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a) The perfect capital market where investors are able to buy and sell stocks
without any transactional costs
b) No cost for new stocks issed by new emitent
c) No tax
d) The policy of doing investment in company does not change
e) There is a complete information about company,so that it will lead to the
symmetric information for all parties.
f) No conflict of interest between management and shareholders.
One of dividend policy that has the implication of dividend irrelevance is
dividend payout as a residual decision. As long as companies have the investment
project that trigger to a higher return than the expected, they will use the earning for
sponsoring that investment project. If companies have the remaining pr ofit after all
investment projects have been funded, then the total amount of that remaining profit
will be distributed to shareholders as cash dividend.
If the dividend policy is enacted as part of spending decision, it means that
the payment of cash dividend is passive and dividend payout will fluctuate frequently
based on fluctuations in the amount of investment opportunities available for the
company. This issue leads to the dividend irrelevancy towards the financial aspects in
company.
2) Bird-in the-Hand ( Dividend Relevance) Theory
Gordon and Lintner (1962) do not have the same opinion with the theory
suggested by MM. They argued that investors’ value of expected capital gains is
lower than expected dividends. It means that the current payment dividends are more
valuable than capital gain which is more risky and uncertain, especially when making
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