Aspects of Corporate Financial Policy Essay Example | Topics and Well Written Essays - 3500 words

Aspects of Corporate Financial Policy - Essay Example The view that dividend does not matter as far as wealth maximization is concerned has its support in the article by Miller (n.d.) entitled â€Å" Do Dividends Really Matter?† In said paper, Miller explained his position about the few aspects of corporate financial policy where academics and practitioners differ on what really is the effect of dividend policy on stock price. He is aware that the academic consensus that dividends do not matter much and that the market should not be expected to increase prices because of â€Å"generous† dividend policies. He, however, admits that generous dividends may cause share to sell lower due to tax penalties or higher taxes on dividends as against capital gains. On the other hand, he also knows of the continued claims from corporate officials and investment bankers about the big influence of dividend on market prices because of cited instance where there were jumps in price after some announcements of resumption of regular dividends (Miller, n.d.).One may easily notice what caused the world of academicians to differ from those of practitioners. It may be asserted the academicians seem to view things from a long-term point of view while practitioners will look at it at the immediate reaction from the market which is rather a short-term point of view. This must be so since academicians would most probably believe in the result of researchers than a knee-jerk reaction to what happens in a certain stock market. Practitioners, in turn, would like to be guided by academicians but not necessarily. Indeed Miller saw what practitioners perceived as â€Å"an optical illusion† where he used as an example with his students a stick in the water to illustrate his point. He explained that of one who uses his or her eyes and look at the stick in the water, it appears bent yet if one feels it with his or her finger or if one pulls it out of the water one will realize that the stick is not really bent. It is just the loo ks of it that is bent.