Financial Management, 12th Edition by Pearson

CHAPTER 17

Dividend Theory

LEARNING OBJECTIVES

• Explain the issues of dividend policy.
• Critically evaluate why some experts feel that dividend policy matters.
• Discuss the bird-in-the-hand argument residual theory for paying current dividends.
• Explain the logic of the dividend irrelevance.
• Identify the market imperfections that make dividend policy relevant.
• Describe the logic of information content of dividend policy.

INTRODUCTION

Dividend decision of the firm is yet another crucial area of financial management. The important aspect of dividend policy is to determine the amount of earnings to be distributed to shareholders and the amount to be retained in the firm. Retained earnings are the most significant internal sources of financing ...