Dividend policy: A macro perspective

This paper critically reviews the main literature on dividend policy in corporate financial management. It provides a conceptual framework based on the Competing Frictions Model (Lease, John, Kalay, Loewenstein, and Sarig, 2000) for analyzing dividend policy in an imperfect capital market setting from a macro perspective. A Substantial Environment Model (SEM) is developed to synthesize the various theories of dividend policy, in which the significant influences of the legal, financial, and socio-cultural environments on dividend policy are examined. This paper helps to address the questions of what the theories of dividend policy are, how they are developed in the finance literature, and the extent to which they are supported by empirical research. Copyright © 2003 Faculty of Economics and Business, University Malaysia Sarawak.