Behavioral economics and finance

Behavioral Economics and Finance
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Behavioral Economics and Finance
A dividend is the distribution of a percentage of the company’s profits as decided by the board of directors. The main aim of this is to return wealth to shareholders. Dividends can be paid out in cash or stocks (Beneder et al., 2002). Preference for cash dividends occurs due to choice behavior and self-control. They provide shareholders with income but are subject to tax and transaction costs, which will reduce the amount investors receive in the long-run. I did not have any preference for cash dividends in stock investments and instead prefer stock dividends. The stock dividends method is where an investor's share is increased by the new shares being given in the form of dividends. It is normally done when the company has a short supply of liquid cash. For instance, if the company was to issue 5% of dividends, it will increase the shares by 5%. If there are ten million shares in the organization, then an additional 500,000 shares will be added. If an investor has 1,000 shares, then he or she will receive an additional 50 shares.
I preferred this method because the company will keep the money and use them to increase the rate of return. As an investor, I will not pay taxes, therefore not reducing the amount earned. It creates a stronger bond with the company because increasing the number of shares, percentage, and ownership sense in the company increases. It also provides an option of keeping the dividends or converts them to cash when an investor desires so or in need of cash (Short et al., 2002). It also results in capital appreciation because the company off...