Extract
The Determinants of Corporate Dividend Policy
INTRODUCTION
Dividend policy is one of the most controversial subjects in finance. Finance scholars have engaged in extensive research to explain why companies should pay or not pay dividends. Many researchers (Baker & Powell, 1999) have developed and empirically tested various models to explain dividend behavior. Some researchers (Baker, Veit & Powell, 2001) have surveyed corporate managers and institutional investors to determine their views about dividends. Despite extensive debate, the actual motivation for paying dividends remains a puzzle (Baker & Powell, 1999).A better understanding of the motivation for the dividend decision could shed significant light on stock valuation, since dividends play a central role in traditional stock valuation models. In such models, stocks have value because they hold the promise of future cash payouts. Dividends constitute the primary cash payment to stockholders or the greater the expected future stream of dividends, the greater the value of the stockholder's share (Carlson, 2001).Some researchers believe that dividends increase shareholder wealth (Gordon, 1959), others believe that dividends are irrelevant (Miller & Schole...See the full content of this document
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