Examine the view that dividends are irrelevant to rational investors Assignment

Examine the view that dividends are irrelevant to rational investors when considering the value of shares from a theoretical and trial-and-error perspective - Assignment ExamplePrimarily, when firms make enormous profits, the managers sens either decide to use it for involution by investing in new projects or pay it to the shareholders in the class of dividends. The dividend policy ordinarily guides this process. Dividend policy is the set of guidelines or principles that companies adopt to decide the amount of the profits that shareholders are to receive (Miller and Modigliani, 1961). hitherto though, the business uses these sets of principles to determine the value of the dividend the decision on whether to pay the dividends or not lies in the placards decision. In fact, when the board of directors declares the dividends to be paid it becomes a debt to the corporation and cannot be recanted or rescinded quickly.Dividends can either be paid on temporary or permanent basis or sometimes it can be paid once or twice a year. Deangelo (1995) argues that, investors are usually fire not only in the stability of this payment but also the level of dividend payment. From this perspective, therefore, the managers should be cognizant of the impacts of unexpected changes in the dividend payment to the potential investors. Both the existing investors and potential investors are affected by the changes since such uncertainties could alienate them from investing with the organization. According to Bhattacharya (1979), unstable dividend payment aspect may negatively fascinate the perception of the investor based on the long term companys performance in the monetary markets.Even though, most economists believe that it is the value and stability of payment of dividends that the investors should rely on while do decisions research ascertains that this is irrelevant and should warrants sidelining. Many from other schools of thought including Miller and Modigliani believ e that what the company pays in the form of a dividend is totally