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Dividend policy
DIVIDEND POLICY
DIVIDEND POLICY IS DEFINED AS
THE FIRMS POLICY WITH
REGARD TO PAYING OUT
EARNINGS AS DIVIDENDS
VERSUS RETAINING THEM FOR
REINVESTMENT IN THE FIRM.
Disadvantages of Repurchases
IRS could impose penalties if repurchases were
primarily to avoid taxes on dividends.
Selling stockholders may not be well informed,
hence be treated unfairly.
Firm may have to bid up price to complete
purchase, thus paying too much for its own
stock.
DIVIDEND THEORIES
M-M Dividend Irrelevance
Theory
Bird-In-The-Hand Theory
Tax Preference Theory
and The Theories Conflict