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1、第八讲 支付政策和资本结构Corporate Finance支付政策PAYOUT POLICYCorporate FinanceFACTS ABOUT PAYOUTCash Dividend versus Stock RepurchaseCash DividendDividends are rarely cut back,managers do not increase dividends unless confident that dividend can be maintainedStock RepurchaseRepurchases are more flexible and repur
2、chases are tax-advantagedDividend PaymentExxon Mobildeclares quarterly dividendof$.42 per shareShares start totrade ex-dividendDividend will be paidto shareholdersregisteredon this dateDividend checksmailedto shareholdersJanuary 5,2012February 8,2012February 10,2012March 9,2012Declaration date公告Ex-d
3、ividend Date 除息日 Date that determines when stockholder is entitled to dividend paymentRecordDate 登记日Person who owns stock on this date receives dividendPaymentDate支付日Forms of dividend paymentCash Dividend（现金分红）Special Cash Dividend Regular Cash DividendStock Dividend（送股）Distribution of additional sh
4、ares to firms stockholdersStock Splits（股票拆细）Issue of additional shares to firms stockholders No Effect on firm valueShare RepurchaseFour methodsBuy Shares on the Open MarketTender Offer to Shareholders（要约收购，20%over-price）Dutch Auction（荷兰式拍卖，投资者报出卖股数）Private Negotiation(greenmail)Dividend Payment vs
5、Share RepurchaseShare Repurchase acts like bumper dividends(逆回购充当缓冲器):企业经营好时，积累大量未使用资金，通过逆回购改变资本结构。经济繁荣时股票逆回购较多。Dittmar and Dittmar 2004:Repurchases increase with increases in both permanent and transitory earnings.Change in dividends paid is not related to transitory earnings but rather only perman
6、ent shifts in earnings that result from changes in the macro-economy.Research approachStep1:Tempory earnings:cointegration residualPermanent earnings:impact that changes of GDP have on aggregate payout policyStep 2:Investigate relation between changes in stock repurchase(dividend)and earningsInforma
7、tion content of dividend and repurchasesDividend stock repurchase decisions contain information Dividend increases could mean overpriced stock or increased future profits Stock repurchase could mean underpriced stock or increased future profits Signal varies based on prior information about companyI
8、s payout relevant？Middle-of-the-road party(中间派)Dividend policy is irrelevant in perfect capital market（Modigliani and Miller）:Rightist（保守派）Dividends increase valueDividend increases send good news about cash-flow earningsDividend cuts send bad newsHigh-dividend payout policy will be costly to firms
9、that do not have cash flow to support itDividend increases signal companys good fortune Increase in managers confidence in future cash flowLeftist（激进派）The Dividend Clientele Hypothesis:Evidence from the 2003 Tax Act(Kawano,2014,American Economic Journal:Economic Policy);Do dividend clienteles exist?
10、Evidence on dividend preferences of retail investors(Graham and Kumar,2006,Journal of Finance);Local Dividend Clienteles(Becker et al.,2011,Journal of Finance);Juicing the dividend yield(Harris et al.,2015,Journal of Financial Economics).Shareholders in high tax brackets prefer low-dividend paying s
11、tocks and shareholders in low tax brackets prefer high-dividend paying stocks.若红利应税税率高于资本利得应税税率，公司就应尽可能少发红利，以留存现金或回购股票。ConclusionHigh dividend paying stocks will be preferred by tax exempt organizations and low income investors;those stocks yielding more of their return in the form of capital gains
12、will gravitate to the taxpayers in the upper tax brackets(Miller 1977).资本结构CAPITAL STRUCTURECorporate FinanceMM and Pecking Order Theorem“M-M理论”“啄食顺序理论”“内源融资间接融资债务融资Modigliani and Miller(MM)Proposition 1:（MM 第一定理）Capital structure does not affect cash flow as No taxesNo bankruptcy costsNo effect on
13、management incentives Modigliani and Miller(MM)Proposition 1:（MM 第一定理）Capital structure does not affect cash flow as No taxesNo bankruptcy costsNo effect on management incentives Proposition I and MM In perfect market,leverage has no impact on operating income and market value of all securities.Prop
14、osition II and MM In perfect market,expected rate of return on common stock of a levered firm increases in proportion to the debt-equity ratio(D/E),expressed in market values.Financial risk and expected returnsProposition II and MMWhen the firm is levered,share holders require a premium of(rA rD)*D/
15、EAn example for leverage riskMarket value of firm:10000 USDNo levered firm:10 USD*1000 sharesLevered firm:borrow 5000 USD through debt with interest rate 10%,then purchase 500 shares at 10 USD.Leverage and cost of equityLeverage and cost of equityWeighted-Average Cost of Capital(WACC)PROPOSITION II
16、and MMWACC TRADITIONAL VIEWAfter-Tax WACCDebt ratio=(D/V)=7.6/22.6=.34 or 34%Equity ratio=(E/V)=15/22.6=.66 or 66%After-Tax WACCLeverage risk and betas Why firms use leverage?Tax-deductible interestThe tax deductibility of interest increases the total income that can be paid out to bondholders and s
17、tockholdersTax-deductible interestCorporate taxes-ExampleYou own all equity of Space Babies Diaper Co.Company has no debt Company has annual cash flow of$900,000 before interest and taxesCorporate tax rate is 35%At time zero,you have the option to exchange 1/2 of your equity position for 5%bonds wit
18、h face value of$2,000,000.Assume RE for unlevered firm equals to 5%as well.Should you do this and why?Corporate taxes-Examples Example ContinuedTotal Cash Flow All equity=585*1/2 debt=620*1/2 debt=620 (520+100)Corporate taxes-permanent effect*0.05Corporate taxesExampleAll-equity value=585/.05=11,700
19、,000PV tax shield=700,000Firm value of debt=$12,400,000Costs of financial distress rDEBond YieldStructure of Bond Yield RatesCosts of financial distress:Traditional View of WACC Without Taxes DVrErrDIncludes Bankruptcy RiskFinancial distress occurs when promises to creditors are broken or honored wi
20、th difficulty.Costs of financial distress Cost of Financial DistressCosts arising from bankruptcy or distorted business decisions before bankruptcy Market Value Equals Value If:All-equity financed+PV tax shield PV costs of financial distress DebtMarket Value of the FirmValue ofunleveredfirmPV of int
21、eresttax shieldsCosts offinancial distressValue of levered firmOptimal amount of debtMaximum value of firmCosts of financial distress Direct costs of financial distress Circular File company has$50 of one-year debt Costs of financial distress Circular File Company has$50 of one-year debt Why does eq
22、uity have any value?Shareholder option to obtain rights to assetsby paying$50 debtIndirect costs of financial distress Circular File Company invests$10,assumes a discount rate of 50%for the projectAssume NPV of project is(=$-2)What is effect on market values?Costs of financial distress Circular File
23、 Company Value,Post-Project Firm value falls by$2Equity-holder gains$3Costs of financial distress Circular File Company Value Assumes safe project with NPV=$5Firm value rises and lack of potential payoff for shareholders causes decrease in equity value Costs of financial distressHenrietta Ketchup ha
24、s two possible investment projects PECKING ORDER OF FINANCIAL CHOICES 金融选择中的啄食顺序理论Trade-Off Theory Theory that capital structure is based on trade-off between tax savings and distress costs of debt Pecking-Order Theory Theory stating firms prefer to issue debt over equity if internal finances are in
25、sufficient PECKING ORDER OF FINANCIAL CHOICESTrade-Off Theory and PricesStock-for-debt exchange offers results in stock price falling Inversely,debt-for-stock exchange offers results in stock price rising Issuing common stock drives down stock prices,whereas repurchases increase stock pricesIssuing
26、straight debt has small negative impact PECKING ORDER OF FINANCIAL CHOICESIssues and Stock Prices Why do security issues affect stock prices when demand for firms securities should be flat?Any firm is drop in bucket Plenty of close substitutes Large debt issues do not significantly depress stock pri
27、ce PECKING ORDER OF FINANCIAL CHOICESPecking-Order Theory Firms prefer internal financeAdapt target dividend payout ratios to investment opportunities while avoiding changes in dividends PECKING ORDER OF FINANCIAL CHOICESPecking-Order TheoryInternally generated cash flows sometimes more than capital
28、 expenditures,other times notDue to dividend policies,plus fluctuations in profitability and investment opportunitiesIf more,firm pays off debt or invests in marketable securities If less,firm first draws down cash balance or sells marketable securitiesPECKING ORDER OF FINANCIAL CHOICESPecking-Order
29、 TheoryIf external finances are required,firms issue the safest security firstThey start with debt then possibly hybrid securities,such as convertible bonds,then equity as a last resortPECKING ORDER OF FINANCIAL CHOICESPecking-Order Theory Internal equity may be better than external equityFinancial
30、slack is valuable If external capital is required debt is betterThere is less room for difference in opinions about what debt is worthFirm Valuation and capital structureCapital Project AdjustmentsDiscount rateModify to reflect capital structure,bankruptcy risk,other factorsPresent valueAssume firm
31、financed entirely by equity,make adjustments to value based on financingAfter-tax weighted-average cost of capitalTax-Adjusted FormulaExample:Sangria CorporationFirm has marginal tax rate of 35%.Cost of equity is 12.4%,pretax cost of debt is 6%.Given book and market-value balance sheets,what is tax-
32、adjusted WACC?After-tax weighted-average cost of capitalExample,ContinuedAfter-tax weighted-average cost of capitalAfter-tax weighted-average cost of capitalExample,ContinuedDebt ratio=(D/V)=500/1,250=.4,or 40%Equity ratio=(E/V)=750/1,250=.6,or 60%After-tax weighted-average cost of capitalExample,Co
33、ntinuedSangria wants to invest in machine with cash flows of$1.731 million per year pre-tax.What is value of machine,given initial investment of$12.5 million?After-tax weighted-average cost of capitalExample,ContinuedAfter-tax weighted-average cost of capitalExample,ContinuedValuing businessesBusine
34、ss value usually computed as discounted value of future cash flows(FCF)to a valuation horizon(H)Horizon value is also called terminal valueValuing businessesPV(free cash flows)PV(horizon value)In this case,In this case,rr=WACC=WACCFree-cash-flow projections,rio corporation($Millions)Free-cash-flow p
35、rojections,rio corporation($Millions)Valuing businessesExample:Rio CorporationFree cash flow=profit after tax+depreciation investment in fixed assets investment in working capitalFCF=8.7+9.9 (109.6 95)(11.6 11.1)=$3.5 millionValuing businessesExample,ContinuedValuing businessesFlow-to-Equity MethodD
36、iscount cash flows to equity at cost of equity capital,after interest and taxesIf firm has constant debt ratio over time,flow to equity will give same answer as discounting total cash flows at WACC and subtracting debtUsing WACC in practiceAfter-Tax WACCPreferred stock and other forms of financing m
37、ust be included in formulaUsing WACC in practiceExample,ContinuedCalculate WACC for Sangria Corporation given preferred stock is$25 million of total equity and yields 10%Using WACC in practiceDetermining Costs of FinancingDerive return on equity from market dataCost of debt set by market,rating of f
38、irms debtPreferred stock often has preset dividend rateExample:Sangria CorporationFirm has marginal tax rate of 35%.Cost of equity is 12.4%,pretax cost of debt is 6%.Given book and market-value balance sheets,what is tax-adjusted WACC?After-tax weighted-average cost of capitalExample,ContinuedAfter-
39、tax weighted-average cost of capitalUsing WACC in practiceExample,ContinuedSangria Corporation changes to 20%D/VStep 1:r at current debt Step 2:D/E changes to 25%Step 3:New WACC Adjusted present valueAdjusted Discount RateModify to reflect capital structure,bankruptcy risk,other factorsAdjusted Pres
40、ent ValueAssume all-equity-financed firm,adjust value based on financingAdjusted present valueAPV=Base Case NPV+PV ImpactBase case:All-equity-financed firm NPVPV impact:All costs/benefits directly resulting from project financing Adjusted present valueExampleProject A has$150,000 NPV.Firm must issue
41、 stock to finance project,with$200,000 brokerage costProject NPV=150,000Stock issue cost=200,000Adjusted NPV=50,000Do not invest in Project AAdjusted present valueExampleProject B has$20,000 NPV.Firm can issue debt at 8%to finance project.New debt has PV tax shield of$60,000.Assume Project B is only optionProject NPV=20,000Stock issue cost=60,000Adjusted NPV=40,000Invest in Project B19-4 adjusted present valueExampleRio Corporation APV