Discuss whether dividends are irrelevant essay
Resume. The combination of capital categories that a company uses to finance its operations is called its capital structure. It is expressed in ratios such as debt/equity or debt/total assets. Dividends are the payments that shareholders receive as a return on their capital. An old issue in the financial world is the question of whether or not the choice of dividend policy should be determined. 2. Theoretical background. The corporate determinants of dividend policy have become an established part of modern financial theory. We can distinguish three main theories that help to clarify dividend policy, namely: information asymmetries, tax-adjustment theory and behavioral theories. Modigliani-Miller theorem - M amp M: The Modigliani-Miller M amp M theorem states that the market value of a company is calculated based on its earning power and the risk of its underlying assets and is. The Modigliani Miller Hypothesis MM hypothesis states that dividends are irrelevant and a company's stock price depends solely on its earnings, which depend on the investment policy of the Villamil company. However, the theory has been criticized for not distinguishing between internal financing and external financing.2.1. Dividend policy and taxes. Most of the literature argues for the impact of taxes on corporate dividend policy, see for example Elton and Gruber, 1970, Poterba and Summers, 1984, Michaely and Murgia, 1995, Prez-Gonz lez, 2002, Poterba, 2004, Brav et al. . 2005, Chetty and Saez, 2005. The main discussion on taxes and dividends is: The fourth part is reserved for the conclusion. 2. Dividend policy, signaling theory: theoretical models. 2. Model of Kalay 1980 Since s, financial theory has been enriched by. Investment funds sometimes declare an end-of-year dividend and perhaps one or more other dividends. When the Board of Directors declares a dividend, it will announce that the dividend of a fixed amount will be paid to registered shareholders from the record date and will be paid or distributed on the distribution date, also referred to as the Payment Date..