Corporation’smost important objective is to earn profit.
The profit earned by companiescould be used to make further investments or to repay debt or profit could bedistributes among shareholders. Profit which is distributed among shareholderis known as dividend. But there are other certain issues with the distributionof profit among shareholder. Those are, what should be the percentage ofdividend distributed among shareholder out of total profit, what should be themethod of distribution of dividend whether cash dividend, bonus shares, or anyother. Many issues are there with dividend policy. Observation of black (1976)”the policy of dividend depends upon our observation that how we look at thepicture of dividend”.
After this theory, number of other theories of dividendpolicy have been elevated (Baker, 1999) Thereare number of reasons for firm whether it should pay a dividend or not to pay. With respect to the financial theory, the first aim ofa business is to optimize owners earning (Jensen, 2001).it has been always adebatable issue either policy of dividend helps in obtaining this particular aim or not.As dividend policy attribute to the way how company pay dividendrelying on pattern and size of an organization. It is an Organization`spractices for paying profit to its shareholder. Paying of dividend orreinvestment of profit is completely on the willingness of management of thatorganization. Miller and Modiglianiaccomplished that in perfect capital market dividend is travelling out of therecord.
There are many theories that have explained the dividend paymentchanges in payment policy of dividend by concentrating on imperfectness ofmarket Many USfirms have progressively utilized repurchase of share to divide profit toownersSince themid-1980s, US firms have increasingly used share repurchases to distribute cashto shareholders. It is necessary to be conscious of management`s perspectivebout circumstances that influences repurchase of share and cash dividend is significantto undertake dividend policy Many disputeshave been made on function of dividend while determining the price of shares. Manyfirm managers deny the statement that firm`s value is independent of dividend policy.In spite of many debates on this issue have been made but it remained eristicmatter Firstly thedispute on the significance of dividend policy seems in miller and Modigliani (1961),who said that in perfect capital market`s world, value of firm is independent ofpayment of dividend. In perfect capital market, the value of firm rely onfuture cash flow
