Is the "one bird in hand" theory really true for A shares?

At first it is vital to know about the theory and its importance along with relevance. One bird- in- hand theory was developed by Gordon and Lintner in response to the dividend policies. The theories are of relevance as it helps to measure the shares and market for effective growth and opportunities. The theory is of importance as it is based upon several assumptions which include aspects that the companies are financed only through the use of equity and debt is not used. This is not the case when the companies are financed for augmenting the business. The theory considers that the only source of financing is the retained earning. From my analysis and understanding it is obvious that this is not the case. The company has no corporate tax and the retention ratio is constant when applying the one bird in hand theory. These are few aspects that impact the theory and its sustainability in the real market situations. This theory has been criticised by Modigliani and Miller stating that dividend policies have no impact over the capital cost. Moreover, investors are attracted towards total return therefore the relevance is being questioned. I am of the opinion that bird in the hand theory is being used for several reasons. The investors usually think that dividends are less risky in comparison to the potential future capital gains. Therefore they more inclined towards dividends. This also implies that investors value high payout firms than others on the basis of payouts. The main essence of the theory is not to state the fact that stockholders are risk averse but it implies that they prefer dividends which have lower level risks. Dividends payments are effective and reduces the uncertainty of the stakeholders thus this increases the value of the stock. Thus the relevance of the theory is based upon logic which is regarding the fact that stakeholders are inclined towards better future.

In my opinion from the analysis it can revealed that investors prefer sure interest and dividends rather than promised dividends for future.  Thus share prices do get affected due to this theory and its factors influences the decision.

In the financial aspects stakeholders emphasize upon buying and selling stocks for a bright future. The share market is riskier as the shares of the companies are to be analysed for better earnings. Subsequently, it is vital to state from my observation that shareholders are usually risk averse and prefer certainty. However, this opinion of mine was criticised by many as some believe that shareholders prefer to take risk but the chances of loss and failure is huge. This theory is effective because as per theory the firms that pay higher dividends have higher vale because shareholders need lower discounting rate for effectiveness.  

Contextually, investors are inclined towards deterministic benefits which is called the one bird in hand which implies that investors are attracted towards stocks with high dividends. The rise in the stock market and prices are based upon several aspects such as the economic policies and the demand and supply factors. Demand and supply curves impact the price fluctuations which are based upon the flow of cash. This implies that investors usually prefer stocks which offer high dividends. However, this does not mean that rise in stock will augment dividends.

My thoughts upon the truth of the theory are based upon several aspects which includes both positive and negative factors. I think that dividend investors have different perspective to see the market than the shareholders. They are of the opinion that investors prefer dividends over the capital gains. From the observation it is determined that capital gains are riskier and the expectation of investors is to attain high return by creating pressure on the management. The intention is to attain growth in the future which is more than the shareholders. Dividends play a strong role in determining the competitiveness of the company. When the cost of capital is high the company is less competitive that issues dividends. Hence I have realised that dividend returns helps the investors to attain better return along with stock value. People do have preference towards dividend over the capital gains. Higher demands increase the dividends paying stocks thus positively influencing people.

Many times we believe that growth in the share market creates benefits for the investors along with the company. The growth in the business implies that investors are willing to invest in the business because their expectations are met. Thus the assumption of the theory and the implementation of the same is effective for the share. The change in the dividend tax and the holdings positively influences the regulations that impacts the investors and encourages dividends holding. Thus the main aspect that is analysed is that dividends will be one of the most vital concerns for the investors. The theory is of relevance as it states that finances emphasises upon dividends for the rise in the share price. The return on equity is another important consideration that impacts the performances of the business leading to growth. The success of the business is dependent upon various factors one such aspect is distribution of profits in the forms of dividends. Dividend can be one of the most important considerations for ensuring success of the investors along with business for growth and opportunity.