Dividend Policy: A Review of Literatures and Empirical Evidence

Abstract

Dividend policy has produced a large body of literatures and empirical evidence after the proposition of Modigliani and Miller (1961) Hypothesis of Dividend Policy. This paper aims at providing the readers with a comprehensive understanding of dividend policy by reviewing the main theories such as relevance of dividend theory, irrelevance of dividend theory, tax preference theory, clientele effects hypothesis, dividend signalling hypothesis and agency costs hypothesis. No general consensus has been reached after several decades of investigation. The research also reviews empirical evidence on dividend policy around the world. The paper concludes that dividend policy seems more like a puzzle as argued by Black (1976).