A Theory for Payout Policy

Abstract

The study looks for the theoretical dividend policy, considering firms cash flows maximization under transaction cost and capital structure, executive utility maximization implied in the performance of operation, investors’ utility maximization influenced by marginal tax and information asymmetry by allowing wealth transferring between current and future periods. It results an optimal dividend choice including 6 major factors. These are financial strategy or say capital structure of firm that reflected in level of equity and debt, scheduled constant growth of dividend by firm, market rate of return, tax shield due to debt financing, marginal personal income tax for principals and investment strategy of principals.