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Limited Value Stock Dividend and Stock Split to an Investor

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Why might a stock dividend or a stock split be of limited value to an investor?

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Solution Summary

This post evaluates the stock dividends and stock splits policies in terms of their value to the investors. The advantages and disadvantages of these management actions are evaluated under perfect markets as well as in imperfect markets.

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Refer to MM hypothesis. The dividend policy is irrelevant in perfect capital market. In perfect capital market (no taxes, no transaction cost, no floating cost of new equity), the market value of the stock represents its true fundamental value. Since ...

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