Title

Dividend Irrelevance and Firm Control

Publication Title

Research in Finance

Publication Date

2014

Document Type

Article

Keywords

dividend, irrelevance, control, Miller, Modigliani

Disciplines

Finance and Financial Management

Abstract

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.

Publisher

Emerald Group Publishing Limited

Publisher Location

United Kingdom


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