Concepts of Brand Identity and Positioning

Concepts of Brand Identity and Positioning A brand is not the name of a product. It is the vision that drives the creation of products and services under that name. That vision, the key belief of the brands and its core values is called identity. It drives vibrant brands able to create advocates, a real cult and loyalty. Modern competition calls for two essential tools of brand management: ‘brand identity, specifying the facets of brands uniqueness and value, and ‘brand positioning, the main difference creating preference in a specific market at a specific time for its products. For existing brands, identity is the source of brand positioning. Brand positioning specifies the angle used by the products of that brand to attack a market in order to grow their market share at the expense of competition. Defining what a brand is made of helps answer many questions that are asked every day, such as: Can the brand sponsor such and such event or sport? Does the advertising campaign suit the brand? Is the opportunity for launching a new product inside the brands boundaries or outside? How can the brand change its communication style, yet remain true to itself? How can decision making in communications be decentralised regionally or internationally, without jeopardising brand congruence? All such decisions pose the problem of brand identity and definition which are essential prerequisites for efficient brand management. Brand identity: a necessary concept Like the ideas of brand vision and purpose, the concept of brand identity is recent. It started in Europe (Kapferer, 1986).The perception of its paramount importance has slowly gained worldwide recognition; in the most widely read American book on brand equity (Aaker, 1991), the word ‘identity is in fact totally absent, as is the concept. Today, most advanced marketing companies have specified the identity of their brand through proprietary models such as ‘brand key (Unilever), ‘footprint (Johnson Johnson), ‘bulls eyes and ‘brand stewardship, which organise in a specific form a list of concepts related to brand identity. However, they are rather checklists. Is identity a sheer linguistic novelty, or is it essential to understanding what brands are? What is identity? To appreciate the meaning of this significant concept in brand management, we shall begin by considering the many ways in which the word is used today. For example, we speak of ‘identity cards a personal, non-transferable document that tells in a few words who we are, what our name is and what distinguishable features we have that can be instantly recognised. We also hear of ‘identity of opinion between several people, meaning that they have an identical point of view. In terms of communication, this second interpretation of the word suggests brand identity is the common element sending a single message amid the wide variety of its products, actions and communications. This is important since the more the brand expands and diversifies, the more customers are inclined to feel that they are, in fact, dealing with several different brands rather than a single one. If products and communication go their separate ways, how can customers possibly perceive these different routes as converging towards a common vision and brand? Speaking of identical points of view also raises the question of permanence and continuity. As civil status and physical appearance change, identity cards get updated, yet the fingerprint of their holders always remains the same. The identity concept questions how time will affect the unique and permanent quality of the sender, the brand or the retailer. In this respect, psychologists speak of the ‘identity crisis which adolescents often go through. When their identity structure is still weak, teenagers tend to move from one role model to another. These constant shifts create a gap and force the basic question: ‘What is the real me? Finally, in studies on social groups or minorities, we often speak of ‘cultural identity. In seeking an identity, they are in fact seeking a pivotal basis on which to hinge not only their inherent difference but also their membership of a specific cultural entity. Brand identity may be a recent notion, but many researchers have already delved into the organisational identity of companies (Schwebig, 1988; Moingeon and Soenen, 2003). There, the simplest verbal expression of identity often consists in saying: ‘Oh, yes, I see, but its not the same in our company! In other words, corporate identity is what helps an organisation, or a part of it, feel that it truly exists and that it is a coherent and unique being, with a history and a place of its own, different from others. From these various meanings, we can infer that having an identity means being your true self, driven by a personal goal that is both different from others and resistant to change. Thus, brand identity will be clearly defined once the following questions are answered: What is the brands particular vision and aim? What makes it different? What need is the brand fulfilling? What is its permanent nature? What are its value or values? What is its field of competence? Of legitimacy? What are the signs which make the brand recognisable? These questions could indeed constitute the brands charter. This type of official document would help better brand management in the medium term, both in terms of form and content, and so better address future communication and extension issues. Communication tools such as the copy strategy are essentially linked to advertising campaigns, and so are only committed to the short term. There must be specific guidelines to ensure that there is indeed only one brand forming a solid and coherent entity. Brand identity and graphic identity charters Many readers will make the point that their firms already make use of graphic identity ‘bibles, either for corporate or specific brand purposes. We do indeed find many graphic identity charters, books of standards and visual identity guides. Urged on by graphic identity agencies, companies have rightly sought to harmonise the messages conveyed by their brands. Such charters therefore define the norms for visual recognition of the brand, ie the brands colours, graphic design and type of print. Although this may be a necessary first step, it isnt the be all and end all. Moreover, it puts the cart before the horse. What really matters is the key message that we want to communicate. Formal aspects, outward appearance and overall looks result from the brands core substance and intrinsic identity. Choosing symbols requires a clear definition of what the brand means. However, while graphic manuals are quite easy to find nowadays, explicit definitions of brand identity per se are still very rare. Yet, the essential questions above (ie the nature of the identity to be conveyed) must be properly answered before we begin discussing and defining what the communication means and what the codes of outward recognition should be. The brands deepest values must be reflected in the external signs of recognition, and these must be apparent at first glance. The family resemblance between the various models of BMW conveys a strong identity, yet it is not the identity. This brands identity and essence can actually be defined by addressing the issue of its difference, its permanence, its value and its personal view on automobiles. Many firms have unnecessarily constrained their brand because they formulated a graphic charter before defining their identity. Not knowing who they really are, they merely perpetuate purely formal codes by, for example, using a certain photographic style that may not be the most suitable. Thus Nina Riccis identity did not necessarily relate to the companys systematic adherence to English photographer David Hamiltons style. Knowing brand identity paradoxically gives extra freedom of expression, since it emphasises the pre-eminence of substance over strictly formal features. Brand identity defines what must stay and what is free to change. Brands are living systems. They must have degrees of freedom to match modern market diversity. Identity: a contemporary concept That a new concept identity has emerged in the field of management, already well versed in brand image and positioning, is really no great surprise. Todays problems are more complex than those of 10 or 20 years ago and so there is now a need for more refined concepts that allow a closer connection with reality. First of all, we cannot overemphasise the fact that we are currently living in a society saturated in communications. Everybody wants to communicate these days. If needed, proof is available: there have been huge increases in advertising budgets, not only in the major media but also in the growing number of professional magazines. It has become very difficult to survive in the hurly-burly thus created, let alone to thrive and successfully convey ones identity. For communication means two things: sending out messages and making sure that they are received. Communicating nowadays is no longer just a technique, it is a feat in itself. The second factor explaining the urgent need to understand brand identity is the pressure constantly put on brands. We have now entered an age of marketing similarities. When a brand innovates, it creates a new standard. The other brands must then catch up if they want to stay in the race, hence the increasing number of ‘me-too products with similar attributes, not to mention the copies produced by distributors. Regulations also cause similarities to spread. Bank operations, for example, have become so much alike that banks are now unable to fully express their individuality and identity. Market research also generates herdism within a given sector. As all companies base themselves on the same life-style studies, the conclusions they reach are bound to be similar as are the products and advertising campaigns they launch, in which sometimes even the same words are used. Finally, technology is responsible for growing similarity. Why do cars increasingly look alike, in spite of their different makes? Because car makers are all equally concerned about fluidity, inner car space constraints, motorisation and economy, and these problems cannot be solved in all that many different ways. Moreover, when the models of four car brands (Audi, Volkswagen, Seat and Skoda) share many identical parts (eg chassis, engine, gearbox), for either productivity or competitiveness purposes, it is mainly brand identity, along with, to a lesser extent, whats left of each car, which will distinguish the makes from one another. Diversification calls for knowing the brands identity. Brands launch new products, penetrate new markets and reach new targets. This may cause both fragmented communications and patchwork images. Though we are still able to discern bits and pieces of the brand here and there, we are certainly unable to perceive its global and coherent identity. Why speak of identity rather than image? What does the notion of identity have to offer that the image of a brand or a company or a retailer doesnt have? After all, firms spend large amounts of money measuring image. Brand image is on the receivers side. Image research focuses on the way in which certain groups perceive a product, a brand, a politician, a company or a country. The image refers to the way in which these groups decode all of the signals emanating from the products, services and communication covered by the brand. Identity is on the senders side. The purpose, in this case, is to specify the brands meaning, aim and self-image. Image is both the result and interpretation thereof. In terms of brand management, identity precedes image. Before projecting an image to the public, we must know exactly what we want to project. Before it is received, we must know what to send and how to send it. As shown in Figure 7.1, an image is a synthesis made by the public of all the various brand messages, eg brand name, visual symbols, products, advertisements, sponsoring, patronage, articles. An image results from decoding a message, extracting meaning, interpreting signs. Where do all these signs come from? There are two possible sources: brand identity of course, but also extraneous factors (‘noise) that speak in the brands name and thus produce meaning, however disconnected they may actually be from it. What are these extraneous factors? First, there are companies that choose to imitate competitors, as they have no clear idea of what their own brand identity is. They focus on their competitors and imitate their marketing communication. Second, there are companies that are obsessed with the willingness to build an appealing image that will be favourably perceived by all. So they focus on meeting every one of the publics expectations. That is how the brand gets caught in the game of always having to please the consumer and ends up surfing on the changing waves of social and cultural fads. Yesterday, brands were into glamour, today, they are into ‘cocooning; so whats next? The brand can appear opportunistic and popularity seeking, and thus devoid of any meaningful substance. It becomes a mere faà §ade, a meaningless cosmetic camouflage. The third source of ‘noise is that of fantasised identity: the brand as one would ideally like to see it, but not as it actually is. As a result, we notice, albeit too late, that the advertisements do not help people remember the brand because they are either too remotely connected to it or so radically disconnected from it that they cause perplexity or rejection. Since brand identity has now been recognised as the prevailing concept, these three potential communication glitches can be prevented. The identity concept thus serves to emphasise the fact that, with time, brands do eventually gain their independence and their own meaning, even though they may start out as mere product names. As living memories of past products and advertisements, brands do not simply fade away: they define their own area of competence, potential and legitimacy. Yet they also know when to stay out of other areas. We cannot expect a brand to be anything other than itself. Obviously, brands should not curl up in a shell and cut themselves off from the public and from market evolutions. However, an obsession with image can lead them to capitalise too much on appearance and not enough on essence. Identity and positioning It is also common to distinguish brands according to their positioning. Positioning a brand means emphasising the distinctive characteristics that make it different from its competitors and appealing to the public. It results from an analytical process based on the four following questions: A brand for what benefit? This refers to the brand promise and consumer benefit aspect: Orangina has real orange pulp, The Body Shop is environment friendly, Twix gets rid of hunger, Volkswagen is reliable. A brand for whom? This refers to the target aspect. For a long time, Schweppes was the drink of the refined, Snapple the soft drink for adults, Tango or Yoohoo the drink for teenagers. Reason? This refers to the elements, factual or subjective, that support the claimed benefit. A brand against whom? In todays competitive context, this question defines the main competitor(s), ie those whose clientele we think we can partly capture. Tuborg and other expensive imported beers thus also compete against whisky, gin and vodka. Positioning is a crucial concept (Figure 7.2). It reminds us that all consumer choices are made on the basis of comparison. Thus, a product will only be considered if it is clearly part of a selection process. Hence the four questions that help position the new product or brand and make its contribution immediately obvious to the customer. Positioning is a two-stage process: First, indicate to what ‘competitive set the brand should be associated and compared. Second, indicate what the brands essential difference and raison dà ªtre is in comparison to the other products and brands of that set. Choosing the competitive set is essential. While this may be quite easy to do for a new toothpaste, it is not so for very original and unique products. The Gaines burger launched by the Gaines company, for instance, was a new dog food, a semi-dehydrated product presented as red ground meat in a round shape like a hamburger. Unlike normal canned pet foods, moreover, it did not need to be refrigerated, nor did it exude that normal open-can smell. Given these characteristics, the product could be positioned in several different ways, for example by: Attacking the canned pet food market by appealing to well-to-do dog owners. The gist of the message would then be ‘the can without the can, in other words, the benefits of meat without its inconveniences (smell, freshness constraints, etc). Attacking the dehydrated pet food segment (dried pellets) by offering a product that would help the owner not to feel guilty for not giving meat to the dog on the basis that it is just not practical. The fresh-ground, round look could justify this positioning. Targeting owners who feed leftovers to their dogs by presenting Gaines as a complete, nutritious supplement (and no longer as a main meal as in the two former strategies). Targeting all dog owners by presenting this product as a nutritious treat, a kind of doggy Mars bar. The choice between these alternative strategies was made by assessing each one against certain measurable criteria (Table 7.1). The firm ended up choosing the first positioning and launched this product as the ‘Gaines burger. What does the identity concept add to that of positioning? Why do we even need another concept? In the first place, because positioning focuses more on the product itself. What then does positioning mean in the case of a multiproduct brand? How can these four questions on positioning be answered if we are not focusing on one particular product category? We know how to position the various Scotchbrite scrubbing pads as well as the Scotch videotapes, but what does the positioning concept mean for the Scotch brand as a whole, not to mention the 3M corporate brand? This is precisely where the concept of brand identity comes in handy. Second, positioning does not reveal all the brands richness of meaning nor reflect all of its potential. The brand is restricted once reduced to four questions. Positioning does not help fully differentiate Coca-Cola from Pepsi-Cola. The four positioning questions thus fail to encapsulate such nuances. They do not allow us to fully explore the identity and singularity of the brand. Worse still, positioning allows communication to be entirely dictated by creative whims and current fads. Positioning does not say a word about communication style, form or spirit. This is a major deficiency since brands have the gift of speech: they state both the objective and subjective qualities of a given product. The speech they deliver in these days of multimedia supremacy is made of words, of course, but even more of pictures, sounds, colours, movement and style. Positioning controls the words only, leaving the rest up to the unpredictable outcome of creative hunches and pretests. Yet brand language should never result from creativity only. It expresses the brands personality and values. Creative hunches are only useful if they are consistent with the brands legitimate territory. Furthermore, though pretest evaluations are needed to verify that the brands message is well received, the public should not be allowed to dictate brand language: its style needs to be found within itself. Brand uniqueness often tends to get eroded by consumer expectations and thus starts regressing to a level at which it risks losing its identity. Table 7.1 How to evaluate and choose a brand positioning Are the products current looks and ingredients compatible with this positioning? How strong is the assumed consumer motivation behind this positioning? (what insight?) What size of market is involved by such a positioning? Is this positioning credible? Does it capitalise on a competitors actual or latent durable weakness? What financial means are required by such a positioning? Is this positioning specific and distinctive? Is this a sustainable positioning which cannot be imitated by competitors? Does this positioning leave any possibility for an alternative solution in case of failure? Does this positioning justify a price premium? Is there a growth potential under this positioning? A brands message is the outward expression of the brands inner substance. Thus we can no longer dissociate brand substance from brand style, ie from its verbal, visual and musical attributes. Brand identity provides the framework for overall brand coherence. It is a concept that serves to offset the limitations of positioning and to monitor the means of expression, the unity and durability of a brand. Why brands need identity and positioning A brands positioning is a key concept in its management. It is based on one fundamental principle: all choices are comparative. Remember that identity expresses the brands tangible and intangible characteristics everything that makes the brand what it is, and without which it would be something different. Identity draws upon the brands roots and heritage everything that gives it its unique authority and legitimacy within a realm of precise values and benefits. Positioning is competitive: when it comes to brands, customers make a choice, but with products, they make a comparison. This raises two questions. First, what do they compare it with? For this, we need to look at the field of competition: what area do we want to be considered as part of? Second, what are we offering the customer as a key decision-making factor? A brand that does not position itself leaves these two questions unanswered. It is a mistake to suppose that customers will find answers themselves: there are too many choices available today for customers to make the effort to work out what makes a particular brand specific. Communicating this information is the responsibility of the brand. Remember, products increase customer choice; brands simplify it. This is why a brand that does not want to stand for something stands for nothing. The aim of positioning is to identify, and take possession of, a strong purchasing rationale that gives us a real or perceived advantage. It implies a desire to take up a long-term position and defend it. Positioning is competition-oriented: it specifies the best way to attack competitors market share. It may change through time: one grows by expanding the field of competition. Identity is more stable and long-lasting, for it is tied to the brand roots and fixed parameters. Thus Cokes positioning was ‘the original as long as it competed against other colas. To grow the business, it now competes against all soft drinks: its positioning is ‘the most refreshing bond between people of the world, whereas its identity remains ‘the symbol of America, the essence of the American way of life. How is positioning achieved? The standard positioning formula is as follows: For †¦ (definition of target market) Brand X is †¦ (definition of frame of reference and subjective category) Which gives the most †¦ (promise or consumer benefit) Because of †¦ (reason to believe). Let us look at these points in detail. The target specifies the nature and psycho-logical or sociological profile of the individuals to be influenced, that is, buyers or potential consumers. The frame of reference is the subjective definition of the category, which will specify the nature of the competition. What other brands or products effectively serve the same purpose? This is a strategic decision: it marks out the ‘field of battle. It must not under any circumstances be confused with the objective description of the product or category. For example, there is no real rum market in the UK, yet Bacardi is very popular. This is because it is perfectly possible to drink Bacardi without realising that it is a rum: it is the party mixer par excellence. Another example illustrates the strategic importance of defining the frame of reference. Objectively speaking, Perrier is fizzy mineral water. Subjectively, however, it is also a drink for adults. Seen in the light of this field of reference, it acquires its strongest competitive advantage: a slight natural quirkiness. As we can see, the choice of the field of competition should be informed by the strategic value of that field: how big, how fast growing, how profitable? But it also lends the brand a competitive advantage through its identity and potential. Perceived as water for the table, Perrier has no significant competitive advantage over other fizzy mineral waters, even though this market is a very large one. However, when viewed in relation to a field of competition defined as ‘drinks for adults, Perrier becomes competitive again: it has strong differentiating advantages. What are its competitors? They include alcoholic drinks, Diet Coke, Schweppes and tomato juice. The third point specifies the aspect of difference which creates the preference and the choice of a decisive competitive advantage: it may be expressed in terms of a promise (for instance, Volvo is the strongest of all cars) or a benefit (such as, Volvo is the ‘safety brand). The fourth point reinforces the promise or benefit, and is known as the ‘reason to believe. For example, in the case of the Dove brand, which promises to be the most moisturising, the reason is that all of its products contain 25 per cent of moisturising cream. Positioning is a necessary concept, first because all choices are comparative, and so it makes sense to start off by stating the area in which we are strongest; and second because in marketing, perception is reality. Positioning is a concept which starts with customers, by putting ourselves in their place: faced with a plethora of brands, are consumers able to identify the strong point of each, the factor that distinguishes it from the rest? This is why, ideally, a customer should be capable of paraphrasing a brands positioning: ‘Only Brand X will do this for me, because it has, or it is †¦ No instrument is entirely neutral. The above formula was created by companies such as Kraft-General Foods, Procter Gamble, and Unilever. It is designed for businesses that base competitive advantage on their products, and works perfectly for the lOrà ©al Group which, with its 2,500 researchers worldwide, only ever launches new products if they are of demonstrably superior performance. This fact is then promoted through advertising. There are cases where the brand makes no promise, or where the benefit it brings could sound trivial. For example, how would you define the positioning of a perfume such as Obsession by Calvin Klein in a way that clearly represented its true nature and originality? It would be wrong to claim that Obsession makes any specific promise to its customers, or that they will obtain any particular benefit from the product apart from feeling good (a property which is common to all perfumes). In reality, Obsessions attractiveness stems from its imagery, the imaginary world of subversive androgyny which it embodies. In the same way, Mugler appeals to young people through its inherently neofuturistic world, and Chanel stands for timeless elegance. What actually sells these perfumes is the satisfaction derived from participating in the symbolic world of the brand. The same is true of alcohol and spirits: Jack Daniels is selling a symbolic participation in an eternal, authentic untamed America. To say that Jack Daniels is selling the satisfaction of being the finest choice would be a mere commonplace, like the tired old clichà © that customers are satisfied at having made a choice that set them apart from the masses (a classic benefit stated by small brands attempting to emphasise their advantage over large ones). Faced with this conceptual dilemma, there are three possible approaches. The first of these is to define positioning as the sum of every point that differentiates the brand. This has been Unilevers approach: the 60page mini-opus known as the Brand Key, which explains how to define a brand across the entire world, starts with the phrase: ‘Brand Key builds on and replaces the brand positioning statement †¦. There are eight headings to Brand Key: 1. The competitive environment. 2. The target. 3. The consumer insight on which the brand is based. 4. The benefits brought by the brand. 5. Brand values and personality. 6. The reasons to believe. 7. The discriminator (single most compelling reason to choose). 8. The brand essence. Fundamentally, therefore, this collection forms the positioning of a brand. However, the concept that most closely resembles positioning in the strict sense of the word is referred to here as the ‘discriminator. McDonalds also adopts a similar reasoning (see Figure 7.3). Larry Light defends the idea that positioning is defined when this chain of means-ends is completed (this is a parallel concept to the ‘ladder moving from the tangible to the intangible): My position is that two tools are needed to manage the brand. One defines the brands identity, while the other is competitive and specifies the competitive proposition made at any given time in any given market. This is the brands unique compelling competitive proposition (UCCP). Thus the tool called ‘brand platform will comprise, first, the ‘brand identity, that is to say, brand uniqueness and singularity throughout the world and whatever the product. Brand identity has six facets, and is therefore larger than the mere positioning. It is represented by the identity prism. At its centre one finds the brand essence, the central value it symbolises. Second, the brand platform comprises ‘brand positioning: choosing a market means choosing a specific angle to attack it. Brand positioning must be based on a customer insight relevant to this market. Brand positioning exploits one of the brand identity facets. Positioning can be summed up in four key questions: for whom, why, when and against whom? It can be represented in the form of a diamond, the ‘positioning diamond (see Figure 7.2, page 176). In positioning, the brand/product makes a proposition, plus (necessarily) a promise. The proposition may additionally be supported by a ‘reason to believe, but this is not essential. Marlboro presents its smoker as a man a real man, symbolised by the untamed cowboy of the Wild West. No support is offered for this proposition; no proof is necessary. It is true because the brand says so. And the more often it is repeated, the more credible it becomes. In this way the brands proposition, which forms the basis of the chosen positioning at a given moment in a particular market, may be fuelled by various ‘edges contained within the brands identity: a differentiating attribute (25 per cent moisturising cream in Dove, the smoothness and bite of Mars bars, the bubbles of Perrier); an objective benefit: an iMac is user friendly, Dell offers unbeatable value for money; a subjective benefit: you feel secure with IBM; an aspect of the brands personality: the mystery of the Bacardi bat, Jack Daniels is macho, Axe/Lynx is cool; Concepts of Brand Identity and Positioning Concepts of Brand Identity and Positioning A brand is not the name of a product. It is the vision that drives the creation of products and services under that name. That vision, the key belief of the brands and its core values is called identity. It drives vibrant brands able to create advocates, a real cult and loyalty. Modern competition calls for two essential tools of brand management: ‘brand identity, specifying the facets of brands uniqueness and value, and ‘brand positioning, the main difference creating preference in a specific market at a specific time for its products. For existing brands, identity is the source of brand positioning. Brand positioning specifies the angle used by the products of that brand to attack a market in order to grow their market share at the expense of competition. Defining what a brand is made of helps answer many questions that are asked every day, such as: Can the brand sponsor such and such event or sport? Does the advertising campaign suit the brand? Is the opportunity for launching a new product inside the brands boundaries or outside? How can the brand change its communication style, yet remain true to itself? How can decision making in communications be decentralised regionally or internationally, without jeopardising brand congruence? All such decisions pose the problem of brand identity and definition which are essential prerequisites for efficient brand management. Brand identity: a necessary concept Like the ideas of brand vision and purpose, the concept of brand identity is recent. It started in Europe (Kapferer, 1986).The perception of its paramount importance has slowly gained worldwide recognition; in the most widely read American book on brand equity (Aaker, 1991), the word ‘identity is in fact totally absent, as is the concept. Today, most advanced marketing companies have specified the identity of their brand through proprietary models such as ‘brand key (Unilever), ‘footprint (Johnson Johnson), ‘bulls eyes and ‘brand stewardship, which organise in a specific form a list of concepts related to brand identity. However, they are rather checklists. Is identity a sheer linguistic novelty, or is it essential to understanding what brands are? What is identity? To appreciate the meaning of this significant concept in brand management, we shall begin by considering the many ways in which the word is used today. For example, we speak of ‘identity cards a personal, non-transferable document that tells in a few words who we are, what our name is and what distinguishable features we have that can be instantly recognised. We also hear of ‘identity of opinion between several people, meaning that they have an identical point of view. In terms of communication, this second interpretation of the word suggests brand identity is the common element sending a single message amid the wide variety of its products, actions and communications. This is important since the more the brand expands and diversifies, the more customers are inclined to feel that they are, in fact, dealing with several different brands rather than a single one. If products and communication go their separate ways, how can customers possibly perceive these different routes as converging towards a common vision and brand? Speaking of identical points of view also raises the question of permanence and continuity. As civil status and physical appearance change, identity cards get updated, yet the fingerprint of their holders always remains the same. The identity concept questions how time will affect the unique and permanent quality of the sender, the brand or the retailer. In this respect, psychologists speak of the ‘identity crisis which adolescents often go through. When their identity structure is still weak, teenagers tend to move from one role model to another. These constant shifts create a gap and force the basic question: ‘What is the real me? Finally, in studies on social groups or minorities, we often speak of ‘cultural identity. In seeking an identity, they are in fact seeking a pivotal basis on which to hinge not only their inherent difference but also their membership of a specific cultural entity. Brand identity may be a recent notion, but many researchers have already delved into the organisational identity of companies (Schwebig, 1988; Moingeon and Soenen, 2003). There, the simplest verbal expression of identity often consists in saying: ‘Oh, yes, I see, but its not the same in our company! In other words, corporate identity is what helps an organisation, or a part of it, feel that it truly exists and that it is a coherent and unique being, with a history and a place of its own, different from others. From these various meanings, we can infer that having an identity means being your true self, driven by a personal goal that is both different from others and resistant to change. Thus, brand identity will be clearly defined once the following questions are answered: What is the brands particular vision and aim? What makes it different? What need is the brand fulfilling? What is its permanent nature? What are its value or values? What is its field of competence? Of legitimacy? What are the signs which make the brand recognisable? These questions could indeed constitute the brands charter. This type of official document would help better brand management in the medium term, both in terms of form and content, and so better address future communication and extension issues. Communication tools such as the copy strategy are essentially linked to advertising campaigns, and so are only committed to the short term. There must be specific guidelines to ensure that there is indeed only one brand forming a solid and coherent entity. Brand identity and graphic identity charters Many readers will make the point that their firms already make use of graphic identity ‘bibles, either for corporate or specific brand purposes. We do indeed find many graphic identity charters, books of standards and visual identity guides. Urged on by graphic identity agencies, companies have rightly sought to harmonise the messages conveyed by their brands. Such charters therefore define the norms for visual recognition of the brand, ie the brands colours, graphic design and type of print. Although this may be a necessary first step, it isnt the be all and end all. Moreover, it puts the cart before the horse. What really matters is the key message that we want to communicate. Formal aspects, outward appearance and overall looks result from the brands core substance and intrinsic identity. Choosing symbols requires a clear definition of what the brand means. However, while graphic manuals are quite easy to find nowadays, explicit definitions of brand identity per se are still very rare. Yet, the essential questions above (ie the nature of the identity to be conveyed) must be properly answered before we begin discussing and defining what the communication means and what the codes of outward recognition should be. The brands deepest values must be reflected in the external signs of recognition, and these must be apparent at first glance. The family resemblance between the various models of BMW conveys a strong identity, yet it is not the identity. This brands identity and essence can actually be defined by addressing the issue of its difference, its permanence, its value and its personal view on automobiles. Many firms have unnecessarily constrained their brand because they formulated a graphic charter before defining their identity. Not knowing who they really are, they merely perpetuate purely formal codes by, for example, using a certain photographic style that may not be the most suitable. Thus Nina Riccis identity did not necessarily relate to the companys systematic adherence to English photographer David Hamiltons style. Knowing brand identity paradoxically gives extra freedom of expression, since it emphasises the pre-eminence of substance over strictly formal features. Brand identity defines what must stay and what is free to change. Brands are living systems. They must have degrees of freedom to match modern market diversity. Identity: a contemporary concept That a new concept identity has emerged in the field of management, already well versed in brand image and positioning, is really no great surprise. Todays problems are more complex than those of 10 or 20 years ago and so there is now a need for more refined concepts that allow a closer connection with reality. First of all, we cannot overemphasise the fact that we are currently living in a society saturated in communications. Everybody wants to communicate these days. If needed, proof is available: there have been huge increases in advertising budgets, not only in the major media but also in the growing number of professional magazines. It has become very difficult to survive in the hurly-burly thus created, let alone to thrive and successfully convey ones identity. For communication means two things: sending out messages and making sure that they are received. Communicating nowadays is no longer just a technique, it is a feat in itself. The second factor explaining the urgent need to understand brand identity is the pressure constantly put on brands. We have now entered an age of marketing similarities. When a brand innovates, it creates a new standard. The other brands must then catch up if they want to stay in the race, hence the increasing number of ‘me-too products with similar attributes, not to mention the copies produced by distributors. Regulations also cause similarities to spread. Bank operations, for example, have become so much alike that banks are now unable to fully express their individuality and identity. Market research also generates herdism within a given sector. As all companies base themselves on the same life-style studies, the conclusions they reach are bound to be similar as are the products and advertising campaigns they launch, in which sometimes even the same words are used. Finally, technology is responsible for growing similarity. Why do cars increasingly look alike, in spite of their different makes? Because car makers are all equally concerned about fluidity, inner car space constraints, motorisation and economy, and these problems cannot be solved in all that many different ways. Moreover, when the models of four car brands (Audi, Volkswagen, Seat and Skoda) share many identical parts (eg chassis, engine, gearbox), for either productivity or competitiveness purposes, it is mainly brand identity, along with, to a lesser extent, whats left of each car, which will distinguish the makes from one another. Diversification calls for knowing the brands identity. Brands launch new products, penetrate new markets and reach new targets. This may cause both fragmented communications and patchwork images. Though we are still able to discern bits and pieces of the brand here and there, we are certainly unable to perceive its global and coherent identity. Why speak of identity rather than image? What does the notion of identity have to offer that the image of a brand or a company or a retailer doesnt have? After all, firms spend large amounts of money measuring image. Brand image is on the receivers side. Image research focuses on the way in which certain groups perceive a product, a brand, a politician, a company or a country. The image refers to the way in which these groups decode all of the signals emanating from the products, services and communication covered by the brand. Identity is on the senders side. The purpose, in this case, is to specify the brands meaning, aim and self-image. Image is both the result and interpretation thereof. In terms of brand management, identity precedes image. Before projecting an image to the public, we must know exactly what we want to project. Before it is received, we must know what to send and how to send it. As shown in Figure 7.1, an image is a synthesis made by the public of all the various brand messages, eg brand name, visual symbols, products, advertisements, sponsoring, patronage, articles. An image results from decoding a message, extracting meaning, interpreting signs. Where do all these signs come from? There are two possible sources: brand identity of course, but also extraneous factors (‘noise) that speak in the brands name and thus produce meaning, however disconnected they may actually be from it. What are these extraneous factors? First, there are companies that choose to imitate competitors, as they have no clear idea of what their own brand identity is. They focus on their competitors and imitate their marketing communication. Second, there are companies that are obsessed with the willingness to build an appealing image that will be favourably perceived by all. So they focus on meeting every one of the publics expectations. That is how the brand gets caught in the game of always having to please the consumer and ends up surfing on the changing waves of social and cultural fads. Yesterday, brands were into glamour, today, they are into ‘cocooning; so whats next? The brand can appear opportunistic and popularity seeking, and thus devoid of any meaningful substance. It becomes a mere faà §ade, a meaningless cosmetic camouflage. The third source of ‘noise is that of fantasised identity: the brand as one would ideally like to see it, but not as it actually is. As a result, we notice, albeit too late, that the advertisements do not help people remember the brand because they are either too remotely connected to it or so radically disconnected from it that they cause perplexity or rejection. Since brand identity has now been recognised as the prevailing concept, these three potential communication glitches can be prevented. The identity concept thus serves to emphasise the fact that, with time, brands do eventually gain their independence and their own meaning, even though they may start out as mere product names. As living memories of past products and advertisements, brands do not simply fade away: they define their own area of competence, potential and legitimacy. Yet they also know when to stay out of other areas. We cannot expect a brand to be anything other than itself. Obviously, brands should not curl up in a shell and cut themselves off from the public and from market evolutions. However, an obsession with image can lead them to capitalise too much on appearance and not enough on essence. Identity and positioning It is also common to distinguish brands according to their positioning. Positioning a brand means emphasising the distinctive characteristics that make it different from its competitors and appealing to the public. It results from an analytical process based on the four following questions: A brand for what benefit? This refers to the brand promise and consumer benefit aspect: Orangina has real orange pulp, The Body Shop is environment friendly, Twix gets rid of hunger, Volkswagen is reliable. A brand for whom? This refers to the target aspect. For a long time, Schweppes was the drink of the refined, Snapple the soft drink for adults, Tango or Yoohoo the drink for teenagers. Reason? This refers to the elements, factual or subjective, that support the claimed benefit. A brand against whom? In todays competitive context, this question defines the main competitor(s), ie those whose clientele we think we can partly capture. Tuborg and other expensive imported beers thus also compete against whisky, gin and vodka. Positioning is a crucial concept (Figure 7.2). It reminds us that all consumer choices are made on the basis of comparison. Thus, a product will only be considered if it is clearly part of a selection process. Hence the four questions that help position the new product or brand and make its contribution immediately obvious to the customer. Positioning is a two-stage process: First, indicate to what ‘competitive set the brand should be associated and compared. Second, indicate what the brands essential difference and raison dà ªtre is in comparison to the other products and brands of that set. Choosing the competitive set is essential. While this may be quite easy to do for a new toothpaste, it is not so for very original and unique products. The Gaines burger launched by the Gaines company, for instance, was a new dog food, a semi-dehydrated product presented as red ground meat in a round shape like a hamburger. Unlike normal canned pet foods, moreover, it did not need to be refrigerated, nor did it exude that normal open-can smell. Given these characteristics, the product could be positioned in several different ways, for example by: Attacking the canned pet food market by appealing to well-to-do dog owners. The gist of the message would then be ‘the can without the can, in other words, the benefits of meat without its inconveniences (smell, freshness constraints, etc). Attacking the dehydrated pet food segment (dried pellets) by offering a product that would help the owner not to feel guilty for not giving meat to the dog on the basis that it is just not practical. The fresh-ground, round look could justify this positioning. Targeting owners who feed leftovers to their dogs by presenting Gaines as a complete, nutritious supplement (and no longer as a main meal as in the two former strategies). Targeting all dog owners by presenting this product as a nutritious treat, a kind of doggy Mars bar. The choice between these alternative strategies was made by assessing each one against certain measurable criteria (Table 7.1). The firm ended up choosing the first positioning and launched this product as the ‘Gaines burger. What does the identity concept add to that of positioning? Why do we even need another concept? In the first place, because positioning focuses more on the product itself. What then does positioning mean in the case of a multiproduct brand? How can these four questions on positioning be answered if we are not focusing on one particular product category? We know how to position the various Scotchbrite scrubbing pads as well as the Scotch videotapes, but what does the positioning concept mean for the Scotch brand as a whole, not to mention the 3M corporate brand? This is precisely where the concept of brand identity comes in handy. Second, positioning does not reveal all the brands richness of meaning nor reflect all of its potential. The brand is restricted once reduced to four questions. Positioning does not help fully differentiate Coca-Cola from Pepsi-Cola. The four positioning questions thus fail to encapsulate such nuances. They do not allow us to fully explore the identity and singularity of the brand. Worse still, positioning allows communication to be entirely dictated by creative whims and current fads. Positioning does not say a word about communication style, form or spirit. This is a major deficiency since brands have the gift of speech: they state both the objective and subjective qualities of a given product. The speech they deliver in these days of multimedia supremacy is made of words, of course, but even more of pictures, sounds, colours, movement and style. Positioning controls the words only, leaving the rest up to the unpredictable outcome of creative hunches and pretests. Yet brand language should never result from creativity only. It expresses the brands personality and values. Creative hunches are only useful if they are consistent with the brands legitimate territory. Furthermore, though pretest evaluations are needed to verify that the brands message is well received, the public should not be allowed to dictate brand language: its style needs to be found within itself. Brand uniqueness often tends to get eroded by consumer expectations and thus starts regressing to a level at which it risks losing its identity. Table 7.1 How to evaluate and choose a brand positioning Are the products current looks and ingredients compatible with this positioning? How strong is the assumed consumer motivation behind this positioning? (what insight?) What size of market is involved by such a positioning? Is this positioning credible? Does it capitalise on a competitors actual or latent durable weakness? What financial means are required by such a positioning? Is this positioning specific and distinctive? Is this a sustainable positioning which cannot be imitated by competitors? Does this positioning leave any possibility for an alternative solution in case of failure? Does this positioning justify a price premium? Is there a growth potential under this positioning? A brands message is the outward expression of the brands inner substance. Thus we can no longer dissociate brand substance from brand style, ie from its verbal, visual and musical attributes. Brand identity provides the framework for overall brand coherence. It is a concept that serves to offset the limitations of positioning and to monitor the means of expression, the unity and durability of a brand. Why brands need identity and positioning A brands positioning is a key concept in its management. It is based on one fundamental principle: all choices are comparative. Remember that identity expresses the brands tangible and intangible characteristics everything that makes the brand what it is, and without which it would be something different. Identity draws upon the brands roots and heritage everything that gives it its unique authority and legitimacy within a realm of precise values and benefits. Positioning is competitive: when it comes to brands, customers make a choice, but with products, they make a comparison. This raises two questions. First, what do they compare it with? For this, we need to look at the field of competition: what area do we want to be considered as part of? Second, what are we offering the customer as a key decision-making factor? A brand that does not position itself leaves these two questions unanswered. It is a mistake to suppose that customers will find answers themselves: there are too many choices available today for customers to make the effort to work out what makes a particular brand specific. Communicating this information is the responsibility of the brand. Remember, products increase customer choice; brands simplify it. This is why a brand that does not want to stand for something stands for nothing. The aim of positioning is to identify, and take possession of, a strong purchasing rationale that gives us a real or perceived advantage. It implies a desire to take up a long-term position and defend it. Positioning is competition-oriented: it specifies the best way to attack competitors market share. It may change through time: one grows by expanding the field of competition. Identity is more stable and long-lasting, for it is tied to the brand roots and fixed parameters. Thus Cokes positioning was ‘the original as long as it competed against other colas. To grow the business, it now competes against all soft drinks: its positioning is ‘the most refreshing bond between people of the world, whereas its identity remains ‘the symbol of America, the essence of the American way of life. How is positioning achieved? The standard positioning formula is as follows: For †¦ (definition of target market) Brand X is †¦ (definition of frame of reference and subjective category) Which gives the most †¦ (promise or consumer benefit) Because of †¦ (reason to believe). Let us look at these points in detail. The target specifies the nature and psycho-logical or sociological profile of the individuals to be influenced, that is, buyers or potential consumers. The frame of reference is the subjective definition of the category, which will specify the nature of the competition. What other brands or products effectively serve the same purpose? This is a strategic decision: it marks out the ‘field of battle. It must not under any circumstances be confused with the objective description of the product or category. For example, there is no real rum market in the UK, yet Bacardi is very popular. This is because it is perfectly possible to drink Bacardi without realising that it is a rum: it is the party mixer par excellence. Another example illustrates the strategic importance of defining the frame of reference. Objectively speaking, Perrier is fizzy mineral water. Subjectively, however, it is also a drink for adults. Seen in the light of this field of reference, it acquires its strongest competitive advantage: a slight natural quirkiness. As we can see, the choice of the field of competition should be informed by the strategic value of that field: how big, how fast growing, how profitable? But it also lends the brand a competitive advantage through its identity and potential. Perceived as water for the table, Perrier has no significant competitive advantage over other fizzy mineral waters, even though this market is a very large one. However, when viewed in relation to a field of competition defined as ‘drinks for adults, Perrier becomes competitive again: it has strong differentiating advantages. What are its competitors? They include alcoholic drinks, Diet Coke, Schweppes and tomato juice. The third point specifies the aspect of difference which creates the preference and the choice of a decisive competitive advantage: it may be expressed in terms of a promise (for instance, Volvo is the strongest of all cars) or a benefit (such as, Volvo is the ‘safety brand). The fourth point reinforces the promise or benefit, and is known as the ‘reason to believe. For example, in the case of the Dove brand, which promises to be the most moisturising, the reason is that all of its products contain 25 per cent of moisturising cream. Positioning is a necessary concept, first because all choices are comparative, and so it makes sense to start off by stating the area in which we are strongest; and second because in marketing, perception is reality. Positioning is a concept which starts with customers, by putting ourselves in their place: faced with a plethora of brands, are consumers able to identify the strong point of each, the factor that distinguishes it from the rest? This is why, ideally, a customer should be capable of paraphrasing a brands positioning: ‘Only Brand X will do this for me, because it has, or it is †¦ No instrument is entirely neutral. The above formula was created by companies such as Kraft-General Foods, Procter Gamble, and Unilever. It is designed for businesses that base competitive advantage on their products, and works perfectly for the lOrà ©al Group which, with its 2,500 researchers worldwide, only ever launches new products if they are of demonstrably superior performance. This fact is then promoted through advertising. There are cases where the brand makes no promise, or where the benefit it brings could sound trivial. For example, how would you define the positioning of a perfume such as Obsession by Calvin Klein in a way that clearly represented its true nature and originality? It would be wrong to claim that Obsession makes any specific promise to its customers, or that they will obtain any particular benefit from the product apart from feeling good (a property which is common to all perfumes). In reality, Obsessions attractiveness stems from its imagery, the imaginary world of subversive androgyny which it embodies. In the same way, Mugler appeals to young people through its inherently neofuturistic world, and Chanel stands for timeless elegance. What actually sells these perfumes is the satisfaction derived from participating in the symbolic world of the brand. The same is true of alcohol and spirits: Jack Daniels is selling a symbolic participation in an eternal, authentic untamed America. To say that Jack Daniels is selling the satisfaction of being the finest choice would be a mere commonplace, like the tired old clichà © that customers are satisfied at having made a choice that set them apart from the masses (a classic benefit stated by small brands attempting to emphasise their advantage over large ones). Faced with this conceptual dilemma, there are three possible approaches. The first of these is to define positioning as the sum of every point that differentiates the brand. This has been Unilevers approach: the 60page mini-opus known as the Brand Key, which explains how to define a brand across the entire world, starts with the phrase: ‘Brand Key builds on and replaces the brand positioning statement †¦. There are eight headings to Brand Key: 1. The competitive environment. 2. The target. 3. The consumer insight on which the brand is based. 4. The benefits brought by the brand. 5. Brand values and personality. 6. The reasons to believe. 7. The discriminator (single most compelling reason to choose). 8. The brand essence. Fundamentally, therefore, this collection forms the positioning of a brand. However, the concept that most closely resembles positioning in the strict sense of the word is referred to here as the ‘discriminator. McDonalds also adopts a similar reasoning (see Figure 7.3). Larry Light defends the idea that positioning is defined when this chain of means-ends is completed (this is a parallel concept to the ‘ladder moving from the tangible to the intangible): My position is that two tools are needed to manage the brand. One defines the brands identity, while the other is competitive and specifies the competitive proposition made at any given time in any given market. This is the brands unique compelling competitive proposition (UCCP). Thus the tool called ‘brand platform will comprise, first, the ‘brand identity, that is to say, brand uniqueness and singularity throughout the world and whatever the product. Brand identity has six facets, and is therefore larger than the mere positioning. It is represented by the identity prism. At its centre one finds the brand essence, the central value it symbolises. Second, the brand platform comprises ‘brand positioning: choosing a market means choosing a specific angle to attack it. Brand positioning must be based on a customer insight relevant to this market. Brand positioning exploits one of the brand identity facets. Positioning can be summed up in four key questions: for whom, why, when and against whom? It can be represented in the form of a diamond, the ‘positioning diamond (see Figure 7.2, page 176). In positioning, the brand/product makes a proposition, plus (necessarily) a promise. The proposition may additionally be supported by a ‘reason to believe, but this is not essential. Marlboro presents its smoker as a man a real man, symbolised by the untamed cowboy of the Wild West. No support is offered for this proposition; no proof is necessary. It is true because the brand says so. And the more often it is repeated, the more credible it becomes. In this way the brands proposition, which forms the basis of the chosen positioning at a given moment in a particular market, may be fuelled by various ‘edges contained within the brands identity: a differentiating attribute (25 per cent moisturising cream in Dove, the smoothness and bite of Mars bars, the bubbles of Perrier); an objective benefit: an iMac is user friendly, Dell offers unbeatable value for money; a subjective benefit: you feel secure with IBM; an aspect of the brands personality: the mystery of the Bacardi bat, Jack Daniels is macho, Axe/Lynx is cool;

Dividend Payout Decision Making Process

Dividend Payout Decision Making Process CHAPTER ONE INTRODUCTION Background: Dividend policy is an important component of the corporate financial management policy. It is a policy used by the firm to decide as to how much cash it should reinvest in its business through expansion or share repurchases and how much to pay out to its shareholders in dividends. Dividend is a payment or return made by the firm to the shareholders, (owners of the company) out of its earnings in the form of cash. For a long time, the subject of corporate dividend policy has captivated the interests of many academicians and researchers, resulting in the emergence of a number of theoretical explanations for dividend policy. For the investors, dividend serve as an important indicator of the strength and future prosperity of the business, thereby companies try to maintain a stable dividend because if they reduce their dividend payments, investors may suspect that the company is facing a cash flow problem. Investors prefer steady growth of dividends every year and are reluctant to investm ent to companies with fluctuating dividend policy. Over time, there has been a substantial increase in the number of factors identified in the literature as being important to be considered in making dividend decisions. Thus, extensive studies have been done to find out various factors affecting dividend payout ratio of a firm. However, there is no single explanation that can capture the puzzling reality of corporate dividend behavior. Ocean deep judgment is involved by decision makers to resolve this issue of dividend behavior. The decision of companies to retain or pay out the earnings in form of dividends is important for the maximization of the value of the firm (Oyejide, 1976). Therefore, companies should set a constructive target dividend payout ratio, where it pays dividends to its shareholders and at the same time maintains sufficient retained earnings as to avoid having raise funds by borrowing money. A tough challenge was faced by financial practitioners and many academics, when Miller and Modigliani (MM) (1961) came with a proposition that, given perfect capital markets, the dividend decision does not affect the firm value and is, therefore, irrelevant. This proposition was greeted with surprise because at that time it was universally acknowledged by both theorists and corporate managers that the firm can enhance its business value by providing for a more generous dividend policy and that a properly managed dividend policy had an impact on share prices and shareholder wealth. Since the MM study, many researchers have relaxed the assumption of perfect capital markets and stated theories about how managers should formulate dividend policy decisions. Problem Statement: Dividend policy has attracted a substantial amount of research by many researchers and theorists, who have provided theoretical as well as empirical observations, into the dividend puzzle (Black, 1976). Even though researchers and theorists have extended their studies in context to dividend decisions, the issue as to why corporations distribute a portion of their earnings as dividends is not yet resolved. The issue of dividend policy has stimulated much debate among financial analysts since Lintners (1956) seminal work. He measured major changes in earnings as the key determinant of the companies dividend decisions. There are many factors that affect dividend decisions of a firm as it is very difficult to lay down an optimum dividend policy which would maximize the long-run wealth of the shareholders resulting into increase or decrease of the firms value, but the primary indicator of the firms capacity to pay dividends has been Profits. Miller and Modigliani (1961), DeAngelo and DeAngelo (2006) gave their proposition on the dividend irrelevance, but the argument made by them was on assumptions that werent practical and in fact, the dividend payout decision does affect the shareholders value. The study focuses on identifying various determinants of dividend payout and whether these factors influence the dividend payout decision. Research Objective: There are many theories in the corporate finance literature addressing the dividend issue. The purpose of study is to understand the factors influencing the dividend decision of companies. The specific objectives of this study are: To analyze the financials of the company, to draw a framework of factors such as Retained earnings, Age of the company, Debt to Equity, Cash, Net income, Earnings per share etc. responsible for dividend declaration. To understand the criticality of a companys profitability (in terms of Earnings per share) component in declaration of dividends. To measure each factor individually on how it affects the dividend decision. Research Questions: RQ1. What is the relation between dividend payout and firms debt? RQ2. What is the relation between dividend payout and Profitability? RQ3. What is the relation between dividend payout and liquidity? RQ4. What is the relation between dividend payout and Retained Earnings? RQ5. What is the relation between dividend payout and Net Income? Contribution of the Study: Dividend decision is an important financial decision made by firms, managers, and investors. This study aims to contribute to the corporate finance literature, by looking at the Dividend puzzle. An attempt is made to make a valuable contribution in two major ways: Theoretical and Empirical approach is taken to provide a comprehensive view on the subject. The empirical Approach taken in this study will definitely leave some promising future ideas. The empirical findings and conclusions contained in this study can be used by financial managers to inform dividend decisions. Limitations of Study: The areas of concern to investigate in this study are extensive. Due to the Time constraint and accessibility of data, the research will be limited to the following: The period of study is only three years 2006 to 2008. The research has considered only those firms who pay dividends. The study is focused only on firms trading on the New York Stock Exchange. Structure of the Paper: The remaining chapters will be organized as follows: Chapter Two: Literature Review This chapter discusses the different theories laid down in context to dividend policy and explains the relationship between dividend payout and its determinants as concluded by the study of different researchers and theorists. Chapter Three: Research Methodology This chapter explains the research hypothesis and gives a descriptive study of the techniques and the model used for data analysis. The application of the statistical tests used are explained thoroughly. Chapter four: Data Analysis and Findings To address the research questions, results obtained from the regression analysis will be evaluated and discussed in this chapter. Chapter five: Recommendations and Conclusion. This chapter Concludes the entire study and provides recommendations based on the findings and analysis done in the previous chapter and recommendations for future research. CHAPTER TWO LITERATURE REVIEW Dividend remains one of the greatest enigmas of modern finance. Corporate dividend policy is an important decision area in the field of financial management hence there is an extensive literature devoted to the subject. Dividends are defined as the distribution of earnings (present or past) in real assets among the shareholders of the firm in proportion to their ownership. Dividend policy refers to managements long-term decision on how to utilize cash flows from business activities-that is, how much to plow back into the business, and how much to return to shareholders (Khan and Jain, 2005). Lintner (1956) conducted a notable study on dividend distributions, his was the first empirical study of dividend policy through his interview with managers of 28 selected companies, he stated that most companies have clear cut target payout ratios and that managers concern themselves with change in the existing dividend payout rather than the amount of the newly established payout. He also states that, Dividend policy is set first and other policies are then adjusted and the market reacts positively to dividend increase announcements and negatively to announcements of dividend decreases. He measured major changes in earnings as the key determinant of the companies dividend decisions. Lintners study was expanded by Farrelly et al. (1988), who, mailed a questionnaire to 562 firms listed on the New York Stock Exchange and concluded that managers accept dividend policy to be relevant and important. Lintners view was also supported by the study results of Fama and Babiak (1968) and Fama (1974) who suggested that managers prefer a stable dividend policy, and are hesitant to increase dividends to a level that cannot be supported. Fama and Babiaks (1968) study also concludes that Net income appears to explain the dividend change decision better than a cash flow measure. The study by Adaoglu (2000), Amidu and Abor (2006) and Belans et al (2007) stated that net income shows positive and significant association with the dividend payout, therefore indicating that, the firms with the positive earnings pay more dividends. Merton Miller and Franco Modigliani (1961) made a proposition that the value of a firm is not affected by its dividend policy. Dividend policy is a way of dividing up operating cash flows among investors or just a financial decision. Financial theorists Martin, Petty, Keown, and Scott, 1991 supported this theory of irrelevance. Miller and Modiglianis conclusion on the irrelevance of dividend policy presented a tough challenge to the conventional wisdom of time up to that point, it was universally acknowledged by both theorists and corporate managers that the firm can enhance its business value by providing for a more generous dividend policy as investors seem to prefer dividends over capital gains (JM Samuels, FM.Wilkes and R.E Brayshaw). Benartzi et al. (1997) conducted an extensive study and concluded that Lintners model of dividends remains the finest description of the dividend setting process available. Baker et al. (2001) conducted a survey on 630 NASDAQ-listed firms and analyzed the responses from 188 CFOs about the importance of 22 different factors that influence their dividend policy, they found that the dividend decisions made by managers were consistent with Lintners (1956) survey results and model. Their results also suggest that managers pay particular attention to the dividend policy of the firm because the dividend decision can affect firm value and, in turn, the wealth of stockholders, thus dividend policy requires serious attention by the management. E.F Fama and K.R French (2001) investigated the characteristics of companies paying dividends and concluded that the top most characteristics that affect the decision to pay dividends are Firm size, Profitability, and Investment opportunities. They studied dividend payment in the United States and found that the proportion of dividend payers declined sharply from 66% in 1978 to 20.8% in 1999, and that only about a fifth of public companies paid dividends. Growth companies such as Microsoft, Cisco and Sun Microsystems were found to be non-dividend payers. They also explained that the probability that a firm would pay dividends was positively related to profitability and size and negatively related to growth. Their research concluded that larger firms are more profitable and are more likely to pay dividends, than firms with more investment opportunities. The relationship between firm size and dividend policy was studied by Jennifer J. Gaver and Kenneth M. Gaver (1993). They suggested t hat A firms dividend yield is inversely related to the extent of its growth opportunities. The inference here is that as cash flow increases, the coefficient of dividend decreases, indicating that smaller firms that have greater investment opportunities thus they tend not to make dividend payment while larger firms tend to have proactive dividends policy. Ho, H. (2003) undertook a comparative study of dividend policies in Japan and Australia. Their study revealed that dividend policies in Australia and Japan are affected by different financial factors. Dividend policies are affected positively by size in Australia and liquidity in Japan. Naceur et al (2006) examined the dividend policy of 48 firms listed on the Tunisian Stock Exchange during the period 1996-2002. His research indicated that highly profitable firms with more stable earnings could afford larger free cash flows and thus paid larger dividends. Li and Lie (2006) reported that large and profitable firms are more likely to raise their dividends if the past dividend yield, debt ratio, cash ratio are low. A study was conducted by Norhayati Mohamed, Wee Shu Hui, Mormah Hj.Omar, and Rashidah Abdul Rahman on Malaysian companies over a 3 year period from 2003-2005. The sample was taken from the top 200 companies listed on the main board of Bursa Malaysia based on market capitaliza tion as at 31December 2005. Their study concluded that bigger firms pay higher dividends. For the purpose of finding out how companies arrive at their dividend decisions, many researchers and theorists have proposed several dividend theories. Gordon and Walter (1963) presented the Bird in Hand theory which suggested that to minimize risk the investors always prefer cash in hand rather than future promise of capital gain. This theory asserts that investors value dividends and high payout firms. As said by John D. Rockefeller (an American industrialist) The one thing that gives me contentment is to see my dividend coming in. For companies to communicate financial well-being and shareholder value the easiest way is to say the dividend check is in the mail. The bird-in-hand theory (a pre-Miller-Modigliani theory) asserts that dividends are valued differently to capital gains in a world of information asymmetry where due to uncertainty of future cash flow, investors will often tend to prefer dividends to retained earnings. As a result the value of the firm would be increased a s a higher payout ratio will reduce the required rate of return (see, for example Gordon, 1959). This argument has not received any strong empirical support. Dividends, paid by companies to shareholders from earnings, serve as an important indicator of the strength and future prosperity of the business. This explanation is known as signaling hypothesis. Signaling is an example factor for the relevance of dividends to the value of the firm. It is based on the idea of information asymmetry between managers and investors, where managers have private information about the firm that is not available to the outsiders. This theory is supported by models put forward by Miller and Rock (1985), Bhattacharya (1979), John and Williams (1985). They stated that dividends can be used as a signaling device to influence share price. The share price reacts favorably when an announcement of dividend increase is made. Few researchers found limited support for the signaling hypothesis (see Gonedes, 1978 , Watts, 1973) and there are other researchers, who supported the hypothesis, for example, in Michaely, Nissim and Ziv (2001), Pettit (1972) and Bali (2003). The tax-preference theory assumes that the market valuation of a firms stocks is increased when the dividend payout ratios is low which in turn lowers the required rate of return. Because of the relative tax liability of dividends compared to capital gains, investors need a large amount of before-tax risk adjusted return on stocks with higher dividend yields (Brennan, 1970). On one side studies by Lichtenberger and Ramaswamy (1979), Poterba and Summers, (1984), and Barclay (1987) have presented empirical evidence in support of the tax effect argument and on the other side Black and Scholes (1974), Miller and Scholes (1982), and Morgan and Thomas (1998) have either opposed such findings or provided completely different explanations. The study by Masulis and Trueman (1988) model dividend payments in form of cash as products of deferred dividend costs. Their model predicts that investors with differing tax liabilities will not be uniform in their ideal firm dividend policy. As the tax l iability on dividends increases (decreases), the dividend payment decreases (increases) while earnings reinvestment increases (decreases). According to Farrar and Selwyn (1967), in a partial equilibrium framework, individual investors choose the amount of personal and corporate leverage and also whether to receive corporate distributions as dividends or capital gains. Barclay (1987) has presented empirical evidence I support of the tax effect argument. Others, including Black and Scholes (1982), have opposed such findings or provided different explanations. Farrar and Selwyns model (1967) made an assumption that investors tend to increase their after tax income to the maximum. According to this model corporate earnings should be distributed by share repurchase rather than the use of dividends. Brennan (1970) has extended Farrar and Selwyns model into a general equilibrium framework. Under this, the expected usefulness of wealth as a system of barter is maximized. Despite being more robust both the models are similar as regards to their predictions. According to Auerbachs (1979) discrete-time, infinite-horizon model, the wealth of shareholders is maximized by the shareholders themselves and not by firm market value. If there does, infact, exist a difference between capital gains and dividends tax; firm market value maximization is no longer determined by wealth maximization. He states that the continued undervaluation of corporate capital leads to dividend distributions. The clientele effects hypothesis is another related theory. According to this theory the investors may be attracted to the types of stocks that fall in with their consumption/savings preferences. That is, investors (or clienteles) in high tax brackets may prefer non-dividend or low-dividend paying stocks if dividend income is taxed at a higher rate than capital gains. Also, certain clienteles may be created with the presence of transaction costs. There are several empirical studies on the clientele effects hypothesis but the findings are mixed. Studies by Pettit (1977), Scholz (1992), and Dhaliwal, Erickson and Trezevant (1999) presented evidence consistent with the existence of clientele effects hypothesis whereas studies by Lewellen et al. (1978), Richardson, Sefcik and Thomason (1986), Abrutyn and Turner (1990), found weak or contrary evidence. There is an assumption that the managers do not always take steps which would lead to maximizing an investors wealth. This gives rise to another favorable argument for hefty dividend payouts which shifts the reinvestment decision back on the owners. The main hitch would be the agency conflict (conflict between the principal and the agent) arising as a result of separate ownership and control. Therefore, a manager is expected to move the surplus funds from the high retained earnings into projects which are not feasible. This would be mainly due to his ill intention or his in competency. Thus, generous dividend payouts increase a firms value as it reduces the managements access to free cash flows and hence, controlling the problem of over investment. There are many more agency theories explaining how dividends can increase the value of a firm. One of them was by Easterbrook (1984); he proposed that dividend payments reduce agency problems in contrast to the transaction cost theory which is of the view that dividend payments reduce the value as it forces to raise costly finances from outside sources. His idea is that if the dividends are not paid, there is a problem of collective action that tends to lead to hap-hazard management of the firm. So, dividend payouts and raising external finance would attract auditory and regulatory measures by financial intermediaries like investment banks, respective stock exchange regulators and the potential investors as well. All this monitoring would lead to considerable reduction of agency costs and appreciate the market value of t he firm. Moreover, as defined by Jenson and Meckling (1976), Agency costs=monitoring costs+ bonding, costs+ residual loss i.e. sum of agency cost of equity and agency cost of debt. Hence, Easterbrook (1984) noted that dividend payments and raising new debt and its contract negotiations would reduce potential for wealth transfer. The realization for potential agency costs linked with separation of management and shareholders is not new. Adam Smith (1937) proposed that management of earlier companies is wayward. This problem was highly witnessed during at the time of British East Indian Companies and tracking managers was a failure due to inefficiencies and high costs of shareholder monitoring (Kindleberger, 1984). Scott (1912) and Carlos (1922) differ with this view point. They agree that although some fraud existed in the corporations, many of the activities of the managers were in line with those of the shareholders interests. An opportune and intelligent manager should always invest the surplus cash available into those opportunities which are well researched to be in the best interest of the shareholders. Berle and Means (1932) was the first to discover the insufficient utilization of funds which are surplus after other investment opportunities taken by the management. This thought was further promoted by Jensens (1986) free cash flow hypothesis. This hypothesis combined market information asymmetries with the agency theory. The surplus funds left after all the valuable projects are largely responsible for creation of the conflict of interest between the management and the shareholders. Payment of dividends and interest on other debt instruments reduce the cash flow with the management to invest in marginal net present value projects and for other perquisite consumptions. Therefore, the dividend theory is better explained by the combination of both the agency and the signaling theory rather than by any o ne of these alone. On the other hand, the free cash flow hypothesis rationalizes the corporate takeover frenzy of the 1980s Myers (1987 and 1990) rather than providing a clear and comprehensive dividend policy. The study by Baker et al. (2007) reports, that firms paying dividend in Canada are significantly larger and more profitable, having greater cash flows, ownership structure and some growth opportunities. The cash flow hypothesis proposes that insiders to a firm have more information about future cash flow than the outsiders, and they have incentivized motives to leak this to outsiders. Lang and Litzenberger (1989) check the cash flow signaling and free cash flow explanations of the effect of dividend declarations on the stock prices. This difference between permanent and temporary changes is also explored in Brook, Charlton, and Hendershott (1998). However, this study is based on the hypothesis that dividend changes contain cash flow information rather than information about earnings. This is the cash flow signaling hypothesis proposing that dividend changes signal expected cash flows changes. The dividend decisions are affected by a number of factors; many researchers have contributed in determining which determinant of dividend payout is the most significant in contributing to dividend decisions. It is said that the primary indicator of the firms capacity to pay dividends has been Profits. According to Lintner (1956) the dividend payment pattern of a firm is influenced by the current year earnings and previous year dividends. Pruitt and Gitmans (1991) survey of financial managers of 1000 largest U.S companies about the interplay among the investment and dividend decisions in their firms reported that, current and past year profits are essential factors influencing dividend payments. The conclusion derived from Baker and Powells (2000) survey of NYSE-listed firms is that the major determinant is the anticipated level of future earnings and continuity of past dividends. The study of Aivazian, Booth, and Cleary (2003) concludes that profitability and return on equity positi vely correlate with the size of the dividend payout ratio. The study by Lv Chang-jiang and Wang Ke-min (1999) on 316 listed companies in China that paid cash dividends during 1997 and 1998 by using modified Lintner dividend model, suggested that the dividend payout ratio is due to the firms current earning level. Other researchers like Chen Guo-Hui and Zhao Chun-guang (2000), Liu Shu-lian and Hu Yan-hong (2003) also concluded their research on the above stated understanding about dividend policy of listed companies in China. A survey done by Baker, Farrelly, and Edelman (1985) and Farrelly, Baker, and Edelman (1986) on 562 New York Stock Exchange (NYSE) firms with normal kinds of dividend polices in 1983 suggested that the major determinants of dividend payments were the anticipated level of future earnings and the pattern of past dividends. DeAngelo et al. (2004) findings suggest that earnings do have some impact on dividend payment. He stated that the high/increasing dividend concentration may be the result of high/increasing earnings concentration. Goergen et al. (2005) study on 221 German firms shows that net earnings were the key determinants of dividend changes. Baker and Smith (2006) examined 309 sample firms exhibiting behavior consistent with a residual dividend policy and their matched counterparts to understand how they set their dividend policies. Their study showed that for the matched firms, the pattern of past dividends and desire to maintain a long-term dividend payout ratio elicit the highest level of agreement from respondents. The study by Ferris et al. (2006) found mixed results for the relation between a firms earnings and its ability to pay dividends. Kao and Wu (1994) used a time series regression analysis of 454 firms over the period of 1965 to1986, and showed that there was a positive relationshi p between unexpected dividends and earnings. Carroll (1995) used quarterly data of 854 firms over the period of 1975 to 1984, and examined whether quarterly dividend changes predicted future earnings. He found a significant positive relationship. Liquidity is also an important determinant of dividend payouts. A poor liquidity position would generate fewer dividends due to shortage of cash. Alli et.al (1993), reveal that dividend payments depend more on cash flows, which reflect the companys ability to pay dividends, than on current earnings, which are less heavily influenced by accounting practices. They claim current earnings do no really reflect the firms ability to pay dividends. A firm without the cash flow back up cannot choose to have a high dividend payout as it will ultimately have to either reduce its investment plans or turn to investors for additional debt. The study by Brook, Charlton and Hendershott (1998) states that, Firms expecting large permanent cash flow increases tend to increase their dividend. Managers do not increase dividends until they are positive that sufficient cash will flow in to pay them (Brealey-Myers-2002). Myers and Bacons (2001) study shows a negative relationship between the liquid ratio and dividend payout. For companies to enable them to enhance their dividend paying capacity, and thus, to generate higher dividend paying capacity, it is necessary to retain their earnings to finance investment in fixed assets. The study by Belans et al (2007) states that the relationship between the firms liquidity and dividend is positive which explains that firms with more market liquidity pay more dividends. Reddy (2006), Amidu and Abor (2006) find opposite evidence. Lintner (1956) posited that the level of retained earnings is a dividend decision by- product. Adaoglu (2000) study shows that the firms listed on Istanbul Stock Exchange follow unstable cash dividend policy and the main factor for determining the amount of dividend is earning of the firms. The same conclusion was drawn by Omet (2004) in case of firms listed on Amman Securities Market and he further states that the tax imposition on dividend does not have the significant impact on the dividend behavior of the listed firms. The study by Mick and Bacon (2003) concludes that future earnings are the most influential variable and that the past dividend patterns as well as current and expected levels are empirically relevant in explaining the dividend decision. Empirical support for Lintners findings, that dividends were indeed a function of current and past profit levels and were negatively correlated with the change in sales was found by Darling (1957), Fama and Babiak (1968). Benchman a nd Raaballe (2007) discovered that the propensity to pay out dividends is positively correlated to retained earnings. Also, the study by Denis and Osobov (2006) states that retained earnings are a significant dividend characteristic for non- US firms including UK, German, and French firms. One of the motives for dividend policy decision is maintaining a moderate share price as poor stock price performance mostly conveys negative information about firms reputation. An empirical research took by Zhao Chun-guang and Zhang Xue-li et al (2001) on all A shares listed companies listed in Shenzhen and Shanghai Stock Exchange, states that the more cash dividends is paid when the stock prices are high. Chen Guo-Hui and Zhao Chun-guang (2000) undertook a research on all A shares listed before 1996 and paid dividend into share capital in 1997 as their sampling, and employed single-factor analysis, multifactor regression analysis to analyze the data. Their research showed a positive stock price reaction to the cash dividend, stock dividend policy. Myers and Bacon (2001) discussed that the debt to equity ratio was positively correlated to the dividend yield. Therefore firms with relatively more investment opportunities would tend to be more geared and vice versa (Ross, 2000). The study by Hu and Liu, (2005) declares that there is a positive correlation between the cash dividend the companies pay and their current earnings, and a inverse relationship between the debt to total assets and dividends. Green et al. (1993) questioned the irrelevance argument and investigated the relationship between the dividends and investment and financing decisions. Their study showed that dividend payout levels are decided along with investment and financing decisions. The study results however do not support the views of Miller and Modigliani (1961). Partington (1983) declared that firms motives for paying dividends and extent to which dividends are decided are independent of investment policy. The study by Higgins (1981) declares a direct link between growths and financing needs, rapidly growing firms have external financing needs because working capital needs normally exceed the incremental cash flows from new sales. Higgins (1972) suggests that payout ratios are negatively related to firms need top fund finance growth opportunities. Other researchers like Rozeff (1982), Lloyd et al. (1985) and Collins et al. (1996) all show significantly negative relationship between historical sales growth and dividend payout whereas D, Souza (1999) however shows a positive but insignificant relationship in the case of growth and negative but insignificant relationship in case of market to book value. Jenson and Meckling (1976) find a strong relationship between dividends and investment opportunities. They explain, in some circumstances where firms have relative uptight disposable Dividend Payout Decision Making Process Dividend Payout Decision Making Process CHAPTER ONE INTRODUCTION Background: Dividend policy is an important component of the corporate financial management policy. It is a policy used by the firm to decide as to how much cash it should reinvest in its business through expansion or share repurchases and how much to pay out to its shareholders in dividends. Dividend is a payment or return made by the firm to the shareholders, (owners of the company) out of its earnings in the form of cash. For a long time, the subject of corporate dividend policy has captivated the interests of many academicians and researchers, resulting in the emergence of a number of theoretical explanations for dividend policy. For the investors, dividend serve as an important indicator of the strength and future prosperity of the business, thereby companies try to maintain a stable dividend because if they reduce their dividend payments, investors may suspect that the company is facing a cash flow problem. Investors prefer steady growth of dividends every year and are reluctant to investm ent to companies with fluctuating dividend policy. Over time, there has been a substantial increase in the number of factors identified in the literature as being important to be considered in making dividend decisions. Thus, extensive studies have been done to find out various factors affecting dividend payout ratio of a firm. However, there is no single explanation that can capture the puzzling reality of corporate dividend behavior. Ocean deep judgment is involved by decision makers to resolve this issue of dividend behavior. The decision of companies to retain or pay out the earnings in form of dividends is important for the maximization of the value of the firm (Oyejide, 1976). Therefore, companies should set a constructive target dividend payout ratio, where it pays dividends to its shareholders and at the same time maintains sufficient retained earnings as to avoid having raise funds by borrowing money. A tough challenge was faced by financial practitioners and many academics, when Miller and Modigliani (MM) (1961) came with a proposition that, given perfect capital markets, the dividend decision does not affect the firm value and is, therefore, irrelevant. This proposition was greeted with surprise because at that time it was universally acknowledged by both theorists and corporate managers that the firm can enhance its business value by providing for a more generous dividend policy and that a properly managed dividend policy had an impact on share prices and shareholder wealth. Since the MM study, many researchers have relaxed the assumption of perfect capital markets and stated theories about how managers should formulate dividend policy decisions. Problem Statement: Dividend policy has attracted a substantial amount of research by many researchers and theorists, who have provided theoretical as well as empirical observations, into the dividend puzzle (Black, 1976). Even though researchers and theorists have extended their studies in context to dividend decisions, the issue as to why corporations distribute a portion of their earnings as dividends is not yet resolved. The issue of dividend policy has stimulated much debate among financial analysts since Lintners (1956) seminal work. He measured major changes in earnings as the key determinant of the companies dividend decisions. There are many factors that affect dividend decisions of a firm as it is very difficult to lay down an optimum dividend policy which would maximize the long-run wealth of the shareholders resulting into increase or decrease of the firms value, but the primary indicator of the firms capacity to pay dividends has been Profits. Miller and Modigliani (1961), DeAngelo and DeAngelo (2006) gave their proposition on the dividend irrelevance, but the argument made by them was on assumptions that werent practical and in fact, the dividend payout decision does affect the shareholders value. The study focuses on identifying various determinants of dividend payout and whether these factors influence the dividend payout decision. Research Objective: There are many theories in the corporate finance literature addressing the dividend issue. The purpose of study is to understand the factors influencing the dividend decision of companies. The specific objectives of this study are: To analyze the financials of the company, to draw a framework of factors such as Retained earnings, Age of the company, Debt to Equity, Cash, Net income, Earnings per share etc. responsible for dividend declaration. To understand the criticality of a companys profitability (in terms of Earnings per share) component in declaration of dividends. To measure each factor individually on how it affects the dividend decision. Research Questions: RQ1. What is the relation between dividend payout and firms debt? RQ2. What is the relation between dividend payout and Profitability? RQ3. What is the relation between dividend payout and liquidity? RQ4. What is the relation between dividend payout and Retained Earnings? RQ5. What is the relation between dividend payout and Net Income? Contribution of the Study: Dividend decision is an important financial decision made by firms, managers, and investors. This study aims to contribute to the corporate finance literature, by looking at the Dividend puzzle. An attempt is made to make a valuable contribution in two major ways: Theoretical and Empirical approach is taken to provide a comprehensive view on the subject. The empirical Approach taken in this study will definitely leave some promising future ideas. The empirical findings and conclusions contained in this study can be used by financial managers to inform dividend decisions. Limitations of Study: The areas of concern to investigate in this study are extensive. Due to the Time constraint and accessibility of data, the research will be limited to the following: The period of study is only three years 2006 to 2008. The research has considered only those firms who pay dividends. The study is focused only on firms trading on the New York Stock Exchange. Structure of the Paper: The remaining chapters will be organized as follows: Chapter Two: Literature Review This chapter discusses the different theories laid down in context to dividend policy and explains the relationship between dividend payout and its determinants as concluded by the study of different researchers and theorists. Chapter Three: Research Methodology This chapter explains the research hypothesis and gives a descriptive study of the techniques and the model used for data analysis. The application of the statistical tests used are explained thoroughly. Chapter four: Data Analysis and Findings To address the research questions, results obtained from the regression analysis will be evaluated and discussed in this chapter. Chapter five: Recommendations and Conclusion. This chapter Concludes the entire study and provides recommendations based on the findings and analysis done in the previous chapter and recommendations for future research. CHAPTER TWO LITERATURE REVIEW Dividend remains one of the greatest enigmas of modern finance. Corporate dividend policy is an important decision area in the field of financial management hence there is an extensive literature devoted to the subject. Dividends are defined as the distribution of earnings (present or past) in real assets among the shareholders of the firm in proportion to their ownership. Dividend policy refers to managements long-term decision on how to utilize cash flows from business activities-that is, how much to plow back into the business, and how much to return to shareholders (Khan and Jain, 2005). Lintner (1956) conducted a notable study on dividend distributions, his was the first empirical study of dividend policy through his interview with managers of 28 selected companies, he stated that most companies have clear cut target payout ratios and that managers concern themselves with change in the existing dividend payout rather than the amount of the newly established payout. He also states that, Dividend policy is set first and other policies are then adjusted and the market reacts positively to dividend increase announcements and negatively to announcements of dividend decreases. He measured major changes in earnings as the key determinant of the companies dividend decisions. Lintners study was expanded by Farrelly et al. (1988), who, mailed a questionnaire to 562 firms listed on the New York Stock Exchange and concluded that managers accept dividend policy to be relevant and important. Lintners view was also supported by the study results of Fama and Babiak (1968) and Fama (1974) who suggested that managers prefer a stable dividend policy, and are hesitant to increase dividends to a level that cannot be supported. Fama and Babiaks (1968) study also concludes that Net income appears to explain the dividend change decision better than a cash flow measure. The study by Adaoglu (2000), Amidu and Abor (2006) and Belans et al (2007) stated that net income shows positive and significant association with the dividend payout, therefore indicating that, the firms with the positive earnings pay more dividends. Merton Miller and Franco Modigliani (1961) made a proposition that the value of a firm is not affected by its dividend policy. Dividend policy is a way of dividing up operating cash flows among investors or just a financial decision. Financial theorists Martin, Petty, Keown, and Scott, 1991 supported this theory of irrelevance. Miller and Modiglianis conclusion on the irrelevance of dividend policy presented a tough challenge to the conventional wisdom of time up to that point, it was universally acknowledged by both theorists and corporate managers that the firm can enhance its business value by providing for a more generous dividend policy as investors seem to prefer dividends over capital gains (JM Samuels, FM.Wilkes and R.E Brayshaw). Benartzi et al. (1997) conducted an extensive study and concluded that Lintners model of dividends remains the finest description of the dividend setting process available. Baker et al. (2001) conducted a survey on 630 NASDAQ-listed firms and analyzed the responses from 188 CFOs about the importance of 22 different factors that influence their dividend policy, they found that the dividend decisions made by managers were consistent with Lintners (1956) survey results and model. Their results also suggest that managers pay particular attention to the dividend policy of the firm because the dividend decision can affect firm value and, in turn, the wealth of stockholders, thus dividend policy requires serious attention by the management. E.F Fama and K.R French (2001) investigated the characteristics of companies paying dividends and concluded that the top most characteristics that affect the decision to pay dividends are Firm size, Profitability, and Investment opportunities. They studied dividend payment in the United States and found that the proportion of dividend payers declined sharply from 66% in 1978 to 20.8% in 1999, and that only about a fifth of public companies paid dividends. Growth companies such as Microsoft, Cisco and Sun Microsystems were found to be non-dividend payers. They also explained that the probability that a firm would pay dividends was positively related to profitability and size and negatively related to growth. Their research concluded that larger firms are more profitable and are more likely to pay dividends, than firms with more investment opportunities. The relationship between firm size and dividend policy was studied by Jennifer J. Gaver and Kenneth M. Gaver (1993). They suggested t hat A firms dividend yield is inversely related to the extent of its growth opportunities. The inference here is that as cash flow increases, the coefficient of dividend decreases, indicating that smaller firms that have greater investment opportunities thus they tend not to make dividend payment while larger firms tend to have proactive dividends policy. Ho, H. (2003) undertook a comparative study of dividend policies in Japan and Australia. Their study revealed that dividend policies in Australia and Japan are affected by different financial factors. Dividend policies are affected positively by size in Australia and liquidity in Japan. Naceur et al (2006) examined the dividend policy of 48 firms listed on the Tunisian Stock Exchange during the period 1996-2002. His research indicated that highly profitable firms with more stable earnings could afford larger free cash flows and thus paid larger dividends. Li and Lie (2006) reported that large and profitable firms are more likely to raise their dividends if the past dividend yield, debt ratio, cash ratio are low. A study was conducted by Norhayati Mohamed, Wee Shu Hui, Mormah Hj.Omar, and Rashidah Abdul Rahman on Malaysian companies over a 3 year period from 2003-2005. The sample was taken from the top 200 companies listed on the main board of Bursa Malaysia based on market capitaliza tion as at 31December 2005. Their study concluded that bigger firms pay higher dividends. For the purpose of finding out how companies arrive at their dividend decisions, many researchers and theorists have proposed several dividend theories. Gordon and Walter (1963) presented the Bird in Hand theory which suggested that to minimize risk the investors always prefer cash in hand rather than future promise of capital gain. This theory asserts that investors value dividends and high payout firms. As said by John D. Rockefeller (an American industrialist) The one thing that gives me contentment is to see my dividend coming in. For companies to communicate financial well-being and shareholder value the easiest way is to say the dividend check is in the mail. The bird-in-hand theory (a pre-Miller-Modigliani theory) asserts that dividends are valued differently to capital gains in a world of information asymmetry where due to uncertainty of future cash flow, investors will often tend to prefer dividends to retained earnings. As a result the value of the firm would be increased a s a higher payout ratio will reduce the required rate of return (see, for example Gordon, 1959). This argument has not received any strong empirical support. Dividends, paid by companies to shareholders from earnings, serve as an important indicator of the strength and future prosperity of the business. This explanation is known as signaling hypothesis. Signaling is an example factor for the relevance of dividends to the value of the firm. It is based on the idea of information asymmetry between managers and investors, where managers have private information about the firm that is not available to the outsiders. This theory is supported by models put forward by Miller and Rock (1985), Bhattacharya (1979), John and Williams (1985). They stated that dividends can be used as a signaling device to influence share price. The share price reacts favorably when an announcement of dividend increase is made. Few researchers found limited support for the signaling hypothesis (see Gonedes, 1978 , Watts, 1973) and there are other researchers, who supported the hypothesis, for example, in Michaely, Nissim and Ziv (2001), Pettit (1972) and Bali (2003). The tax-preference theory assumes that the market valuation of a firms stocks is increased when the dividend payout ratios is low which in turn lowers the required rate of return. Because of the relative tax liability of dividends compared to capital gains, investors need a large amount of before-tax risk adjusted return on stocks with higher dividend yields (Brennan, 1970). On one side studies by Lichtenberger and Ramaswamy (1979), Poterba and Summers, (1984), and Barclay (1987) have presented empirical evidence in support of the tax effect argument and on the other side Black and Scholes (1974), Miller and Scholes (1982), and Morgan and Thomas (1998) have either opposed such findings or provided completely different explanations. The study by Masulis and Trueman (1988) model dividend payments in form of cash as products of deferred dividend costs. Their model predicts that investors with differing tax liabilities will not be uniform in their ideal firm dividend policy. As the tax l iability on dividends increases (decreases), the dividend payment decreases (increases) while earnings reinvestment increases (decreases). According to Farrar and Selwyn (1967), in a partial equilibrium framework, individual investors choose the amount of personal and corporate leverage and also whether to receive corporate distributions as dividends or capital gains. Barclay (1987) has presented empirical evidence I support of the tax effect argument. Others, including Black and Scholes (1982), have opposed such findings or provided different explanations. Farrar and Selwyns model (1967) made an assumption that investors tend to increase their after tax income to the maximum. According to this model corporate earnings should be distributed by share repurchase rather than the use of dividends. Brennan (1970) has extended Farrar and Selwyns model into a general equilibrium framework. Under this, the expected usefulness of wealth as a system of barter is maximized. Despite being more robust both the models are similar as regards to their predictions. According to Auerbachs (1979) discrete-time, infinite-horizon model, the wealth of shareholders is maximized by the shareholders themselves and not by firm market value. If there does, infact, exist a difference between capital gains and dividends tax; firm market value maximization is no longer determined by wealth maximization. He states that the continued undervaluation of corporate capital leads to dividend distributions. The clientele effects hypothesis is another related theory. According to this theory the investors may be attracted to the types of stocks that fall in with their consumption/savings preferences. That is, investors (or clienteles) in high tax brackets may prefer non-dividend or low-dividend paying stocks if dividend income is taxed at a higher rate than capital gains. Also, certain clienteles may be created with the presence of transaction costs. There are several empirical studies on the clientele effects hypothesis but the findings are mixed. Studies by Pettit (1977), Scholz (1992), and Dhaliwal, Erickson and Trezevant (1999) presented evidence consistent with the existence of clientele effects hypothesis whereas studies by Lewellen et al. (1978), Richardson, Sefcik and Thomason (1986), Abrutyn and Turner (1990), found weak or contrary evidence. There is an assumption that the managers do not always take steps which would lead to maximizing an investors wealth. This gives rise to another favorable argument for hefty dividend payouts which shifts the reinvestment decision back on the owners. The main hitch would be the agency conflict (conflict between the principal and the agent) arising as a result of separate ownership and control. Therefore, a manager is expected to move the surplus funds from the high retained earnings into projects which are not feasible. This would be mainly due to his ill intention or his in competency. Thus, generous dividend payouts increase a firms value as it reduces the managements access to free cash flows and hence, controlling the problem of over investment. There are many more agency theories explaining how dividends can increase the value of a firm. One of them was by Easterbrook (1984); he proposed that dividend payments reduce agency problems in contrast to the transaction cost theory which is of the view that dividend payments reduce the value as it forces to raise costly finances from outside sources. His idea is that if the dividends are not paid, there is a problem of collective action that tends to lead to hap-hazard management of the firm. So, dividend payouts and raising external finance would attract auditory and regulatory measures by financial intermediaries like investment banks, respective stock exchange regulators and the potential investors as well. All this monitoring would lead to considerable reduction of agency costs and appreciate the market value of t he firm. Moreover, as defined by Jenson and Meckling (1976), Agency costs=monitoring costs+ bonding, costs+ residual loss i.e. sum of agency cost of equity and agency cost of debt. Hence, Easterbrook (1984) noted that dividend payments and raising new debt and its contract negotiations would reduce potential for wealth transfer. The realization for potential agency costs linked with separation of management and shareholders is not new. Adam Smith (1937) proposed that management of earlier companies is wayward. This problem was highly witnessed during at the time of British East Indian Companies and tracking managers was a failure due to inefficiencies and high costs of shareholder monitoring (Kindleberger, 1984). Scott (1912) and Carlos (1922) differ with this view point. They agree that although some fraud existed in the corporations, many of the activities of the managers were in line with those of the shareholders interests. An opportune and intelligent manager should always invest the surplus cash available into those opportunities which are well researched to be in the best interest of the shareholders. Berle and Means (1932) was the first to discover the insufficient utilization of funds which are surplus after other investment opportunities taken by the management. This thought was further promoted by Jensens (1986) free cash flow hypothesis. This hypothesis combined market information asymmetries with the agency theory. The surplus funds left after all the valuable projects are largely responsible for creation of the conflict of interest between the management and the shareholders. Payment of dividends and interest on other debt instruments reduce the cash flow with the management to invest in marginal net present value projects and for other perquisite consumptions. Therefore, the dividend theory is better explained by the combination of both the agency and the signaling theory rather than by any o ne of these alone. On the other hand, the free cash flow hypothesis rationalizes the corporate takeover frenzy of the 1980s Myers (1987 and 1990) rather than providing a clear and comprehensive dividend policy. The study by Baker et al. (2007) reports, that firms paying dividend in Canada are significantly larger and more profitable, having greater cash flows, ownership structure and some growth opportunities. The cash flow hypothesis proposes that insiders to a firm have more information about future cash flow than the outsiders, and they have incentivized motives to leak this to outsiders. Lang and Litzenberger (1989) check the cash flow signaling and free cash flow explanations of the effect of dividend declarations on the stock prices. This difference between permanent and temporary changes is also explored in Brook, Charlton, and Hendershott (1998). However, this study is based on the hypothesis that dividend changes contain cash flow information rather than information about earnings. This is the cash flow signaling hypothesis proposing that dividend changes signal expected cash flows changes. The dividend decisions are affected by a number of factors; many researchers have contributed in determining which determinant of dividend payout is the most significant in contributing to dividend decisions. It is said that the primary indicator of the firms capacity to pay dividends has been Profits. According to Lintner (1956) the dividend payment pattern of a firm is influenced by the current year earnings and previous year dividends. Pruitt and Gitmans (1991) survey of financial managers of 1000 largest U.S companies about the interplay among the investment and dividend decisions in their firms reported that, current and past year profits are essential factors influencing dividend payments. The conclusion derived from Baker and Powells (2000) survey of NYSE-listed firms is that the major determinant is the anticipated level of future earnings and continuity of past dividends. The study of Aivazian, Booth, and Cleary (2003) concludes that profitability and return on equity positi vely correlate with the size of the dividend payout ratio. The study by Lv Chang-jiang and Wang Ke-min (1999) on 316 listed companies in China that paid cash dividends during 1997 and 1998 by using modified Lintner dividend model, suggested that the dividend payout ratio is due to the firms current earning level. Other researchers like Chen Guo-Hui and Zhao Chun-guang (2000), Liu Shu-lian and Hu Yan-hong (2003) also concluded their research on the above stated understanding about dividend policy of listed companies in China. A survey done by Baker, Farrelly, and Edelman (1985) and Farrelly, Baker, and Edelman (1986) on 562 New York Stock Exchange (NYSE) firms with normal kinds of dividend polices in 1983 suggested that the major determinants of dividend payments were the anticipated level of future earnings and the pattern of past dividends. DeAngelo et al. (2004) findings suggest that earnings do have some impact on dividend payment. He stated that the high/increasing dividend concentration may be the result of high/increasing earnings concentration. Goergen et al. (2005) study on 221 German firms shows that net earnings were the key determinants of dividend changes. Baker and Smith (2006) examined 309 sample firms exhibiting behavior consistent with a residual dividend policy and their matched counterparts to understand how they set their dividend policies. Their study showed that for the matched firms, the pattern of past dividends and desire to maintain a long-term dividend payout ratio elicit the highest level of agreement from respondents. The study by Ferris et al. (2006) found mixed results for the relation between a firms earnings and its ability to pay dividends. Kao and Wu (1994) used a time series regression analysis of 454 firms over the period of 1965 to1986, and showed that there was a positive relationshi p between unexpected dividends and earnings. Carroll (1995) used quarterly data of 854 firms over the period of 1975 to 1984, and examined whether quarterly dividend changes predicted future earnings. He found a significant positive relationship. Liquidity is also an important determinant of dividend payouts. A poor liquidity position would generate fewer dividends due to shortage of cash. Alli et.al (1993), reveal that dividend payments depend more on cash flows, which reflect the companys ability to pay dividends, than on current earnings, which are less heavily influenced by accounting practices. They claim current earnings do no really reflect the firms ability to pay dividends. A firm without the cash flow back up cannot choose to have a high dividend payout as it will ultimately have to either reduce its investment plans or turn to investors for additional debt. The study by Brook, Charlton and Hendershott (1998) states that, Firms expecting large permanent cash flow increases tend to increase their dividend. Managers do not increase dividends until they are positive that sufficient cash will flow in to pay them (Brealey-Myers-2002). Myers and Bacons (2001) study shows a negative relationship between the liquid ratio and dividend payout. For companies to enable them to enhance their dividend paying capacity, and thus, to generate higher dividend paying capacity, it is necessary to retain their earnings to finance investment in fixed assets. The study by Belans et al (2007) states that the relationship between the firms liquidity and dividend is positive which explains that firms with more market liquidity pay more dividends. Reddy (2006), Amidu and Abor (2006) find opposite evidence. Lintner (1956) posited that the level of retained earnings is a dividend decision by- product. Adaoglu (2000) study shows that the firms listed on Istanbul Stock Exchange follow unstable cash dividend policy and the main factor for determining the amount of dividend is earning of the firms. The same conclusion was drawn by Omet (2004) in case of firms listed on Amman Securities Market and he further states that the tax imposition on dividend does not have the significant impact on the dividend behavior of the listed firms. The study by Mick and Bacon (2003) concludes that future earnings are the most influential variable and that the past dividend patterns as well as current and expected levels are empirically relevant in explaining the dividend decision. Empirical support for Lintners findings, that dividends were indeed a function of current and past profit levels and were negatively correlated with the change in sales was found by Darling (1957), Fama and Babiak (1968). Benchman a nd Raaballe (2007) discovered that the propensity to pay out dividends is positively correlated to retained earnings. Also, the study by Denis and Osobov (2006) states that retained earnings are a significant dividend characteristic for non- US firms including UK, German, and French firms. One of the motives for dividend policy decision is maintaining a moderate share price as poor stock price performance mostly conveys negative information about firms reputation. An empirical research took by Zhao Chun-guang and Zhang Xue-li et al (2001) on all A shares listed companies listed in Shenzhen and Shanghai Stock Exchange, states that the more cash dividends is paid when the stock prices are high. Chen Guo-Hui and Zhao Chun-guang (2000) undertook a research on all A shares listed before 1996 and paid dividend into share capital in 1997 as their sampling, and employed single-factor analysis, multifactor regression analysis to analyze the data. Their research showed a positive stock price reaction to the cash dividend, stock dividend policy. Myers and Bacon (2001) discussed that the debt to equity ratio was positively correlated to the dividend yield. Therefore firms with relatively more investment opportunities would tend to be more geared and vice versa (Ross, 2000). The study by Hu and Liu, (2005) declares that there is a positive correlation between the cash dividend the companies pay and their current earnings, and a inverse relationship between the debt to total assets and dividends. Green et al. (1993) questioned the irrelevance argument and investigated the relationship between the dividends and investment and financing decisions. Their study showed that dividend payout levels are decided along with investment and financing decisions. The study results however do not support the views of Miller and Modigliani (1961). Partington (1983) declared that firms motives for paying dividends and extent to which dividends are decided are independent of investment policy. The study by Higgins (1981) declares a direct link between growths and financing needs, rapidly growing firms have external financing needs because working capital needs normally exceed the incremental cash flows from new sales. Higgins (1972) suggests that payout ratios are negatively related to firms need top fund finance growth opportunities. Other researchers like Rozeff (1982), Lloyd et al. (1985) and Collins et al. (1996) all show significantly negative relationship between historical sales growth and dividend payout whereas D, Souza (1999) however shows a positive but insignificant relationship in the case of growth and negative but insignificant relationship in case of market to book value. Jenson and Meckling (1976) find a strong relationship between dividends and investment opportunities. They explain, in some circumstances where firms have relative uptight disposable

Analysis of Samuel Adams and Boston Beer Company Essay -- beer industr

The Boston Beer Company and Samuel Adams have both had a long history. Since the 1870s, six generations of the Koch family have been involved with beer. In the early 1980s, the seventh generations almost turned his back on the family business. After graduating from graduate school, Jim Koch wanted to stray always for the family business and seek a career in management consulting. After a short time in the consulting business, Koch decided that he just could not ignore his destiny to create a new, different beer. In 1984, Koch was on the search for a â€Å"better beer†. The only options at the time on the market were pale lagers from mass producers (Company), Koch decided there needed to be a change. In April 1985, Samuel Adams made in bar debut. At first, Koch and his partner, Rhonda Kallmen, were the only employees and were only producing 500 barrels a year. The company has now grown to 400 wholesalers, 200 sales representatives and 6 million barrels of beer produced each y ear. Because of the creativeness of Jim Koch the craft beer industry has been forever changed. Structure and Strategy Boston Beer Company has always structured themselves as a craft beer maker. Their strategy is to always strive to give their loyal customers a â€Å"better beer†. Their idea of a better beer includes giving their customer a higher quality, a better and unique taste, and a sophisticated image. Along with the strategy to a better beer for the customer, Boston Beer and Samuel Adams also pay close attention to their operations strategy. Their operations strategy includes paying close attention to the brewing process from start to finish. The producers are involved in every step of the brewing process. They hand select all of the raw materials, they br... ... on top of the craft beer industry. Through their business strategy, structure, strengths, and adaptability, Samuel Adams is a company that will continue to grow and continue to provide their customer with a better beer. Works Cited Company, Boston Beer. Samuel Adams- Our Craft Beers. n.d. 6 Nov. 2015. . Polgar, by Richard. NYS Bottle Bill: Deposit & No Return. September 2011. 6 Nov. 2015. . Ruggles, M. 4 Main Ingredients in Beer and Why They are Important. 29 April 2011. 6 Nov. 2015. . SABMiller. Vers. ww.sabmiller.com. n.d. 8 Nov. 2015. Verive, John. Los Angeles Times: Food. 19 September 2013. 6 Nov. 2015. . Analysis of Samuel Adams and Boston Beer Company Essay -- beer industr The Boston Beer Company and Samuel Adams have both had a long history. Since the 1870s, six generations of the Koch family have been involved with beer. In the early 1980s, the seventh generations almost turned his back on the family business. After graduating from graduate school, Jim Koch wanted to stray always for the family business and seek a career in management consulting. After a short time in the consulting business, Koch decided that he just could not ignore his destiny to create a new, different beer. In 1984, Koch was on the search for a â€Å"better beer†. The only options at the time on the market were pale lagers from mass producers (Company), Koch decided there needed to be a change. In April 1985, Samuel Adams made in bar debut. At first, Koch and his partner, Rhonda Kallmen, were the only employees and were only producing 500 barrels a year. The company has now grown to 400 wholesalers, 200 sales representatives and 6 million barrels of beer produced each y ear. Because of the creativeness of Jim Koch the craft beer industry has been forever changed. Structure and Strategy Boston Beer Company has always structured themselves as a craft beer maker. Their strategy is to always strive to give their loyal customers a â€Å"better beer†. Their idea of a better beer includes giving their customer a higher quality, a better and unique taste, and a sophisticated image. Along with the strategy to a better beer for the customer, Boston Beer and Samuel Adams also pay close attention to their operations strategy. Their operations strategy includes paying close attention to the brewing process from start to finish. The producers are involved in every step of the brewing process. They hand select all of the raw materials, they br... ... on top of the craft beer industry. Through their business strategy, structure, strengths, and adaptability, Samuel Adams is a company that will continue to grow and continue to provide their customer with a better beer. Works Cited Company, Boston Beer. Samuel Adams- Our Craft Beers. n.d. 6 Nov. 2015. . Polgar, by Richard. NYS Bottle Bill: Deposit & No Return. September 2011. 6 Nov. 2015. . Ruggles, M. 4 Main Ingredients in Beer and Why They are Important. 29 April 2011. 6 Nov. 2015. . SABMiller. Vers. ww.sabmiller.com. n.d. 8 Nov. 2015. Verive, John. Los Angeles Times: Food. 19 September 2013. 6 Nov. 2015. .

Howard Robard Hughes Essays -- Biography

Howard Robard Hughes (December 24, 1905 – April 5, 1976), a pilot, movie producer, playboy, and one of the wealthiest people in the world during his lifetime, was well-known for his eccentricity. His eccentric behavior is theorized to have been the result of obsessive-compulsive behavior. The intent of this review is to illustrate Mr. Hughes’s abnormalities, arrive at a clinical diagnosis using all five axes of the Diagnostic and Statistical Manual of Mental Disorders IV-TR (DSM-IV-TR), explain his behavior from the biological theoretical perspective, and finally to arrive at a hypothetical treatment plan. Behavior: To begin, what constitutes abnormal behavior in Mr. Hughes’s case? As early as the 1930s, Hughes demonstrated signs of obsessive-compulsive disorder. Obsessive compulsive disorder is identified by DSM as having recurrent obsessions (persistent thoughts, ideas, impulses or images that seem to invade a person’s consciousness) or compulsions (repeated and rigid behaviors or mental acts that people feel like they must perform in order to prevent or reduce anxiety) (Cormer, 2008). Close friends reported that Hughes was obsessed with the size of peas, one of his favorite foods, and used a special fork to sort them by size. Those who interacted with him as a director comment of his obsessions. While directing a movie, Hughes became fixated on a minor flaw in an actress’s top, claiming that the fabric bunched up along a seam and gave the appearance of two nipples on each breast. He was reportedly so upset by the matter that he wrote a detailed memorandum to the crew on how to fix the problem (Hack, 2002). An executive producer who worked with Hughes wrote in his autobiography about the difficulty of dealing with the t... ...h has shown that exercise, outdoor activity and socialization lead to increased serotonin levels and overall health (Young, 2007). Although the biological treatment of drug therapy, physical therapy, and nutrition therapy will begin to produce desired results towards a cure, the prognosis for recovery from this disorder would be greatly enhanced by a combination of behavioral, cognitive, and drug therapies. Patients who receive a combination of such therapies yield greater relief from their symptoms than do singular approaches alone (Kordon et al., 2005). It is unfortunate that Mr. Hughes was not able to receive adequate help for his disorder during his lifetime. Given the aforementioned treatment plan, along with the benefit of current research, and Mr. Hughes affluence to receive the best care, his prognosis during current times would have been quite good.

Leadership styles case study

1. Northwest Center for Families (NCF) practices transactional leadership. This is because its director, after attending the conference on dual relationships in social work, has already created a clear structure on what she wants her subordinates to do and if they do not follow, necessary punishment has also been in-placed. She did this by sending out a memo prohibiting dual relationships in social workers’ relations with clients, which when disobeyed will result to their termination. Employees were even advised to report non-sanctioned interaction between them and their clients. The director’s directive also mentioned that employees should eat lunch only in the office when the construction of the new employee lounge is done. 2. Southeast Social Services (SSS), on the other hand, practices transformational leadership. This is because its director has primarily regarded and involved his subordinates in his plans regarding the problem of dual relationship in social work by calling a meeting. Here, he shares his experiences and thoughts about the conference and his personal mission to address the problem at hand. He motivates everyone and encourages the organization to be one in solving the problem, thus being more efficient in their profession and service. 3. I recommend that a health care or human service organization adopt or practice transformational leadership. This is because an organization involved in healthcare or human services needs a competent, professional, skillful, and personable leader. He or she must possess familiarity with the programs of the organization and the knowledge and skills to implement these. Furthermore, he or she must possess values and awareness on others’ welfare and situations (Rudnick, 2007). Since the healthcare and the human services fields require utmost and voluntary service, employees should be given proper, sensitive, and sensible motivation for them to function for the community and not be intimidated by rules of a tyrannical leader. In this sense, a transformational leader can ensure employees’ loyalty to the organization’s mission (Rudnick, 2007). Â   Â  

Is Billy Pilgrim Sane? Essay

Billy Pilgrim plays a very influential role as the main character in Kurt Vonnegut’s Slaughterhouse 5. Since the novel is based entirely on Billy Pilgrim’s interaction with the environment around him, pinpointing Billy’s state of sanity on the scale of normality helps the reader determine what is really happening, and what is a figment of Billy’s imagination. Before making the decision regarding Billy’s state of mind, one must first establish the parameters of what is considered sane and what is not. What one person may consider insane another may consider pure genius. The dictionary definition of ‘sane’ is: free from mental derangement; having a sound, healthy mind. However the general consensus for ‘sane’ is a lot closer to: having or showing reason, sound judgment, or good sense. Once those guidelines are set up, one can proceed to analyze Billy’s state of mental health. Since Billy is a fictional character in a b ook and the man who wrote the book is dead, the only information available to someone trying to analyze Billy is through Billy’s actions/thoughts/experiences and the speculations of other readers. Luckily one is not required to delve very deep into Billy’s past before coming across tragedy. At a very young age Billy is thrust into the middle of World War Two. He is ill equipped and has no fighting training or experience. During the battle of the Bulge Billy becomes lost with one other soldier and two scouts. While hiking through the underbrush in German territory Billy is overcome with cold and waits for the eventuality that is death to pass over him and remove his soul from his body. Instead Billy becomes what the narrator describes as â€Å"unstuck† in time. This is the first time that Billy ever experiences ‘time travel’. There are at least two ways to interpret this scene. In the first one, the reader assumes that Billy is in shock, is delirious, and has a very vague connection with the outside world. This thought is followed by the next logical idea that since Billy is nearly incapacitated, anything odd he experienced in this time frame did not actually happen. However every Yin has a Yang. The second way this could be interpreted is that Billy’s mind  has lost touch of reality to the point it sheds its boundaries regarding time, freeing Billy from the human confines of viewing time in a linear fashion. Since the decision regarding Billy’s sanity is based purely on a reader’s personal opinion. A reader would do well to create a mental tally chart of notes. If the first interpretation makes more sense, simply put a mark in the ‘insane’ column, however if the second interpretation floats your boat, make a mark in the ‘sane’ column. Between the first major occurrence and the second, Billy is faced with minor issues that may or may not play an influential role on Billy’s state of mind and so even though they play minor roles, it is important that they are mentioned and taken into account. While Billy is a prisoner of war he is treated poorly, underfed, kept in a crowded train car full of viral and bacterial diseases and scented with the touch of death. It is during this time that Billy manages to make the entire train car hate him, causing him to draw further into the safety of his mind. Whether this train ride actually affected Billy or not is up to the reader to decide. The second of Billy’s major experiences that carries the capability to instil a mental illness in an otherwise healthy being would be the bombing of Dresden. While Billy was being used for labour in Dresden, his own country fire bombed him along with the rest of a city full of civilians. Billy waited out the bombing in an underground meat cooler along with a group of other POW’s and their guards. After the ground had cooled, the POW’s emerged from their safe haven and was faced with what can be described as the moon’s surface. Billy was eventually ordered to help collect the bodies for a mass burial. Now, whether it was sitting underground listening to an entire city being levelled, or the retrieval of dead bodies or both that scarred Billy, it is hard to know. However Billy did have a flashback of the bombing during his eighteenth wedding anniversary that caused him to freak out. However there is no direct evidence that the bombing caused Billy to go insa ne and only the reader can decide if it was pertinent to his mental stability or not. Another traumatizing incident endured by Billy was the combination of him being the sole survivor of a plane crash followed by his wife’s untimely death. While Billy was on his way to an optometry convention with several other optometrists, the plane he is on crashes. He is the only survivor and is rushed to the hospital. When Billy’s wife hears what happened, she rushes to  the hospital. On her way there she ends up crashing the car and loses her exhaust system. She ends up dying of Carbon Monoxide poisoning right as she stops in front of the hospital. Because of Billy’s constant time-travelling, he never really knew his wife too well so the odds of him feeling overly distraught because of her death are really quite minimal. Also because he has adopted the Tralfamadorian view of death, he would probably just imagine that now she is in a better place in her life. So even though this may not be the happiest point in Billy’s life, in this author’s opinion, it is doubtful that it has altered his state of mind, however everyone is entitled to their own opinion and so a reader may interpret otherwise. Although looking at Billy’s past may give hints as to his sanity, looking at his actual thoughts would be a lot more helpful in making the final decision. Bibliography Findley, Timothy. The Wars. New York: Penguin Group Australia, 1977.