14.3 Relevance of Payout Policy

  1. LG2

The financial literature has reported numerous theories and empirical findings concerning payout policy. Although this research provides some interesting insights about payout policy, capital budgeting and capital structure decisions are generally considered more important than payout decisions. In other words, firms should not sacrifice good investment and financing decisions for a payout policy of questionable importance.

The most important question about payout policy is this one: Does payout policy have a significant effect on the value of a firm? A number of theoretical and empirical answers to this question have been proposed, but as yet there is no widely accepted rule to help a firm find its “optimal” ...

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