IMPACT OF DIVIDEND POLICIES ON FIRM VALUE

Abstract

Dividend policy refers to the strategy a company adopts to decide the portion of earnings paid out to shareholders in the form of dividends versus reinvesting the profits back into the business. This decision significantly affects a company’s capital structure, shareholder wealth, and, ultimately, the firm’s value. This article examines the impact of dividend policies on firm value, considering various theoretical perspectives and empirical studies. It explores the relationship between dividend payouts, investor preferences, and the overall market perception of a company's financial health. By analyzing different dividend policies such as stable dividend policy, residual dividend policy, and the signaling effect of dividend announcements, this paper provides insights into how dividends influence stock prices, investor behavior, and the valuation of a firm.