ABSTRACT
Dividend policy is important for an understanding of share valuation and the cost of capital to industry and commerce, which in turn has significant ramifications for capital investment and economic growth. The role of dividend policy has been a contentious issue in corporate finance, especially since the well-known Miller and Modigliani proposition that it ought to be irrelevant to share valuation in a perfect tax-free capital market. The transactions costs at the investor level and the issue costs at the corporate level have opposite influences on dividend policy. The theoretical and empirical literature suggests a range of variables which should explain much of the variation in corporate dividend policy across firms and across countries. A steady growth trend in dividends is believed by managers to be important for shareholders. Managers tend to prefer stable dividends and avoid risking an increase in dividends, that may have to be reduced in future years.
