14.1 The Basics of Payout Policy

  1. LG1

The term payout policy refers to the decisions that firms make about whether to distribute cash to shareholders, how much cash to distribute, and by what means the cash should be distributed. Although these decisions might seem less important than the investment decisions covered in Chapters 10 through 12 and the financing choices discussed in Chapter 13, they are important decisions that managers and boards of directors face routinely. Investors monitor firms’ payout policies carefully, and unexpected changes in those policies can have significant effects on firms’ stock prices. The recent history of Whirlpool Corporation, briefly outlined in the chapter opener, demonstrates many important dimensions ...

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