Dividend Irrelevance and Firm Control
Research in Finance
dividend, irrelevance, control, Miller, Modigliani
Finance and Financial Management
We examine the ability of co-founders of a firm to create an artificial (or “homemade”) dividend as in Miller and Modigliani (1961). We employ traditional discounted valuation in showing that the act of creating an artificial dividend may decrease the value of the firm because it can divert funds from investment to the consumption of perquisites. Only where there is complete trust in the party to which the shares are sold can a co-founder costlessly create an artificial dividend. It seems likely that a dividend policy, idiosyncratic to the firm’s founders, would be established at the founding of the firm.
Dennis, Steven A. and Smith, William Steven (2014). Dividend Irrelevance and Firm Control. Research in Finance 30, 149-167. Retrieved from http://digitalcommons.kent.edu/finpubs/6
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