CHAPTER THIRTEENTHE CORPORATE FORMSlide 3Slide 4Slide 5COMPONENTS OF STOCKHOLDERS’ EQUITYSlide 7Slide 8CASH DIVIDENDSSTOCK DIVIDENDS AND SPLITSSlide 11Slide 12Slide 13Slide 14COMMON STOCK BETASSlide 16Slide 17Slide 18Slide 19Slide 201CHAPTER THIRTEENCHARACTERISTICS OF COMMON STOCKS2THE CORPORATE FORM•FEATURES OF THE CORPORATE FORM–common stock with limited liability–charter issued to begin –stock certificates•ownership claim•transfer agent conducts title change•registrar issues certificates3THE CORPORATE FORM•FEATURES OF THE CORPORATE FORM– voting•cumulative voting system does not give majority owner control•majority voting system: straight voting and allows majority owner control4THE CORPORATE FORM•FEATURES OF THE CORPORATE FORM–takeovers•usually done with a tender offer by a bidder to a target firm•bidder usually offers to buy at a stated price some or all of the shares held by current stockholders•WHITE KNIGHT is a firm making a better offer•GREENMAIL is an attempt to buy share held by bidder at above-market price5THE CORPORATE FORM•FEATURES OF THE CORPORATE FORM–ownership v. control•know as principal-agent problem•stockholder motive is to maximize wealth•agent may make decisions for other reasons•a solution:–give management stock options giving incentive to maximize their own wealth as well as stockholders6COMPONENTS OF STOCKHOLDERS’ EQUITY•Par Value•the value authorized by the charter for initial capital stock7COMPONENTS OF STOCKHOLDERS’ EQUITY•Book Value Formula: Cumulative retained earnings+Capital Contributed in excess of par+Common stockBOOK VALUE OF THE EQUITY8COMPONENTS OF STOCKHOLDERS’ EQUITY•Reserved and Treasury Stock•some corporations repurchase some of the stock outstanding•this becomes known as treasury stock9CASH DIVIDENDS•DEFINITION: the portion of profits paid in cash to the stockholders–Process of Payment•declaration date•date of record•ex-dividend date•payment date10STOCK DIVIDENDS AND SPLITS•STOCK DIVIDENDS AND SPLITS–Stock Dividend•issued in place of a cash payment•a 5% stock dividend results inexample: 5% of 100 shares = 5 shares11STOCK DIVIDENDS AND SPLITS•Stock Split•new shares issued after the splitexample: a 2 for 1 split (par=$1)a 200 share holder receives 400 new sharesat $.50 par•thus, there is no dilution of the shareholder’s equity position12STOCK DIVIDENDS AND SPLITS•EX-DISTRIBUTION DATES–similar to ex-dividend date–2 business days before the date of record13STOCK DIVIDENDS AND SPLITS•REASONS FOR STOCK DIVIDEND AND SPLITS–some believe splits signal the stock is undervalued in the market–splits will bring market price to a more desirable (usually lower) range –following a split, research shows investors receive a positive abnormal return14STOCK DIVIDENDS AND SPLITS•PREEMPTIVE RIGHTS–a legal right interpreted differently depending upon the country–in the U.S. the stockholders have an inherent legal right to maintain the proportion of ownership they may control–when new shares are issued•current owners must be given first right of refusal15COMMON STOCK BETAS•Role of Beta•DEFINITION: it is a measure of a stock’s sensitivity to future market movements16COMMON STOCK BETAS•Calculation using linear regression the model equation is specifiedri = rIi where ri is the return of stock i is the average return of stock i  is the stock i’s beta rIis the return on the index i is the error term17COMMON STOCK BETAS•the standard error of beta indicates the extent of standard deviation of the estimates18COMMON STOCK BETAS•correlation coefficient indicates how closely the stock’s returns were explained by the index returns19COMMON STOCK BETAS•coefficient of determination represents the proportion of variance in the stock’s return to variance in the index’s returns20COMMON STOCK BETAS•1-the coefficient of determination represents the amount of the stock’s variance that cannot be explained by variances in the index returns•i.e. nonsystematic