividends  Article 47 Conditions Relative to Payment of Dividends  Article 48 Limitations on Disposition of a Company`s Property 18 18
    19. 19. Board’s Role in Wealth Maximization The Board represents the interests of shareholders who demand a rate of return for their investment. Executive management‟s goal is to create value for stockholders. This goal is consistent with the wealth maximization objective. Directors determine manager‟s compensation or replace them. Directors monitor, control and guide the actions of the executive management. 19 19
    20. 20. Dividend, Financing and Investment Policies Dividend, Investment and Financing Decisions 20 20
    21. 21. Three Wealth Maximizing Decisions of the Board  The optimal combination of the three Investment policy decisions ensure value maximization.  Executive management is responsible for implementing theFinancing Dividend wealth maximizing policies for shareholders 21 21
    22. 22. CORPORATE FINANCE FRAMEWORK • Allocating • Implementing • Issue securities FINANCING POLICY MARKETSINVESTMENT POLICY 2 1 capital Investment- for LT Funds • Ensuring Finance- from investors Dividend (Bonds and operational Policies Stocks) efficiencies • Capital • Raise ST • Creating S/H Budgeting 5 Funds from value (Wealth (Investment banks maximization) Decisions) 3 • Cash Budgeting 4 (Operational) 1=Raise capital in the markets, issue equity/debt 2=Allocate (Investing) funds in the firm 3=Generate operating profits 4=Pay taxes, dividends and Interest 5=Reinvest profits after tax (Retained Earnings) 22
    23. 23. ROLE OF THE BOARD IN CORPORATE FINANCE YES Initiate Plan GOAL: Plan Maximize value NO = Goal? Minimize risk Reexamine External Assumptions Tangible Goals Environment Strategies Long-Term Short- Term Liquidity Financial Investment Structure Structure Decisions Level of Operating Assets FINANCING POLICY Corporate Capital Structure: Leverage Risk Required Factor Rate of Return Trade-offsFinancing Package Plan & Analysis Options 23
    24. 24. A STRATEGIC INVESTMENT TOOL: CAPITAL BUDGETING INVESTMENT DECISIONS INVESTING Develop new Merger with or Other In new products Acquisition of Investments Equipment (R&D) Outside firms (environmental) • Sales Forecast • Payback Method • Operating Expense Selection Of Determining • Average Rate of Return Forecast Best Ranking Cash-Flows • Internal Rate of Return • Level of Working Capital Method • Net Present Value Needed to Support Sales • Profitability Index • Free Cash Flows Required • Under conditions of certainty:• Under conditions of certainty: Risk Trade-offs Rate of Present Value No specific measure Factor Return • Under conditions of• Under conditions of uncertainty: uncertainty: • Expected Present Value• Standard Deviation/Expected • Expected Utility Return Capital Rationing• Coefficient of Variation Selection of Constraint Capitalization Rate Proceed to Plan=Goal Diagram Selection of Investment Project 24
    25. 25. Wealth Maximizing DecisionChoose the investment alternative that offers the highest possible Net Present Value. NPV > 0 (For a given a required risk adjusted return) 25 25
    26. 26. VALUATION 26
    27. 27. Role of the Board for Valuation in the MongolianCompanies Law Article 55. Determination of the Market Value of Property and Property Rights • Provides for the role of the Board in the determination of the value of property and property rights, including the value of the shares and securities. • The article also provides for the treatment of market valuation and requires votes of the majority of members of Board of Directors, who have no conflict of interest in the transaction to determine the value. 27
    28. 28. The Value of Common Stocks• How To Value Common Stock• Capitalization Rates• Stock Prices and EPS• Cash Flows and the Value of a Business• Price Earnings Multiple (P/E) 28
    29. 29. What Is The Purpose Of Value Creation?Focusing on value creation will:• improve attractiveness of the company to investors or buyers• maximize value in joint ventures increasing the potential value of the firm• improve the strategic planning process• provide a framework to reward company managers• And above all – maximize the wealth of shareholders 29
    30. 30. Scenarios For Uses Of Valuation• By companies to carry out their business: – Strategic planning, investments, new business launches, benchmarking, capital budgeting, performance measurement – Mergers, acquisitions, strategic alliances, joint ventures (JVs) and divestitures – Pre-acquisition value studies performed on either an entity or operating unit level – Pre-acquisition purchase price allocations for financial and tax planning and reporting• By investment bankers as transaction advisors – M&A, divestitures, leveraged buy-outs (LBOs) – Initial public offerings (IPOs) – Equity offerings• By investors to decide whether to buy an asset: – Private equity/LBO players, venture capital funds, hedge funds – Asset managers, institutional investors – Investing public 30
    31. 31. Financial Information: Major Financial Statements (IFRS) Balance Income Cash Flow Other Sheet Statement Statement Disclosures List of assets Statement of and liabilities changes in at a moment Shows Shows cash equity in time. revenues payments and costs and receipts during a over a Difference specified specified between the period period two is Notes “shareholder’ s equity” Financial Controls, Auditing and 31 Disclosure
    32. 32. Methods Of Business ValuationAsset Based Valuation• Adjusted Book Value• Net Asset Value• Replacement Value• Liquidation Value (break-up value)Going Concern Value• The Earnings Multiplier Method (P/E)• Payback Method• Discounted Cash Flow Method (DCF): a.k.a. the “income capitalization method 32
    33. 33. Stocks & Stock Market• Common Stock - Ownership shares in a publicly held corporation.• Secondary Market - market in which already issued securities are traded by investors.• Dividend - Periodic cash distribution from the firm to the shareholders.• P/E Ratio - Price per share divided by earnings per share. 33
    34. 34. Stocks & Stock Market• Book Value - Net worth of the firm according to the balance sheet.• Liquidation Value - Net proceeds that would be realized by selling the firm‟s assets and paying off its creditors.• Market Value Balance Sheet – Financial statement that uses market value of assets and liabilities. 34
    35. 35. Investment Criteria for Valuation Cash flow: Liquidity Criteria Safety: Yield: Level of Expecte Risk d Return 35
    36. 36. What Do Different Investors Seek from an Investment? Type of What they Expected Investors Seek Outcomes BOD of company Expand market share Business Growth Management Cash flow, partners Liquidity & Job Security New markets, Diversification & Entrepreneurs undervalued assets growth Strong mgmt, growth Venture Capital Capital gains & value Fund Mgrs Diversified Portfolio Risk diversification 36
    37. 37. Investor Risk Return Preferences• The valuation of an asset reflects the risk-return preferences of an investor• Risk and return criteria are largely a personal phenomenon, and is explained by the “Behavioral Finance” theory.• This may explain why some investors prefer safety or liquidity over return for riskier investments.• In the end, these preferences will have an impact on the required rate of return criteria, based on a level of perceived risk from an investment. 37
    38. 38. Valuing Common Stocks• Expected Return –• The percentage yield that an investor forecasts from a specific investment over a set period of time. Sometimes called the market capitalization rate.• This is the key concept in valuation 38
    39. 39. Asset Valuation• Function of both return and risk – At the center of security analysis• How should realized return and risk be measured? – The realized risk-return tradeoff is based on the past – The expected risk-return tradeoff is uncertain and may not occur 6-39
    40. 40. Measuring Returns• For comparing performance over time or across different securities• Total Return is a percentage relating all dividend cash flows received during a given time period, denoted expected Dividends at time t + (Expected Price of stock „Pe‟ less Beginning price of stock Pb at b), divided by the start of period price, Pb Dividendst (Pe Pb ) Total Re turn Pb 6-40
    41. 41. Fundamental Analysis• Present value approach – Capitalization of expected income – Intrinsic value based on the discounted value of the expected stream of cash flows• Multiple of earnings approach – Valuation relative to a financial performance measure – Justified P/E ratio 41
    42. 42. Present Value Approach• Intrinsic value of a security is n Cash Flows Value of security t t 1 (1 k)• Estimated intrinsic value compared to the current market price – What if market price is different than estimated intrinsic value? 42
    43. 43. Required Inputs• Discount rate or the Required Rate of Return – Required rate of return: minimum expected rate to induce purchase – The opportunity cost of dollars used for investment• Expected cash flows – Stream of dividends or other cash payouts over the life of the investment 43
    44. 44. Dividend Discount Model• Assume a constant growth in dividends – Dividends expected to grow at a constant rate, g, over time D1 P0 k g Where: – D1 is the expected dividend at end of the first period – D1 =D0 (1+g) 44
    45. 45. P/E Ratio or Earnings Multiplier Approach • Alternative approach often used by security analysts • P/E ratio is the strength with which investors value earnings as expressed in stock price – Divide the current market price of the stock by the latest 12- month earnings – Price paid for each $1 of earnings 45
    46. 46. P/E Ratio Approach• To estimate share value P estimated earnings justified P/E rati o o or P E P /E o 1 o 1 46
    47. 47. P/E Ratio• P/E ratio can be derived from D1 Po k -gor D1 /E1 Po /E1 k -gIndicating the factors that affect the estimated P/E ratio 47
    48. 48. Important Variables in Valuation1- Discount RateK = Risk adjusted discount rate (cost of capital)k= Risk Free Rate + Risk Premium2- Growth Rateg= Growth rate in earningsg= ROE * (1 – dividend payout ratio)
    49. 49. Which Approach Is Best?• Best estimate is probably the present value of the (estimated) dividends – Can future dividends be estimated with accuracy? – Investors like to focus on capital gains not dividends• P/E multiplier remains popular for its ease in use and the objections to the dividend discount model 49
    50. 50. Which Approach Is Best?• Complementary approaches? – P/E ratio can be derived from the constant-growth version of the dividend discount model – Dividends are paid out of earnings – Using both increases the likelihood of obtaining reasonable results• Dealing with uncertain future is always subject to error 50
    51. 51. Other Multiples• Price-to-book value ratio – Ratio of share price to stockholder equity as measured on the balance sheet – Price paid for each $1 of equity• Price-to-sales ratio – Ratio of a company‟s total market value (price times number of shares) divided by sales – Market valuation of a firm‟s revenues 51
    52. 52. DIVIDEND DECISIONS 52
    53. 53. Factors Affecting Dividend Decisions Constraints on Investment Dividend Payments Opportunities Dividend Decisions Availability and cost Effects of dividendof alternative sources policy on cost of of capital capital 53
    54. 54. Constraints on Dividend Payments1. Bond Indentures2. Preferred Stock Restrictions3. Impairment of capital rule4. Availability of cash5. Penalty tax on improperly accumulated earnings 54 54
    55. 55. Investment Opportunities1. Number of available profitable investment opportunities2. Possibility of accelerating or delaying projects 55 55
    56. 56. Financing: Alternative Sources of Capital 1. Cost of selling new stock 2. Ability to substitute debt for equity 3. Control issues 56 56
    57. 57. Effect of Dividend Policy on Cost of Capital1. Stockholders‟ desire for current versus future income2. Perceived riskiness of dividends over capital gains3. The tax advantage of capital gains over dividends4. The information content of dividends (signaling effect) 57 57
    58. 58. Break Out SessionParticipants are divided into two groups (45 minutes)Group One: (1) Please discuss the four broad sets of factors that that affect dividend policy in Mongolian firms. (2) What constraints affect dividend policies?Group Two: (1) How do investment opportunities affect dividend policy in Mongolian firms? (2) How does the availability and cost of outside capital affect dividend policy? 58 58
    59. 59. Summary and Conclusion The ultimate goal of the firm is SH wealth maximization. Board is charged with the strategy formulation and management oversight towards reaching this goal. Good governance is rewarded with a higher market valuation. Corporate governance can be improved by pursuing the goal of wealth maximization. Attaining the competitive viability of the firm is an essential element of governance. The firm‟s dividend payout is largely affected by its investment and financing decisions. A number of factors affect dividend decisions, including the corporate capital structure, the cost of capital and cash flows. Implementing globally accepted best practices of corporate governance will result in achieving better access to finance. The active cooperation between firms and stakeholders will create wealth, jobs and sustain the financially viable enterprises. 59 59
    60. 60. The End 60 60

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