(a theoretical review)
|ABDULMUMIN, Biliqees Ayoola |UIL/PG2012/105873 | |ADEJARE, Rukayat Bukola |UIL/PG2012/104601 | |AMUJO, Emmanuel Temitope |UIL/PG2012/103958 | |LAWAL, Ahmed Adeleke |UIL/PG2012/103518 |
The Department of Accounting and Finance
Faculty of Business and Social Science
University of Ilorin, Ilorin, Nigeria
Lecturer in Charge:
Dr. Abdulrasheed Abdulraheem
January 14, 2012
Course Title: Theory of Finance
Course Code: FIN 653
Class: Msc. FINANCE
Statement of Keywords
Part 1: Introduction and Background
Part 2: Conceptual Framework
Part 3: Theoretical Framework
Part 4: General Review
Statement of Keywords
Dividend: Dividend are distribution/payment made out of a company’s earnings after the obligations of all fixed income holders have been met (Olowe,1998:432).
Theories: A well-substantiated explanation of some aspect of the natural world; an organized system of accepted knowledge that applies in a variety of circumstances to explain a specific set of phenomena (Word Web).
Share: A unit of ownership interest in a corporation or financial asset (Investopedia).
Valuation: the method of calculating theoretical values of companies and their stocks (wikipedia).
The decision of how much a company should pay its stockholders as dividend has been of anxiety to managers and financial scholars for a long time. In order to address this, the financial scholars came up with various propositions that will guide the managers in making an informed dividend decision. The optimal dividend policy of a firm maybe defined as the best dividend pay-out ratio the firm can adopt. But, what can we really consider as the “best” in this context? Since the objective of the firm is to increase the wealth of its stockholders, the best dividend policy is the one that increases shareholders wealth by the greatest amount. It is therefore necessary, to understand the nature of the relationship between dividend and value of the firm. On the account of this, this paper presentation observed various dividend theories and studies how the dividend policy of a company affects its market value. On this note, the paper review the concept of dividend theory and dividend policy, analyzed the various theories and models as they relates to dividend decision. The paper also examines the positions of some scholars on the relationship between dividend policy and the share market value of companies. This paper does not conduct any empirical study but majorly review the existing theories on dividend policy and it is prepared in form of a lecture note for academic purpose, hence we are not recommending but presenting the paper for further academic discussions. PART 1: INTRODUCTION AND BACKGROUND
There are various phases of decision making in business management; ranging from Investment Decision, Financing Decision and Dividend Decision. All of these interrelate with one and other. The decision on whether to invest in a project informed the need to source for fund, this funding necessity therefore requires the decision to determine the best financing method and finance mix. As it is known generally that the utmost goal of any business is to make profit for its owner, this means that the investment decision must be profitable and viable, the financing decision must be cost effective to reduce interest-cost and increase profit available for...