Signaling hypothesis says that investors regard dividend changes as signals of management's earnings forecasts.
Clientele Effect
The clientele effect is the tendency of a firm to attract the type of investor who likes its dividend policy.
Free Cash Flow Hypothesis
All else equal, firms that pay dividends from cash flows that cannot be reinvested in positive net present value projects (free cash flows), have higher values than firms that retain free cash flows.
Dividend / Retained Earnings Decision
There are various constraints that may impact on a firm's decision to pay out earnings in the form of dividends.
