Dividend Policy and Firm Valuation

DIVIDEND POLICY AND FIRM VALUATION

Abstract:
This paper aims at critically evaluating whether dividend policy in the current economic climate is important to the valuation of listed companies. In traditional corporate finance, investment and financing policies are viewed as the most important policies to a company. However, with more companies going public, the dividend policies adopted by some companies have featured heavily in the news. If dividend policy is relevant to firm value and the correlation is significant, it is important for the finance manager to formulate the dividend policy carefully so as to maximise the wealth of shareholders and the value of the firm. After several decades of study by many scholars, there is still no general consensus on the importance of dividend policy. This paper therefore attempts to present a fair view towards this long lasting debate about dividend policy by reviewing: (1) the dividend policy irrelevance school, advocated by Miller and Modigliani (1961), and (2) the dividend policy relevance school, including four arguments - bird in the hand theory, information content effect theory, tax induced clientele effect theory, and transaction costs induced clientele effect theory. This paper also provides empirical evidence to support each argument. Having recognised numerous and significant imperfections in the current economic climate, this paper comes to the conclusion that dividend policy is relevant to firm value. However, the importance of dividend policy varies from one industry to another, and even differs between companies within the same industry. This paper suggests that the relationship between dividend policy and firm value should be analysed on an individual company basis. In addition, although dividend policy is relevant, the financing and investment policies should still be the key determinant in valuing a firm as suggested by Miller and Modigliani (1961). Keywords: Corporate Finance, Firm Value, Dividends, Dividend Policy Irrelevance, Dividend Policy Relevance. Page 1 of 12

Dividend Policy and Firm Valuation

DIVIDEND POLICY AND FIRM VALUATION

1. Introduction
On 24 January 2012, when Apples chief executive Tim Cook announced the first quarters results and the estimated $90bn ( 58bn) cash reserve, its dividend policy started to feature heavily in the news. Whether Apple should pay out dividends, something Steve Jobs was vehemently opposed to, has become a favourite Wall Street parlour game, according to Garside (2012). How important is dividend policy for a company? To what extent will dividend policy have an impact on the firm value? Whether dividend policy affects the valuation of a firm, or a listed company to be specific, has been a controversial issue for a long time. In order to resolve this puzzle, it is important to clearly define dividend policy and firm value at the first place. According to Firer, Ross, Westerfield and Jordan (2004, pg. 563), dividend policy is the time pattern of dividend payout. Therefore dividend policy question is whether the firm should pay out a large percentage of its profits now or a small percentage (Firer et al. 2004, pg. 563). Pike and Neale (2009, pg. 457) define that the value of the company is synonymous with the value of the equity, assuming that there is no company borrowing. Therefore, they suggest that the value of a firm depends on its dividend-paying capacity. Pike et al (2009, pg.70) further point out that, for distressed companies with no dividends, the market is valuing more distant dividends on hopes of a turnaround in earnings, or break-up value if recovery is unlikely. This paper discusses the impact of dividend policy on the firm value. The reminder of this paper is organised as follows: Dividend policy irrelevance school & empirical evidence; Dividend policy relevance school & empirical evidence; Dividend policy and firm value under current economic climate; A brief summary of the main results.

2. Dividend policy irrelevance school

Miller and Modigliani (1961) published a seminal academic paper illustrating that, under a perfect capital market with rational investors, the specific dividend policy adopted by the company is irrelevant to the firm value. To qualify for the perfect capital market condition, Brennan (1971) suggests that the following criteria should be satisfied: (1) all investors are trying to maximise their wealth; (2) all investors have similar expectations; (3) all investors are rational people; (4) all investors expect each other to be rational people as well. Page 2 of 12

Dividend Policy and Firm Valuation Furthermore, Pike and Neale (2009) highlight some additional underlying assumptions to support the dividend policy irrelevance hypothesis: (1) there are no flotation or transaction costs; (2) information is costless and equally available to everyone; (3) there is no distorting tax; (4) all investors have the same access to borrowings; (5) all participants are price takers; (6) dividend decisions are not used to convey information. 2.1. Supporters: Miller and Modigliani (1961, pg.414) argue that given a firms investment policy, the dividend payout policy it chooses to follow will affect neither the current price of its shares nor the total returns to shareholders. They suggest that, in a perfect capital market where rational people try to maximise their benefits, investors are indifferent to whether receiving dividends right now or receiving capital gains in the future. What investors really care is whether the company can adopt an optimal investment policy, which will allow the company to invest in projects generating positive net present value and thus increasing the firm value. In other words, dividend policy is merely a choice of financing strategy according to Watson and Head (2010). From investors point of view, Miller and Modigliani (1961) argue that dividend policy is irrelevant because investors are always able to create homemade dividends. The idea of homemade dividends implies that investors can undo company dividend policy by reinvesting dividends or selling shares (Firer et al. 2004, pg. 564). The investors have the ability to transfer the disappointed dividend policy into a desirable dividend policy by buying or selling on their own rights. Therefore, there is no particular necessity to find out which dividend policy benefits the company the most. From this perspective it can be concluded that dividend policy will not influence the firm value at all. From the firms point of view, Pike and Neale (2009) suggest that the dividend policy is also irrelevant. They highlight in their paper that, when a firm can get access to sufficient external financing, the dividend policy will not impact on the firm value. Their rationality is based on the consideration that companies can recoup the required finance by selling shares. No matter which kind of divided policy the company adopts and no matter how much dividends the company pays out, the company can always sell shares to fund beneficial investments. In other words, the choice of choosing dividend policies will not preclude profitable investment. Therefore, dividend policy is irrelevant to the firm value. Firer et al. (2004) also advocate the dividend policy irrelevance thought under perfect capital market. They suggest that dividend policy cannot raise the dividend at one day without decreasing the dividends on the other days. Dividend policy is in fact providing a kind of trade-off between paying out dividends on different days. When taking the time value into consideration, the net present values of dividends under different dividend policies should be the same. In other words, dividend policy does not matter. The choice of choosing different dividend policies cannot affect the current value of the firm.

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Dividend Policy and Firm Valuation 2.2.Empirical evidence: Al-Malkawi, Rafferty and Pillai (2010) support the dividend policy irrelevance theory by citing empirical evidence generated by leading financial economic researchers Black and Scholes (1974). Based on the information obtained from New York Stock Exchange for the period between 1936 and 1966, Black and Scholes (1974) constructed 25 portfolios of common stocks. Then, they employed the capital asset pricing model (CAPM) and statistic tools to examine the long term dividend yield effects. Their results show that the dividend yield coefficient is not significantly different from zero either for the entire period (19361966) or for any of shorter sub-periods (see Al-Malkawi 2010, pg.177). This finding implies that there is a very weak or nil relationship between the expected return and the dividend payout rate. In other words, there is a very low risk to make a mistake by making the statement that dividend policy will not influence the share price and the firm value. The empirical research conducted by Black and Scholes (1974) strongly supports the dividend policy irrelevance school advocated by Miller and Modigliani (1961). Other studies conducted by leading financial economic researchers such as Miller and Scholes (1978, 1982), Hess (1981), Miller (1986), and Bernstein (1996) also provided empirical evidence in support of the dividend policy irrelevance hypothesis. Their studies suggest that dividend policy makes no difference on either share prices or the cost of equity. In other words, dividend policy has no impact on firm value.

3. Dividend policy relevance school

Admittedly, the dividend policy irrelevance school only exist under perfect capital market where all the investors are assumed to be rational people. In the real world, however, the strict criteria of perfect capital market cannot be satisfied, implying that the dividend policy irrelevance school is not always applicable. Not all arguments are exhausted in this paper, but the four arguments presented below should be sufficient to prove that in real practice dividend policy can notably influence the firm value. These four arguments are as follows: Bird in the hand theory; Information content effect theory; Taxation induced clientele effect theory; Transaction costs induced clientele effect theory; 3.1. Bird in the hand theory: 3.1.1. Supporters: Lintner (1956), Gordan (1959) and Walter (1963) argue for the bird in the hand theory, suggesting that investors prefer dividends rather than capital gains because of their certainty. Al-Malkawi, Rafferty and Pillai (2010, pg. 178) support this theory by citing Graham, Dodd and Cottles work, arguing that a dollar of dividends has, on average, four times the impact on stock prices as a dollar of retained earnings. Therefore the companies which adopt low dividend payout rate policy are not favoured by investors. Because shareholders can choose

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Dividend Policy and Firm Valuation to sell the shares if they are not satisfied with the dividend policy, these companies may experience a drop in their share prices. Ultimately the firm values are devaluated. However this bird in the hand theory is criticised by Miller and Modigliani (1961) and Bhattacharya (1979). They suggest that it is plausible to regard future dividends as risky cash flows simply because of the length of time. Actually more distant dividends are more risky only if they stem from inherently riskier investment projects (Pike and Neale 2009, pg. 464). When discounting the future cash flows, the chosen discount factor should be a suitable riskadjusted rate, which can properly reflect the level of risks. Therefore the reasoning behind the bird in the hand theory is groundless. In other words, it is irrational to believe that receiving a certain dividend at present is better than leaving the equivalent amount in the company to generate profits in the future. 3.1.2. Empirical evidence: The empirical research conducted by Gordon (1959) supports the bird in the hand theory. Gordon (1959) generated dividends and earnings data of four industries chemicals, foods, steels, and machine tools for year 1951 and year 1954. He then employed a linear regression methodology to examine the relationship between share prices and dividends/ retained earnings. The results show that dividends have a greater impact on share price than retained earnings do, and the required rate of return has a positive correlation with the fraction of retained earnings. In other words, dividends are preferred to capital gains because of their certainty. Similar results are found by Fisher (1961), who conducted the empirical research based on the British data generated for the period between year 1949 and year 1957. 3.2.Information content effect theory: 3.2.1. Supporters: Miller and Modigliani (1961) argue that, under perfect capital market, information is costless and equally available to everyone. This implies that the announcement and payment of dividends will not influence share prices. However this is not the case in the real world. For instance, when the leading global diamond producer De Beers announced the decision of cutting 50% dividend in 1982, its share price fell 13% during the following week (Firer et al. 2004). This case, along with numerous other real life examples, illustrates that dividend announcement can convey new information to the market, and the market will then react positively or negatively towards the news. This is called information content effect of dividend policy, which is suggested by Bhattacharya (1979), and John and Williams (1985). Because the information between investors and firms are asymmetric in the real world, investors will interpret the future performance of the company by evaluating the changes in the dividend policy. An announcement of an increase in dividend payout may be seen as a positive sign, implying the company has some attractive projects. However this can also be interpreted as a negative sign, indicating a shortage of profitable investments. Miller (1986) suggests that the change in the share price is the reflection of the expectation gap between the announced dividends and the expected amount. The gap will always exist in the current Page 5 of 12

Dividend Policy and Firm Valuation imperfect capital market because of asymmetric information. Therefore, the changes in dividend policy can always result in a change in share price and consequently the firm value. 3.2.2. Empirical evidence: Green and McAee (2001) support the information content effect theory by conducting a research on 25 companies listed in the Irish Stock Market Handbook (1991). Their empirical evidence on earnings and dividends were generated for the seven years period from 1984 to 1990. They employed two models to test the samples, which were based on the preliminary test of Watts (1973) but were modified accordingly to incorporate signalling effects. The results show that there is a positive correlation between current earnings and dividend variables. Green and McAee (2001, pg.76) therefore suggest that dividends convey information about future earnings incremental to that provided by current earnings. Baker, Powell and Veit (2002) surveyed companies listed on National Association of Securities Dealers Quotation (NASDAQ) system. They received 188 responses from officers such as chief financial officers, vice presidents of finance, chief operating officers/presidents, and chief executive officers. The survey of Baker, Powell and Veit (2002) focused on the companies view towards dividend policy, the impact of dividend policy on firm value. Their results demonstrate that dividend policy can notably influence firm value, and respondent companies give the strongest support for the information content effect theory. Other empirical evidences generated by Pettit (1972), Watts (1973), and Lobo, Nair and Song (1986) also bolster the information content effect theory of dividend policy. 3.3. Taxation induced clientele effect theory: 3.3.1. Supporters: The impact of taxation can drive dividend policy to influence firm value. In many countries, the tax treatment of dividends and capital gains are different, because of the differentiation of tax rates and/or different levels of exemptions. For instance, during the 2011/2012 tax year in the UK, dividends are taxed at basic rate of 10%, higher rate of 32.5%, or additional rate of 42.5%, while capital gains generated by individuals are taxed at standard rate of 18% or higher rate of 28%. An annual exemption of 10,000,000 on capital gains is available to all individuals, while exemptions for dividend income are only available if certain conditions are met, for instance, the dividends are received from shares held in a Venture Capital Trust. Because of the different tax rates, the after-tax incomes will vary even if the prior-tax incomes are the same. People may prefer either dividends or capital gains, depending on which choice can maximise their after-tax wealth. Therefore, people will invest their money into the company whose dividend policy can satisfy their demand to the largest extent. If the company changes its dividend policy and the consequent new dividend policy no longer satisfies investors interests, investors will exit the company by selling the holding shares. Consequently the share prices may drop and firm value decrease. The clientele effect theory in taxation is suggested by Waston and Head (2010).

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Dividend Policy and Firm Valuation 3.3.2. Empirical evidence: Elton and Gruber (1970) examined the changes of share prices before and after the ex dividend date. Those sample shares, which paid dividends between 1966 and 1967, were selected randomly from the New York Stock Exchange. Under M&Ms dividend policy irrelevance theory, the decrease in share price on the ex dividend date should be the same with the amount of dividends paid out. However, Elton and Gruber (1970) found out that the drop in share price is always less than the dividend, implying M&Ms theory is plausible. They further interpret that the occurrence of this phenomenon is caused by the differential taxes and tax exemptions, thus proving the tax induced clientele effect theory. Dhaliwal, Erickson and Trezevant (1999) and Seida (2001) also present empirical evidence to support the taxation induced clientele effect theory. Dhaliwal et al. (1999) obtained empirical evidence from 133 companies for a 14-year period from year 1982. They found that 80% of those companies experienced a rise in institutional shareholding subsequent to the dividend announcement, and the increase was statistically and economically significant. Like what Elton and Gruber (1970) did, Dhaliwal et al. (1999) interpreted the increase as the evidence to support the taxation induced clientele theory. They suggest the tax induced clientele effect is strong enough to have an impact on investors decisions. 3.4. Transaction costs induced clientele effect theory: 3.4.1. Supportors: In the real world, M&Ms notion of homemade dividends is not costless and the existence of such costs may make dividend policy not irrelevant (Al-Malkawi, Rafferty and Pillai, 2010, pg. 183). Investors are not indifference towards dividends and capital gains, when taking into consideration the transaction costs of homemade dividends. For instance, investors who have regular liabilities to meet will opt for dividends rather than capital gains. This is especially true for small investors such as pensioners, and institutional investors such as pension funds and insurance companies. The clientele effect drives investors to invest their money into the company whose dividend policy suits their interests the most. Similar to the taxation induced clientele effect theory stated in the previous section, changes in dividend policy may give rise to dissatisfactions among investors, resulting in a decrease of share price and firm value. 3.4.2. Empirical evidence: Pettit (1977) proved the transaction costs induced clientele effect theory. He conducted an empirical research on the portfolio positions of 914 individual investors. After gathering and analysing the relevant information, he found a significant positive correlation between investors ages and their portfolios dividend yield. He also detected a negative correlation between investors income and their portfolios dividend yield. Pettit (1977) used the transaction costs induced clientele effect theory to interpret the rationales behind these findings. Apparently there is a high tendency for elderly low-income investors to choose the companies regularly paying out dividend. This group of people require the dividend income to satisfy their consumption requirements, and they try to maximise their benefits by avoiding transaction costs associated with selling shares. Page 7 of 12

Dividend Policy and Firm Valuation

4. Dividend policy and firm value under current economic climate

The above two sections presented some arguments for dividend policy irrelevance school and for dividend policy relevance school. These arguments were supported by empirical evidence respectively. If the dividend policy irrelevance school is correct, then the dividend policy has no impact on a companys value. Otherwise it can be argued that the dividend policy does influence the firm value. The dividend policy irrelevance school, led by Miller and Modigliani (1961), argues that the choices between dividend policies will not influence the firm value under perfect capital market. Miller and Modigliani (1961) suggest that what investors care about is the investment policy of the company. Watson and Head (2010) suggest that the dividend policy does not matter and is merely a choice of financing strategy. Even if investors care about the dividend policy, they can always modify the dividend policy to their target one by the way of creating homemade dividends. Similarly, if the choice of dividend policy causes liquidity problems for the companies, those companies can always issue new shares to generate sufficient funds (Pike and Neale, 2009). When taking the time value of money into consideration, Firer et al. (2004) suggest that the net present value of the firm will be the same no matter which kind of dividend policy is adopted. Empirical evidence from Black and Scholes (1974), Miller and Scholes (1978, 1982), Hess (1981), Miller (1986), and Bernstein (1996) can prove the arguments advocated by this dividend policy irrelevance school. On the other hand, the dividend policy relevance school argues that M&Ms hypothesis is not applicable in the real world. It is possible to criticise a number of assumptions made by Miller and Modigliain as being unrealistic. The current capital market is by no means perfect. Firstly, Lintner (1956), Gordan (1959) and Walter (1963) argue that, under current imperfect capital market, investors prefer dividends rather than capital gains because of their certainty; therefore the dividend policy does matter. Gordon (1959) and Fisher (1961) provided Empirical evidence on this argument. Secondly, Bhattacharya (1979), and John and Williams (1985) argue that the information is not costless and equally available to everyone in the real world, and the dividend policy is viewed by the investors to convey new information. Green and McAee (2001), Baker, Powell and Veit (2002), Pettit (1972), Watts (1973), and Lobo, Nair and Song (1986) provided empirical evidence to bolster the information content effect theory of dividend policy. Thirdly, because of the differential tax treatments, investors tend to have a preference on either dividend or capital gains. Empirical evidence was provided by Elton and Gruber (1970), Dhaliwal, Erickson and Trezevant (1999) and Seida (2001). Fourthly, transactions cost induced clientele effect theory also support dividend policy irrelevance school, which was proved by the empirical evidence generated by Pettit (1977). When balancing the main arguments summarised above, it is hard to clearly decide which is right and which is wrong. In fact, empirical evidence can prove all of these arguments. The difficulty of making the judgement is understandable, just as what Ang (1987) commented more than two decades ago:

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Dividend Policy and Firm Valuation

Dividend theories do not fit neatly into the relevance vs. irrelevance dichotomy. There are finer shade of irrelevance (or relevance), depending on whether the question concerns the investors, the firms, the market, or the tax authority. Taxes, asymmetric information, agency costs, transformation costs, endogenous financing, and investment decisions may have a role singly or jointly in the determination of observed dividends. (Ang, 1987, pg. 58)

In order to make a conclusion on whether dividend policy is relevant and whether dividend policy can influence the firm value, it is important to root ourselves firmly in the real world. Under current economic environment, the market has numerous and very significant imperfections. Information is not necessarily freely and fully available to everyone. Investors will always need to spend time and money in acquiring useful information. In fact, the dividend policy is viewed by investors as an important way to obtain new information about the company. Furthermore, transaction costs exist in the real world, and therefore investors cannot create homemade shares free of charge. This implies that capital gain is not a good substitute for dividends. In addition, taxation will influence the preference for dividends or capital gains as well, because different tax treatment will result in different after-tax profits even if the before-tax profits are the same. The imperfect capital market under current economic environment implies that dividend policy is not irrelevant to the firm value. Whether the relevance is strong or weak varies from companies to companies. For some companies, the above discussed market imperfections can have a significant influence, while for other companies these factors might be insignificant. For instance, some companies are exempt from taxation under certain conditions, while others are not. Apparently the differential tax treatment will have a significant impact; therefore the dividend policy will have a quite different influence on the share price, and the firm value as well. In addition, the attitude of investors will also have a determinant effect on dividend policy and the market price of the shares. Considering that just under half of all ordinary shares are owned by institutional investors under the current economic climate, the reactions of these shareholders to the proposed dividend changes can be very significant. The consequence is still based on a case by case study. The impact of dividend policy on firm value varies from companies to companies, depending on various market imperfection factors. Therefore, under current economic climate where various capital market imperfections exist, the dividend policy is not irrelevant, and the impact of dividend policy on firm value varies from company to company. Admittedly that dividend policy is important; dividend policy is not believed to rank in the same importance with investment policy and financing policy in determining a firms value. Even though the dividend policy irrelevance theory by M&M is ruled out in the real world, part of their fundamental reasoning is effectively correct, such as that the net present value of a company is determined by its investment and financing policy. Dividend policy can influence the wealth of shareholders and thus the valuation of a firm to a significant extent, but dividend policy is not the determinant factor in deciding the share price and the firm value.

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Dividend Policy and Firm Valuation

5. Summary
This essay discussed the long lasting debate over whether dividend policy in the current economic climate is important to the valuation of firms, and listed companies to be specific. The discussions process was summarised as follows: In the first section, a real life example of Apple was raised, implying that stakeholders care about the dividend policy. The question of whether dividend policy is important to the valuation of the companies was raised, and the definitions of dividend policy and firm value were explained and analysed; In the second section, the arguments for the dividend policy irrelevance school initially advocated by Miller and Modigliani (1961) were presented. Empirical evidence was provided to support the arguments. In the third section, various arguments against the dividend policy irrelevance school were presented, such as bird in the hand theory, information content effect theory, taxation induced clientele effect theory, and transaction costs induced clientele effect theory. These arguments were supported by empirical evidence and suggest that dividend policy is relevant to the valuation of firms in the real world. In the next section, the writer summarised the rationale behind the above two schools and drew the conclusion. The circumstance was rooted in the current economic environment, suggesting that dividend policy is relevant. The writer further pointed out that the relationship varies from companies to companies, and the dividend policy does not rank in importance with investment and financing policy in deciding the companys value. The final section gave a brief summary of the essay, and highlighted the main conclusion.

After the above discussions, this paper comes to the conclusion that dividend policy can influence the firm value but it is not the most important factor in deciding this value. Overall it should be the investment financing policy to play the determinant role in valuing a firm. As discussed previously, the relationship between dividend policy and firm value varies from companies to companies. In order to reach a more specific conclusion on the impact of dividend policy on a certain company, more information about the chosen company and its business sector is required.

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Dividend Policy and Firm Valuation

References:
Al-Malkawi, H., Rafferty, M. and Pillai, R., (2010), Dividend Policy: A Review of Theories and Empirical Evidence, International Bulletin of Business Administration, Issue 9, pp. 171-200 Baker, H. K., Powell, G. E., and Veit, E. T., (2002), Revisiting Managerial Perspectives on Dividend Policy, Journal of Economics and Finance, Vol. 26, No.3, pp. 267-283 Bernstein, P.L., (1996), Dividends: The Puzzle, Journal of Applied Corporate Finance, Vol. 9, pp. 16-22 Bhattacharya, S., (1979), Imperfect Information, Dividend Policy, and the Bird in the Hand Fallacy, Bell Journal of Economics, Vol. 10, pp. 259-270 Brennan, M., (1971), A Note on Dividend Irrelevance and the Gordon Valuation Model, Journal of Finance, Vol. 26, No. 5, pp. 1115-1121 Dhaliwal, D. S., Erickson, M., and Trezevant, R., (1999), A Test of the Theory of Tax Clienteles for Dividend Policies, National Tax Journal, Vol. 52, pp. 179-194 Elton, E. J., and Gruber, M. J., (1970), Marginal Stockholder Tax Rates and the Clientele Effect, Review of Economics and Statistics, Vol. 52, pp. 68-74 Firer, C., Ross, S. A., Westerfield, R. W., and Jordan, B. D., (2003) Chapter 18: dividends and dividend policy, Fundamentals of corporate finance, Berkshine: McGraw-Hill Education Fisher, G.R., (1961), Some Factors Influencing Share Prices, Economic Journal, Vol. 71, pp. 121-141 Garside, J., (2012), Apple urged to spread its cash around, available at: http://www.guardian.co.uk/technology/2012/jan/24/apple-urged-share-spoils, [Assessed at 1st March 2012] Gordon, Myron J., (1959), Dividends, Earnings, and Stock Prices, Review of Economics and Statistics, Vol. 41, pp. 99-105. Green, J.P., and McAree, D., (2001), A Research Note on the Information Content of Dividends and the Corroboration Effect of Earnings and Dividend Signals: Irish Evidence, The Irish Journal Of Management, Hess, P. J., (1981), The Dividend Debate: 20 Years of Discussion, The Revolution in Corporate Finance, Cambridge: Blackwell Publishers John, K., and Williams, J., (1985), Dividends, Dilution, and Taxes: A Signalling Equilibrium, Journal of Finance, Vol. 40, pp. 1053-1070 Lintner, J., (1956), Distribution of Incomes of Corporations Among Dividends, Retained Earnings, and Taxes, American Economic Review, Vol. 46, pp. 97-113. Lobo, G.J., Nair, R.D., And Song, I. N., (1986), Additional Evidence On the information Content of Dividends, Journal of Business Finance and Accounting, Winter, pp. 597-608 Miller, M. (1986) Behavioural rationality in finance: the case of dividends, Journal of Business, Vol. 59, pp. 451-68 Miller, M. H., and Scholes, M. S., (1978), Dividends and Taxes, Journal of Financial Economics, Vol. 6, pp. 333-264 Page 11 of 12

Dividend Policy and Firm Valuation Miller, M. H., and Scholes, M. S., (1982), Dividend and Taxes: Some Empirical Evidence, Journal of Political Economy, Vol. 90, pp. 1118-1141 Miller, M. H., and Modigliani, F., (1961), Dividend Policy, Growth, and the Valuation of Shares, Journal of Business, Vol. 34, pp. 411-433 Pettit, R. R., (1972), Dividend Announcements, Security Performance, and Capital Market Efficiency, Journal of Finance, pp. 993-1007 Pettit, R. R., (1977), Taxes, Transactions costs and the Clientele Effect of Dividends, Journal of Financial Economics, Vol. 5, pp. 419-436 Pike, R., and Neale, B., (2009), Chapter 17: returning value to shareholders: the dividend decision, Corporate finance and investment: decisions and strategies, 6th edition, Essex: Pearson Education Limited Seida, J. A., (2001), Evidence of Tax-Clientele-Related Trading Following Dividend Increases, Journal of the American Taxation Association, Vol. 23, pp. 1-21 Walter, J. E., (1963), Dividend Policy: Its Influence on the Value of the Enterprise, Journalof Finance, Vol. 18, pp. 280-291. Watson, D., and Head, A. (2010), Corporate finance: principles and practice, fifth edition, Essex: Pearson Education Limited Watts, R., (1973), The information Content of Dividends, Journal of Business, pp 191-211

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