Models of dividend distibution and taxation

Abstract

The aim of this paper is to provide a comprehensive theoretical background of dividend distribution and taxation from a view of investors. We compare and analyse key related theories and concepts. For instance, Lintner (1956) concludes that dividends represent the primary and active decision variable for investors in most situations. The most controversial theory of dividend policy was developed by Modigliani and Miller (1961) who demonstrated that in the perfect and complete capital markets the dividend policy is irrelevant and the value of the company is independent of its payout policy. Nevertheless, in the real world the capital markets are imperfect and therefore practical results of these theories are rather limited.