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Dividend Policy, Growth, and the Valuation Of Shares

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Abstract

In the hope that it may help to overcome these obstacles to effective empirical testing, this paper will attempt to fill the existing gap in the theoretical literature on valuation. We shall begin, in Section I , by examining the effects the effects of differences in dividend policy on the current price of shares in an ideal economy characterized by perfect capital markets, rational behavior, and perfect certainty. Still within this convenient analytical framework we shall go on in Section II and III to consider certain closely related issues that appear to have been responsible for considerable misunderstanding of the role of dividend policy. In particular, Section II will focus on the longstanding debate about what investors "really" capitalize when they buy shares; and Section III on the much mooted relations between price, the rate of growth of profits, and the rate of dividends per share. Once these fundamentals have been established, we shall proceed in Section IV to drop the assumption of certainty and to see the extent to which the earlier conclusions about dividend policy must be modified. Finally, in Section V , we shall briefly examine the implications for the dividend policy problem of certain kinds of market imperfections.
... There has been a substantially huge number of research conducted regarding the firms' dividend after Miller and Modigliani (1961) first proposed the dividend irrelevance proposition. This proposition states that the dividend policy doesn't change the shareholders' wealth. ...
... Bhattacharya, 1979), free cash flow hypothesis (Jensen, 1986), catering hypothesis (Baker & Wurgler, 2004) and life cycle hypothesis (DeAngelo, DeAngelo, & Stulz, 2006;Fama & French, 2001;Grullon, Michaely, & Swaminathan, 2002). After the fundamental study of Miller and Modigliani (1961) on dividend irrelevance proposition, most of the study on dividend policy has been conducted on the assumption of market imperfection such as asymmetric flow of information, tax, agency problem to examine the relevance of dividend with firm value. Fama and French (2001) conducted a study of the nature of dividends in the US firms between 1926-1999, the result of the study shows that the average dividend of the firm has declined significantly after 1978. ...
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Dividend policy of firm in theoretical finance is one of the most controversial issue, various theories of dividend policy try to explain the dividend behaviour of the firm. The dividend distributed by a firm to its shareholder is very different when it is viewed from the perspective of the company’s life cycle. If no regulation forces, then firms at initial stage have higher investment opportunities, so they retain all their earning and pay no dividend. The firms at maturity stage have less investment opportunities, slow pace of growth rate and lower cost of raising external capital, hence, mature firms retain less and pays higher dividend. Life cycle hypothesis suggests that firm increases their dividend with their maturity. This study investigates the dividend behaviour of Nepalese commercial banks, by using the ten years panel data for the period from 2010 to 2019. Using conventional proxies of life cycle, the result of the study consistently shows that Nepalese listed commercial bank follow dividend life cycle theory. The result also shows that larger firms pay higher dividend and dividend history has positive relation with next period dividend payment. The result is robust and such robustness check has been conducted by altering some of the proxies of the variables. The result of the study suggest that the regulators should not impose same dividend policy to the entire banking industry.
... Namun di sisi lain berdasarkan teori yang mengungkapkan irrelevansi dari deviden, nilai perusahaan tidak ditentukan oleh deviden dalam kondisi ideal dan tanpa pergeseran kondisi pasar. Deviden yang ditentukan oleh perusahaan tidak selaras dengan nilai yang ada (Miller & Modigliani, 1961). ...
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... Teorik ve ampirik temellerinin geçerliliği Myers (2000), Lo ve Lys (2000) ve Morel (2003) tarafından doğrulanmış olan Ohlson (1995) modelinde, borsada işlem gören şirketlerin değeri finansal bilgiye ve ilgili olduğu düşünülen finansal olmayan bilgiye dayalı olarak yapılmaktadır. Ohlson (1995), Modigliani-Miller (1958, 1961 Modelde , defter değeri ve net kar ile birlikte değer ile ilişkili olduğu düşünülen değişkeni ifade etmektedir. Bu çalışmada modellerde finansal olmayan 'diğer' değişkenler parametresi olarak yer alan ESG puanı, şirketlerin kurumsal sürdürülebilirlik çabalarının bir boyutu olarak düşünülmektedir. ...
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... Regarding the second point, in line with Modigliani-Miller (1961), it is often assumed that firms adjust their dividend payouts according to existing investment opportunities, in which case dividend payouts should have no effect on investment. However, it is well established that dividend payouts tend to be sticky because managers take historical dividend payout ratios and future earnings expectations as benchmark for actual payout ratios, and because they want to avoid that changes in the dividend policy lead to strong market responses (Lintner, 1956;Ha et al., 2017). ...
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