What are the external factors that determine dividend policy?

There are several factors which affect dividend policy, the most important of which are the following: (a) legal rules, (b) liquidity position, (c) the need to pay off debt, (d) restrictions in debt contract, (e) rate of expansion of assets, (f) profit rate, (g) stability of earnings, (h) access to capital markets, (i) …

What are the external factors affecting dividend policy?

1) Dividend payout rate- defined as the ratio of dividends per share and earnings per share. 3) Unregulated firms in this result are compared with earlier studies. 4) Amount of profit to be distributed among the shareholders, 5) Amount of profit to be retained in the firm.

What are the factors to determining dividend policy?

The following are the factors which generally affect the dividend policy of a firm:

  • Financial Needs of the Firm: …
  • Stability of Dividends: …
  • Legal Restrictions: …
  • Restrictions in Loan Agreements: …
  • Liquidity: …
  • Access to Capital Market: …
  • Stability of Earnings: …
  • Objective of Maintaining Control:

What are the three theories of dividend policy?

Stable, constant, and residual are the three types of dividend policy. Even though investors know companies are not required to pay dividends, many consider it a bellwether of that specific company’s financial health.

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What are the advantage factors influencing dividend policy?

The expected dividend payout is influenced by many factors such as after tax earnings, availability of cash, shareholders expectation, expected future earnings, liquidity, leverage, return on investment, industry norms as well as future earnings.

What are the two main theories of dividend?

Some of the major different theories of dividend in financial management are as follows: 1. Walter’s model 2. Gordon’s model 3. Modigliani and Miller’s hypothesis.

What are the two main theories of dividend explain?

1. Irrelevance Theory : According to irrelevance theory dividend policy do not affect value of firm, thus it is called irrelevance theory. 2. Relevance Theory : According to relevance theory dividend policy affects value of firm, thus it is called relevance theory.

What is dividend irrelevance theory?

The dividend irrelevance theory holds that the markets perform efficiently so that any dividend payout will lead to a decline in the stock price by the amount of the dividend. … As a result, holding the stock for the dividend achieves no gain since the stock price adjusts lower for the same amount of the payout.

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