A model of optimal dividend payout is presented in which increased dividends lower agency costs but raise the transactions cost of external financing. The optimal dividend payout minimizes the sum of these two costs. A cross‐sectional test of the model relates dividend payout to the fraction of equity held by insiders, the past and expected future revenue growth of the firm, the firm's beta coefficient, and the number of common stockholders. The coefficients of all variables are significant in the predicted directions. The results indicate that investment policy influences dividend policy.
The Journal of Financial Research – Wiley
Published: Sep 1, 1982
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