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Payout Policy Pedagogy: What Matters and Why

Author

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  • Harry DeAngelo
  • Linda DeAngelo

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.

Suggested Citation

  • Harry DeAngelo & Linda DeAngelo, 2007. "Payout Policy Pedagogy: What Matters and Why," European Financial Management, European Financial Management Association, vol. 13(1), pages 11-27.
  • Handle: RePEc:bla:eufman:v:13:y:2007:i:1:p:11-27
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    Cited by:

    1. Cho, Jin Seo & Kim, Tae-hwan & Shin, Yongcheol, 2015. "Quantile cointegration in the autoregressive distributed-lag modeling framework," Journal of Econometrics, Elsevier, vol. 188(1), pages 281-300.
    2. Andriosopoulos, Dimitris & Hoque, Hafiz, 2013. "The determinants of share repurchases in Europe," International Review of Financial Analysis, Elsevier, vol. 27(C), pages 65-76.
    3. 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.
    4. Enrico Onali, 2014. "Moral Hazard, Dividends, and Risk in Banks," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(1-2), pages 128-155, January.
    5. Onali, Enrico & Galiakhmetova, Ramilya & Molyneux, Philip & Torluccio, Giuseppe, 2016. "CEO power, government monitoring, and bank dividends," Journal of Financial Intermediation, Elsevier, vol. 27(C), pages 89-117.
    6. repec:eee:quaeco:v:65:y:2017:i:c:p:328-345 is not listed on IDEAS
    7. Guilhem Bascle, 2008. "Controlling for endogeneity with instrumental variables in strategic management research," Post-Print hal-00576795, HAL.
    8. Jie Chen & Wei Song & Marc Goergen, 2018. "Passing the dividend baton: The impact of dividend policy on new CEOs' initial compensation," Working Papers 2018-18, Swansea University, School of Management.
    9. Magni, Carlo Alberto, 2016. "Capital depreciation and the underdetermination of rate of return: A unifying perspective," Journal of Mathematical Economics, Elsevier, vol. 67(C), pages 54-79.
    10. Carlo Alberto Magni & Ignacio Velez-Pareja, 2009. "Potential dividends versus actual cash flows in firm valuation," PROYECCIONES FINANCIERAS Y VALORACION 005516, MASTER CONSULTORES.
    11. Anneleen Michiels & Wim Voordeckers & Nadine Lybaert & Tensie Steijvers, 2015. "Dividends and family governance practices in private family firms," Small Business Economics, Springer, vol. 44(2), pages 299-314, February.
    12. 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.

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