The Influence Of Dividend Distribution On Company's Stock Price And Dividend Theory

Dividend irrelevance theory, also known as MM theory, holds that under certain assumptions, dividend policy will not have any effect on the value of the company or the price of the stock.

The stock price of a company is determined entirely by the profitability and risk combination of the investment decision of the company, and has nothing to do with the profit distribution policy of the company.

The theory is based on the complete market theory. The assumptions include: (1) the market has strong efficiency; (2) there is no income tax on any company or individual; (3) there is no financing fee (including issuing costs and various paction costs); (4) investment decisions and dividend decisions are independent of each other (dividend policy does not affect investment decisions).

Dividend related theory holds that dividend policy will affect stock prices.

The main points include the following two kinds: 1. Dividend theory: dividend theory (also known as the "bird in hand" theory) considers that the reinvestment of retained earnings to investors has great benefits.

And the risk of investment will increase as time goes on. Therefore, investors prefer cash dividends rather than earnings in the company and assume future investment risks.

2, signal pmission theory: signal pmission theory holds that under asymmetric information, companies can pmit information about the company's future profitability through dividend policy, thereby affecting the company's stock price.

Generally speaking, the future is expected.

Strong companies are often willing to differentiate themselves from companies with poor profitability by attracting relatively more investors.

According to the difference theory, because of the differences in tax rate and tax time, capital gains income is more conducive to achieving the goal of maximizing profits than dividend income, and enterprises should adopt a low dividend policy.

Agency theory holds that dividend policy helps to mitigate agency conflicts between managers and shareholders. Dividend policy is a constraint mechanism to coordinate agency relationship between shareholders and managers.

More cash dividends can at least have the following advantages: (1) corporate managers pay dividends to investors in the form of dividends, and the "cash flow" can be reduced accordingly, which can, to a certain extent, inhibit the excessive expansion of investment or privileged consumption by the managers, thereby protecting the interests of external investors.

(2) distributing cash dividends more often, reducing internal financing, leading companies to enter the capital market to seek external financing, so companies can often accept effective supervision of the capital market, so that the agency cost can be reduced through the supervision of the capital market.