Dividend irrelevancy theory and Dividend payout ratio: Difference between pages

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(Clarify that rate of return is future.)
 
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In financial theory, dividend payments and policies should be irrelevant when financial markets are efficient.
The proportion of the total earnings attributable to ordinary shareholders paid out by way of ordinary dividends.
 
This is because amounts retained - or distributed - by the company would in theory earn the same future rate of return for the investors.
 
Moreover, investors who require cash could sell part of their holdings.
 
While investors who don't require cash could use any dividend distributions to buy more shares in the company.
 
 
But in practice decisions about dividend levels are important because of:
 
#Their informational content. This informational content is known as ''[[signalling]]''.
#The potential to move closer to, or away from, a firm's optimal capital structure.
#Possibly, [[clientele]] effects, including taxes on investors.


Also known as the Payout ratio.


== See also ==
== See also ==
* [[Capital structure]]
* [[Dividends]]
* [[Clientele]]
* [[Earnings]]
* [[Dividend]]
* [[Retention ratio]]
* [[Lintner]]
* [[Residual theory]]
* [[Rights issue]]
*[[Signalling]]
* [[Theoretical ex-rights price]]


[[Category:The_business_context]]
[[Category:Corporate_finance]]
[[Category:Investment]]
[[Category:Financial_products_and_markets]]

Revision as of 14:19, 23 October 2012

The proportion of the total earnings attributable to ordinary shareholders paid out by way of ordinary dividends.

Also known as the Payout ratio.

See also