Asquith and Mullins Studied a Sample of Firms That Either

question 34

Essay

Asquith and Mullins studied a sample of firms that either paid their first ever cash dividend or initiated a dividend after a 10 year period of no dividends. Healey, Palepu and Michaely, and Thaler and Womack found stock prices to fall when dividends are. Explain how these positive and negative stock price results fit with the dividend irrelevance argument of MM and the opposing effects of taxes and current income needs on stock price if future earnings are held constant.

---

Definitions:

Bed-wetting

Involuntary urination during sleep, commonly seen in children.

Classical Conditioning

The mechanism of learning through the linkage of a natural stimulus and an environmental one.

Cravings

Intense desires or urges for a specific substance, experience, or activity, often associated with addiction or deprivation.

Counterconditioning

A behavior therapy technique involving the conditioning of an unwanted behavior or response to a stimulus into a desired behavior or response.