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| Author: | DeAngelo, H. DeAngelo, L. |
| Title: | Payout policy pedagogy: What matters and why |
| Journal: | European Financial Management
2007 : JAN, VOL. 13:1, p. 11-27 |
| Index terms: | investments dividends policy companies Europe USA |
| Language: | eng |
| Abstract: | This paper argues that Miller and Modigliani, 1961 (as: MM) irrelevance (here as: irrvl.) ought to be abandoned as the foundation for teaching payout policy, and instead the need to distribute the full value generated by investment policy should be emphasized. Because MM's assumptions restrict payouts to an optimum, their irrvl. theorem does not provide the appropriate prescription (as: prsp.) for managerial behaviour. A simple example shows why the correct prsp. 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 stylized facts about the payout policies of U.S. and European firms. |
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