Dividend Theory and Empirical Evidence: A Theoretical Perspective

Anthony Muriungi

doi:10.32602/jafas.2020.020

Abstract

Dividend Theory and Empirical Evidence: A Theoretical Perspective

Highlights

This paper aims at examining the applicability of dividend theory in different market context through an analysis of existing theoretical literature and empirical evidence on dividend policy
Several theories have been put forward to explain the relationship between dividend policy and firm value, before the landmark paper by Modigliani and Miller in 1961 it was a commonly held view that dividend policy had a significant positive influence on the company value and managers could influence the behaviour of investors by changing its dividend payment policy
The current finance theory literature is based on empirical findings that have been largely developed through research and empirical tests in developed countries, like USA (NYSE), Great Britain (LSE), Germany (Frankfurt), New York Stock Exchange (NYSE), London Stock Exchange (LSE), Chicago Board of Exchange (CBOE)

Summary

Introduction

This paper aims at examining the applicability of dividend theory in different market context through an analysis of existing theoretical literature and empirical evidence on dividend policy. Gupta & Charu (2010) identified debt policy, liquidity, profitability, growth and ownership structures as the major factors influencing the dividend policy of Indian firms. The level of Information asymmetry has been suggested by several empirical studies as positively affecting dividend payment policy of a firm: Miller and Rock (1985); Bhattacharya (1979); John & Williams (1985); Khan and King (2006).

Results

Conclusion