A Pedagogic Note on Dividend Policy

Robert E. Krainer

Journal of Financial and Quantitative Analysis, 1971, vol. 6, issue 4, 1147-1154

Abstract: For some time there has been disagreement among financial economists as to the effect of dividend policy on the valuation of a firm under conditions of uncertainty. On one side of the debate Miller and Modigliani (MM) [11] argue that the capitalization rate on shares is independent of the dividend policy of the firm. Gordon [6], [7], [8], and others, on the other hand, reject this proposition and present theories of valuation where share prices and capitalization rates are very much dependent upon the dividend policies of firms.

Date: 1971
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