Louisiana State University, Shreveport FIN FIN 701 Do you agree with the discussion question below? 1. What are the benefits of a stock buyback to investors ?
What are the advantages and disadvantages of higher dividends to investors?
According to Dr. Shi’s 6-3 Notes, higher dividends reduce the Agency Cost associated with too much free cash flow for managers to spend on unnecessary items. Additionally, it is preferred by stockholders who want current income, rely on tax arbitrage, and use dividends as their behavioral financing mechanism. Disadvantages include reduced ability to use the cash for other positive NPV projects and investments which will create value for the firm.
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