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Microsoft’s shareholders can sell their stock to other after ex-dividend date and still receiving dividend even they are no longer holding a share

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Microsoft’s shareholders can sell their stock to other after ex-dividend date and still receiving dividend even they are no longer holding a share. Investors also can purchase share before ex-dividend date and resell them after ex-dividend date and still they can receive dividend. The price before ex-dividend are increasing and decrease on ex-dividend date.
Gordon and Litner Theory which supporting the idea of paying very high dividend. This is based on the fact that investor that have risk aversion prefer to have a safe return. If company paid out the entire retained earnings as dividends to shareholders, the value of shares of company will be increase to double. Cost of equity increase by lowering the dividend payment ration.
Miller and Modigliani Theory (MM) supporting idea of dividend policy is irrelevant. Dividend policy will not affect the return according to MM. Investors tend to invest their share using dividends of corporation. A firm’s value is influenced by investment policy not the degree of risk and dividend policy of the firm. When a corporation use debt to finance investment, the debt have to invest new shares if manager tend to increase dividends level but doesn’t want to change investment decision. A transfer of value happen in this situation between old and new shareholders. Share will worth less than before dividend been distributed. There are individuals who form a mixed effective which they replicate capital structure of firms and is often referred as “homemade leverage”. Individuals sell shares to get cash and buy shares to using their extra money.
The Clientele Effect is the changes happen in company’s policy that affect their stock price. Investors will buy stock when dividends is high which will increase the price. Different group of shareholders prefer different dividend policy. Investor prefer higher dividends in company which use high level dividend payment policy and they will buy more share at the same time increasing stock’s price.
According to dividend signaling theory, companies that pay higher dividends are most likely to be more profitable than identical companies which pay lower dividends. Company which has history of increasing level of dividend is signaling to market that its management anticipating future profits. When a company announce an increase in dividend payments, it gives a positive signal about the bright future of company. It also bring a good image to company.
There are three types of efficiency which are weak, semi-strong and strong. Historical prices and yields will be used as information in weak form. Market in semi-strong will reflected by all publicly available information. Because of this, investors do not have bigger chance to get higher return than market. Many events occur in semi-strong such as earnings announcements and dividend payments, stock repurchase and others. Participant in market would not have extra trading profits because of monopolist information in strong form.

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