Essay on Dividend Policy - 1691 Words.
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Dividends could relay information in line with the dividend signaling theory, but the use of dividends to convey information was not able to explain why companies paid dividends. The effects of signaling in the preferences of investors were less certain due to the ambiguity that was inherent to signals (Frankfurter and Wood, 2002).
The Theory and Practice of Corporate Dividend and Share Repurchase Policy February 2006 6 Liability Strategies Group Introduction This Paper This paper provides an overview of current dividend and share repurchase policy theory together with a detailed analysis of the results of a recent corporate survey. The paper is divided into three sections.
Section 2 gives a short background of corporate dividend policy. Section 3 analyses the theories of dividend policy starting with the dividend irrelevance hypothesis of Miller and Modigliani, and then the alternative hypotheses including bird-inthe-hand, tax-preference, clientele effects, signalling, and agency costs hypotheses.
Dividend Relevance Theory: Lintner (1956) and Gordon (1959) claim that ”dividend policy affects the value of a firm, because of shareholder prefer dividend to capital gain. The logic of their preference regarding dividend is that divided is certain but not capital gain. So, dividend policy affects the value of a company”.
The Dividend Irrelevance Theory Finance Essay The stock market is volatile and share prices change constantly. These changes in share prices results in changes in stock returns. The returns can be negative or positive.