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Payout Policy Pedagogy: What Matters and Why

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  • Harry DeAngelo
  • Linda DeAngelo
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    Abstract

    "This paper argues that we should abandon""MM (1961)""irrelevance as the foundation for teaching payout policy, and instead emphasise the need to distribute the full value generated by investment policy ('full payout'). Because MM's assumptions restrict payouts to an optimum, their irrelevance theorem does not provide the appropriate prescription for managerial behaviour. A simple example clarifies why the correct prescription is 'full payout', and why both payout and investment policy matter even absent agency costs (""DeAngelo and DeAngelo, 2006""). A simple life-cycle generalisation explains the main stylised facts about the payout policies of US and European firms." Copyright 2007 The Authors Journal compilation (c) 2007 Blackwell Publishing Ltd.

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    Bibliographic Info

    Article provided by European Financial Management Association in its journal European Financial Management.

    Volume (Year): 13 (2007)
    Issue (Month): 1 ()
    Pages: 11-27

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    Handle: RePEc:bla:eufman:v:13:y:2007:i:1:p:11-27

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    Cited by:
    1. von Eije, Henk & Megginson, William L., 2008. "Dividends and share repurchases in the European Union," Journal of Financial Economics, Elsevier, vol. 89(2), pages 347-374, August.
    2. Magni, Carlo Alberto & Vélez-Pareja, Ignacio, 2009. "Potential dividends versus actual cash flows in firm valuation," MPRA Paper 14509, University Library of Munich, Germany.
    3. Andriosopoulos, Dimitris & Hoque, Hafiz, 2013. "The determinants of share repurchases in Europe," International Review of Financial Analysis, Elsevier, vol. 27(C), pages 65-76.
    4. Vélez-Pareja, Ignacio & Magni, Carlo Alberto, 2008. "Potential dividends and actual cash flows. Theoretical and empirical reasons for using ‘actual’ and dismissing ‘potential’, Or: How not to pull potential rabbits out of actual hats," MPRA Paper 7266, University Library of Munich, Germany.

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