Payout Policy: Assignment
On 13 March 2018, the Labor Opposition Party announced a policy to abolish
cash refunds for imputation tax credits. For details, see “A Fairer Tax System:
Ending Cash Refunds for Excess Imputation”.
This policy, if enacted by a Labor Government were the Labor Party to be
elected at the next Federal Election, may be expected to negatively impact
companies with particular dividend clienteles.
You are required to conduct an event study examining this announcement. You
are required to examine the impact of this announcement on seven of the
following eight companies:
1. Insurance Australia Group Ltd (IAG)
2. AMP Ltd (AMP)
3. Telstra Ltd (TLS)
4. National Australia Bank Ltd (NAB)
5. Medibank Private Ltd (MPL)
6. Commonwealth Bank of Australia Ltd (CBA)
7. Westpac Banking Corporation Ltd (WBC)
8. Australia and New Zealand Banking Group Ltd (ANZ).
If the last digit of your student number is 0 or 1, you should exclude Company
1 (IAG) from your sample. If the last digit of your student number is 2, you
should exclude Company 2 (AMP) from your sample. If the last digit of your
student number is 3, you should exclude Company 3 (TLS) from your sample.
If the last digit of your student number is 4, you should exclude Company 4
(NAB) from your sample. If the last digit of your student number is 5, you should
exclude Company 5 (MPL) from your sample. If the last digit of your student
number is 6, you should exclude Company 6 (CBA) from your sample. If the
last digit of your student number is 7, you should exclude Company 7 (WBC)
from your sample. If the last digit of your student number is 8 or 9, you should
exclude Company 8 (ANZ) from your sample.
Daily closing share prices for these companies may be obtained from
https://finance.yahoo.com.
In conducting the event study, you should define the event-date, Day 0, as 13
March 2018. You should examine daily returns, abnormal returns, average
abnormal returns, and cumulative average abnormal returns from 5 March 2018
to 23 March inclusive. To undertake this task you will need daily closing share
prices for these companies from Friday 2 March to Friday 23 March inclusive.
Note that share market trading does not occur on Saturdays or Sundays so these
days should be excluded. In calculating abnormal returns, you should assume
that the expected return on the shares of each company is equal to the return on
the S&P/ASX200 Accumulation Index. Index values for the S&P/ASX200 have
been placed in an Excel spreadsheet under Course Materials on the Course
Blackboard site.
You need to provide a report of your results. The report should include both a
table and a graph showing your findings. It should also include a discussion of
your findings. The discussion should include the apparent impact of the
announcement on the average valuation of these companies, and the apparent
efficiency of the market response.
You should also discuss, with respect to payout policy, why the announcement
might have been expected to have a negative impact on companies with
particular dividend clienteles. This discussion will require that you demonstrate
understanding of the imputation tax system and the arguments for the existence
of dividend clienteles.
Eight marks will be allocated to undertaking the event study correctly. Three
marks will be allocated to your discussion of the findings of your event study.
You should allocate approximately 100 words to this event study discussion.
Fourteen marks will be allocated to your discussion with respect to payout
policy. You should allocate approximately 900 words to this payout policy
discussion.
The word limit for the assignment, including tables, graphs and references, is
2000 words. Excluding tables, graphs and references, you should limit your
report to 1000 words. Your report must be submitted through Turnitin in Word
format.
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