CH8
How NASDAQ is different from NYSE
1. NASDAQ is a computer network 2. NASDAQ has a multiple market maker system 3. In early years, referred as an over-the-counter (OTC) market
proxy fight(or proxy contest)
If shareholders are not satisfied with management, an "outside" group of shareholders can try to obtain votes via proxy (proxy solicitation). they can vote by proxy in an attempt to replace management by electing enough directors, so they can takeover a firm even without acquiring shares.
The largest stock market in the worlds
New York Stock Exchange (NYSE)
preemptive right
a company that wishes to sell stock must first offer it to the existing stockholders before offering it to the general public
Dividend Discount Model (DDM)
a formula for the intrinsic value of a firm equal to the present value of all expected future dividends
proxy
a grant of authority by a shareholder allowing another individual to vote his or her shares
straight voting
a procedure in which a shareholder may cast all votes for each member of the board of directors
cumulative voting
a procedure in which a shareholder may cast all votes for one member of the board of directors
Dividend Yield
a stock's expected cash dividend divided by its current price
dividends
payments by a corporation to shareholders, made in either cash or stock
equity like feature of preferred stock
preferred dividends are not deductible
primary market (new-issue market)
shares of stock are first bought to the market and sold to investors
the NYSE member who acts as a dealer in a small number of securities is called
specialist
preferred stock
stock with dividend priority over common stock, normally with a fixed dividend rate, sometimes without voting rights
which of the following entities declares a dividend?
the board of directors
Capital Gain Yield
the dividend growth rate, or the rate at which the value of an investment grows
purpose of preemptive right
to protect existing shareholders from dilution risk
NYSE now holds [ ] purchased from the exchange instead of seats
trading license
Some firms have more than one class of common stock. Often the classes are created with [ ] voting rights.
unequal
staggered elections
only a fraction of the directorships (often one-third) are up for election at a particular time.
3 important characteristics of dividends
1. a corporation can't default on an undeclared dividend (it is not a liability) 2. dividends are not deductible for corporate tax purpose 3. dividends received by individual shareholders are taxable (double taxation)
3 reasons for difficulty of valuing common stock
1. common stock cash flows are not known in advance 2. the life of a common stock is essentially forever 3. the rate of return required by the market is not easily observed
Why it is more difficult to value common stock than it is to value bonds
1. life of a common stock is essentially forever 2. rate of return required by the market is not easily observed 3. common stock cash flows are not known in advance
4 Other rights
1. right to vote on other important matters 2. right to share proportionally in dividends paid 3. right to share proportionally in assets remaining after liabilities in liquidation 4. the right to share proportionally in new stocks sold
2 basic effects of staggering voting
1. staggering makes it more difficult for a minority to elect a director because there are fewer directors to be elected at one time. 2. Staggering makes takeover attempts less likely to be successful because it makes it more difficult to vote in a majority of new directors
key features of preferred stock
1. stated liquidation value and dividends 2. most preferred stocks are cumulative (dividends must be paid) 3. unpaid preferred dividends are not debts of the firm
5 debt-like features of preferred stock
1. stated liquidation value and stated dividends 2. often carry credit ratings 3. sometimes convertible into common stocks 4. sometimes callable 5. many preferred stocks have sinking funds for their retirement
2 usual right of common shareholders
1. voting rights 2. the right to a proportional share of dividends paid 3. The right to share proportionally in assets remaining after liabilities have been paid in a liquidation
Forward PE Ratio
A PE ratio that is based on estimated future earnings
difference between common stock and preferred stock
Preferred stock pays a predetermined dividend, whereas the dividends paid to common shareholders tend to vary according to the company's fortunes. Dividends on preferred stock are often larger than those on either common stock or the company's bonds. Holders of preferred stock do not get a vote on company matters.
dividends payment is depend on decision of the [ ]
board of directors (US) shareholder's meeting (other countries)
brokers
brings buyers and sellers together, but does not maintain an inventory of shares do not buy or sell shares for their own accounts (do not quote bid and ask prices)
When the stock being valued does not pay dividends, the dividend growth model [can/can't] be used
can with assumption that company will pay dividend in the future
discretion
cautious reserve in speech; ability to make responsible decisions
staggered boards (or classified boards)
directors are placed into different classes with terms that expire at different times
R=
discount rate (required rate or return)
the preferred stock would often be called by its [ ]
dividend amount
common stock
equity without priority for dividends or in bankruptcy
secondary market
existing stocks are traded among investors
A PE ratio that is based on estimated future earnings is known as a [ ] PE ratio.
forward
One common reason for having two classes of common stock with different voting rights is:
it is easier for insiders such as founding families to maintain control of the company
dealers
maintain an inventory of stocks and stand ready to buy or sell at any time buy or sell shares for their own accounts (quote bid and ask prices)
Electronic Communications Networks
websites that allow investors to trade directly with one another