Briefly provide your insight as to what dividend policy entails. What are some of the key questions related to / answered by dividend policy? What is the signaling hypthosis related to dividends? By what (valuation based) means can we support the basic premise of this hypthesis?© BrainMass Inc. brainmass.com October 9, 2019, 6:19 pm ad1c9bdddf
Firm's Ability to Pay Dividend depends on its funds requirements for growth, shareholders' desire and liquidity. A growth firm should set its dividend rate at a low level (because of its high needs for funds) and move towards its target slowly.
Practical considerations for payment of dividend are:
Financial Need of company, Shareholders Expectations, Closely/Widely Held Company, Constraints on Paying Dividends, Legal Restrictions, Liquidity, Borrowing Capacity, Access to the Capital Market, Restrictions in Loan Agreements. Hence Dividend policy is a major responsibility of the board of directors. Thus Factors ...
This explains the Signalling Hypothesis.