Abstract
Dividend policy is an important part of the company’s financial management, which is directly related to the company’s survival and development. Although higher incentives can increase shareholders’ confidence in the company’s development and obtain considerable profits, it will reduce the company’s retained earnings, affect the company’s further development, and the company’s expected growth rate will fall; lower dividends will bring the company more development funds, but deviate from the company’s shareholders’ wishes and damage the company’s image. A company’s dividend policy affects the company’s financial structure and investment financing activities, reflecting the company’s direct return on shareholder investment. This article starts from the “UF network”, analyzes its dividend policy, and tries to explain the reasons for this feature.
Highlights
Dividend policy is an important part of the company’s financial management, which is directly related to the company’s survival and development
This article starts from the “UF network”, analyzes its dividend policy, and tries to explain the reasons for this feature
Based on the perfect capital market, Merton Miller (Momi) puts forward the theory of dividend policy and enterprise value irrelevance from the perspective of uncertainty
Summary
The Dividends-Free Theory (MM Theory) was proposed in 1961 by the American economist Franco Modigliani and the finance scientist Merton Miller (Momi). Based on the perfect capital market, Momi puts forward the theory of dividend policy and enterprise value irrelevance from the perspective of uncertainty. This is because the increase of the company’s profit and value depends entirely on its investment policy. The market value of the enterprise and the capital structure is irrelevant, but depends on the average cost of capital in its industry. Under the conditions given by the company’s investment policy, the dividend policy will not have any impact on the value of the company. It is concluded that the cost of equity capital of a company is a linear increasing function of its capital structure
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