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Dividend Policy

Dividend Policy. This topic helps us to understand issues relating to dividend policy of firms 3 different theories based upon investor preferences for dividends Dividend irrelevance theory Bird in the hand theory Tax preference theory Explanation of theory using 1 period model

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Dividend Policy

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  1. Dividend Policy • This topic helps us to understand issues relating to dividend policy of firms • 3 different theories based upon investor preferences for dividends • Dividend irrelevance theory • Bird in the hand theory • Tax preference theory • Explanation of theory using 1 period model • Information content or signaling theory

  2. Factors affecting dividend distributions • Constraints • Bond indentures • Preferred stock restrictions • Impartment of capital rule • Availability of cash • Alternative sources of capital • Cost of selling new shares • Ability to substitute debt for equity • Control

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