Annotated Bibliography
Student Name
Program Name or Degree Name (e.g., Master of Science in Nursing), Walden University
COURSE XXX: Title of Course
Instructor Name
December 17, 2021
1
Annotated Bibliography
Allen, F., and R. Michaely, (2002). Payout Policy, in Constantinides, George, Milton
Harris and Rene Stulz eds. Handbook of the Economics of Finance (Amsterdam:
North-Holland) 337-429.
This scholarly article looks to establish a correlation between payout policy and valuation within publicly traded international companies. Here, the authors look to evaluate if a diverse payout policy will lead to stable valuations and risk. Risk in this article is defined using the term Beta which is the covariance between the publicly traded stock price and the market as defined as the S&P 500. The initial hypothesis from the authors is that investors have varying preferences as it relates to risk and return characteristics. These characteristics can include high yield in the form of dividend or higher growth.
In the case of higher yield, investors will look to emphasize dividend growth as a barometer for value creation. Other investors however, would rather the company retain all of its earnings in the business so that it may compound money internally at a much faster rate than could otherwise be achieved through dividend growth. To appease both sets of investors, companies diversify their payout strategy as a means of attracting a larger investor base.
From the scholarly report, it was found that companies that use a diversified approach towards their payout ratios, typically have a much smaller beta than companies that dont payout any dividends. According to the authors, dividend is viewed by the market as a much more stable value creation tool of investors. As such, companies are often heavily reluctant to reduced their dividend payouts to investors. As such, as it relates to value creation, growth in dividends overtime has shown to increase stock prices while a reluctance to decrease reduces overall volatility of stocks relative to non-dividend paying stocks
That data looks at a subset of roughly 1000 publicly traded companies using data from Moodys, Standards and Poors and other rating agencies. The appropriateness, and the methodology used to evaluate each stock is sound, with heavy reliance on the Modigliani and Miller dividend irrelevance proposition. The limitations of the research are heavily related to the time frame evaluated which was the 20-year period from 1990 to 2010. This period may not be indicative of what has occurred throughout history. The author Franklin Allen is business professor...
Likewise, motivational factors are often determined by macro-
economic factors prevailing at the time adding further complexity to the
analysis. The authors Yakov Amihud and Barush Lev are both executives of the RAND
corporation, a nonprofit institution that helps improve policy and
decision making through research and analysis. RAND focuses on the issues that matter most such as
health,
education,
national security, international affairs,
law and business, the
environment, and more.
Amit, R. and J. Livnat (1988). Diversification and the risk-return trade-off, Academy of Management Journal, 31: 154166.
This scholarly article reviews the risk return tradeoff of diversification from a value creation perspective. Here, the scholarly article, reviews data from investment portfolios of both institutional, pension funds, insurance, corporate and retail investors. Emphasis of this article was placed on corporate strategy as it relates to their investments in both publicly and non-public companies. The authors found that diversification of investment heavily reduced risk without a corresponding declined in return. Here, the authors leverage the capital assets pricing model used to help evaluate corporate strategy investment. The model uses the capital markets line and the efficient frontier to determine the most optimal return for the lowest amount of risk. This portfolio, according to the authors typically consists of a combination of…
