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Dividend Theory Summary

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The present research aims to test theories of investor preferences for dividends versus capital gains by using data from some companies listed on Tunis Stock Exchange (TUNINDEX); first, Merton Miller and Franco Modigliani theory (MM), this study investigates the effects of dividend payouts on the stock value by finding the relationship between dividend payouts and the required rate of return on stock as well as the relationship between dividend payouts and the company’s value represented by Tobin’s Q. Secondly, Bird-in-the-hand theory, the study aims to find the relationship between dividend payouts and the stock’s risk. The findings demonstrate that there is no association between dividend payouts and the required rate of return on stocks, and findings also show a …show more content…

In (1984), Grinblatt, Masulis, and Titman; found in their research that dividends positively influence the firm’ value. In (2008), De La Torre conclude in his paper that dividends affect positively the firm’s value, and Also Hussin and Ying found in their test on 120 listed Malaysian firms in (2010) that dividends and earnings announcement influence positively the firm’s stock prices.
Another recent paper in (2006) by De Angelo, claims that the dividend irrelevance theory (MM) is irrelevant and the paper underlined the fact (MM) theory assume that 100% of the free cash flows is distributed to shareholders.
In his paper Carl B. McGowan “A simplified approach to demonstrating the irrelevance of dividend policy to the value of the firm” showed that investors are free to follow any dividend pattern that looks best for them regardless the firm’s dividend pattern. Thus, the value of the firm is not determined by the pattern of the dividend stream but by the present value of the future dividends, regardless of the pattern. Any pattern of dividend payments that the firm adopts can be changed by the investor to any other

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