Dividend Policy and Increasing Discount Rates: A Clarification

Robert C. Higgins

Journal of Financial and Quantitative Analysis, 1972, vol. 7, issue 3, 1757-1762

Abstract: For almost a decade, Myron Gordon has argued repeatedly that an enterprise's dividend policy can affect its share price [2, 3, and 4]. The essence of his argument is that risk-averse investors are likely to perceive current dividends as less risky than future ones. Consequently, a corporate decision to reduce current, in favor of increased future, dividends will reduce share prices, even when the funds are invested to yield the firm's cost of capital.

Date: 1972
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