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The theory is based on the hypothesis that management "manipulates" capital structure such that earnings per share (EPS) are maximized. As a corollary, the CSS theory is seen to provide management with (some) guidance on dividend policy - more directly in fact than other approaches, such as the Walter model and the Gordon model.
The primary difference between SPM and the Walter model is the substitution of earnings and growth in the equation. Consequently, any variable which may influence a company's constant growth rate such as inflation, external financing, and changing industry dynamics can be considered using SPM in addition to growth caused by the reinvestment of ...
The theory was adopted based on observations that many companies will set their long-run target dividends-to-earnings ratios based upon the amount of positive net-present-value projects that they have available. The model then uses two parameters, the target payout ratio and the speed where current dividends adjust to that target:
In financial economics, the dividend discount model (DDM) is a method of valuing the price of a company's capital stock or business value based on the assertion that intrinsic value is determined by the sum of future cash flows from dividend payments to shareholders, discounted back to their present value.
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A further and related observation is that these dividends attract a higher tax rate as compared, e.g., to capital gains from the firm repurchasing shares as an alternative payout policy. For other considerations, see dividend policy and Pecking order theory. A range of explanations is provided.
Based on effective demand and chartalism, Lerner developed functional finance, a theory of purposeful financing (and funding) to meet explicit goals, including full employment. This is in contrast to “sound finance” principles where taxation is designed solely to fund expenditure or finance investment and low inflation.
Geraldine Weiss (March 16, 1926 – April 25, 2022) [1] was an American editor, investment advisor, investor, and writer. She was the co-founder of the newsletter, Investment Quality Trends and was nicknamed "the Grande Dame of Dividends" and "The Dividend Detective" for her unconventional value approach investment style by focusing on a company's dividends rather than earnings.