Dividend relevance theory was proposed by Myron J. Gordon and John Lintner. Dividend relevance theory suggests that investors are generally risk averse and would rather have dividends today (“bird-in-the-hand”) than possible share appreciation and dividends tomorrow.
Dividend relevance theory proposes that dividend policy affect the share price. Therefore, according to this theory, optimal dividend policy should be determined which will ensure maximization of the wealth of the shareholders.
Empirical studies do not support dividend relevance theory. However, actions of market participants tend to suggest that there is some connection between dividend policy and share price.
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