This case explores the corporate finance issues arising from the suspension of HSBC Holdings plc’s (HSBC, stock code: 5.HK) dividend payout in March 2020. Such abrupt change in pattern was immediately met with tremendous reverberation and discussion in the market.
The case seeks to highlight the considerations of HSBC in deciding on a dividend policy, both from a corporate finance and behavioral finance perspective. Through the case, students will grapple with the practical questions of how a listed company should structure its dividend payout pattern. The pattern is structured in such a way to satisfy the operational and financial needs of itself while minimizing the negative impacts to shareholder relationships.
There is a dilemma that a listed company’s dividend policy, while constituting part of the current cost of capital, is a means to maintaining a stable share price and shareholder “clientele”. As such, it is important for students to be aware when such dilemma arises, how to strike a healthy balance between satisfying the shareholders and adhering to Milton Friedman’s “business of business is business” convention.
1. To enhance students’ ability to identify a corporation’s dividend policy based on certain financial data, and thus the pros and cons of that policy
2. To enable students to analyze the nature and significance of dividend payout in different theoretical frameworks (namely dividend irrelevance theory, bird-in-the-hand theory, and tax aversion theory)
3. To enable students to apply the considerations in establishing a dividend policy from a corporation’s angle
4. To enable students to assess a dividend policy using the philosophies underlying business ethics