13
Payment Date
(About two weeks
after Record Date)
Ex-Dividend Date
(Two Business Days
before Record Date)
Board of
Directors
Meeting
Time
Shareholder
Record Date
Dividend
Announcement
Date
Figure 2.1 Dividend payment procedures
Source : Lease, R., John, K., Kalay, A., Loewenstein, U., & Sarig, O. (2000). Dividend
Policy: Its Impact on Firm Value. USA: Harvard College
2.1.5 Dividend policy theories
According to Bringham & Ehrhardt (2011), there are several theories related
to dividend policy which elaborate the issues regarding dividend. Those theories
consist of :
1) Dividend Irrelevance Theory
According to Modigliani and Miller (MM) theory, the dividend payment does
not affect the value of company. MM suggested that the main source to evaluate
firm’s performance and value are f rom business risk and assets. The decision whether
the profit gained is distributed either in form of dividend or retained earnings would
not affect company’s value. Thus dividend payment is not relevant.
The Dividend Irrelevance Theory is supported by main assumptions as
follows :
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