Abstract:

This comprehensive review examines the relationship between dividend policy and the value of the firm, with a focus on the signaling theory, agency theory, and dividend irrelevance theory. We analyze the various factors that influence the optimal dividend policy, including growth opportunities, profitability, capital structure, and investor preferences. Our review of the empirical evidence reveals that dividend policy can have a significant impact on firm value, with dividend-paying firms tend to have higher market values and lower volatility. However, the relationship between dividend policy and firm value is complex and depends on various factors. We discuss the implications of our findings for investors, managers, and policymakers, highlighting the importance of considering the firm's specific characteristics and market conditions when making decisions related to dividend policy.