Dividend irrelevancy theory

In financial theory dividend payments and policies should be irrelevant when financial markets are efficient.

But in practice decisions about dividend levels are important because of:

1. Their informational content. This informational content is known as signalling.
2. The potential to move closer to, or away from, a firm's optimal capital structure.

See also

• Lintner
• Residual theory
• Rights issue
• Theoretical ex-rights price
• Capital structure