8.

Dividend Policy and Its Implications

Dividend policy is a critical decision for financial managers, involving whether to

distribute profits to shareholders or reinvest them in the business. The policy impacts
investor sentiment, stock prices, and the company's capital structure.

Several theories explain different approaches to dividend policy. The dividend

irrelevance theory, proposed by Modigliani and Miller, suggests that a company's
dividend policy is irrelevant to its market value. In contrast, other theories like the bird-
in-hand theory argue that dividends are important for valuing a company.

Factors influencing dividend policy include the company's profitability, growth

opportunities, liquidity requirements, and tax considerations. A stable dividend policy
can positively impact investor confidence and market perception.