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Since investors are able to create homemade dividends, managers should not be rewarded for adopting high dividend payout policy. Critically evaluate this statement in the
"Since investors are able to create homemade dividends, managers should not be rewarded for adopting high dividend payout policy." Critically evaluate this statement in the light of both the theories of dividend policy and practical considerations. After the groundbreaking work by Modigliani and Miller arguing that dividend policy is irrelevant, several theories were proposed to suggest that dividend policy does matter. Explain why dividend policy does matter to corporate financial managers? In particular, critically evaluate how these theories explain the implications of dividend policy upon the value of the firm. QUESTION SIX "The theoretical position is clear: provided retained earnings are reinvested at the cost of equity, or higher, firms can increase shareholder wealth by cutting dividends." Required: Validate the statement above
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