A Study of the Relevance of the Dividend Irrelevance - A quantitative study on the relationship between dividend policy and firm value for US listed firms from a financial management perspective

Abstract: In this study, we examine the relation between firms' existing dividend policy and their current firm value for US listed firm during 2015-2019. The relation is investigated using regressions on the enterprise value against the payout ratio and the payout mix (the proportion of cash dividends to share repurchases), and a set of control variables. Overall, we find that firm value is related to the dividend policy for US firms during the period. The results suggest that there is a positive relation between paying dividends and firm value for both value and growth companies, but the impact is substantially larger for value companies. However, given that dividends are paid, the firm value is negatively related to increasing payout ratios for growth companies. In contrast, we find no relation between firm value and the payout ratio for value companies, given that dividends are paid. Lastly, we find no evidence for a relation between firm value and the distribution form of dividends for growth companies, while we for value companies find a significantly positive relation between firm value and the payout mix (the proportion of cash dividends to share repurchases). We believe that our findings provide important insight to corporate leaders managing the dividend policy of firms.