DIVIDEND POLICY AND VALUATION: THEORY AND TESTS Presiding: SUDIPTO BATTACHARYAt To Pay or Not to Pay Dividend* NILS H. HAKANSSON** I. Introduction OUR UNDERSTANDING of why corporations pay dividends is currently unsatisfactory. On the one hand, received theory tells us that dividends are irrelevant (in the sense that any two arbitrarily chosen dividend policies have equivalent consequences), both in the absence of taxes (Miller and Modigliani ) and in their presence (Miller and Scholes ). On the other hand, dividends continue to flood the empirical world with cash as regularly and as consistently as the sun scorches the desert, and one is hard put to characterize this pattern (currently at an annual rate of about $63 billion') as being founded on irrelevance. Not surprisingly, the attendant anomaly has led some, notably Black [l], to suggest that we really don't know why companies pay dividends. Something is clearly amiss. The present paper will look to the information content of dividends as a substantive (although not necessarily complete) explanation for the prevalence and persistence of positive dividend policies in market economies. The notion that dividends may constitute a source of information is, of course, not new (see e.g., Miller and
The Journal of Finance – Wiley
Published: May 1, 1982
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