The essence and kinds of dividend policy

Abstract

Firms can use internal or external sources to finance their investments. Internal sources include retained earnings and depreciation, while external sources basically refer to new borrowings or the issue of stock. Thus the financing decision involves the appraisal of two choices. The first is the dividend choice and the second is the capital structure choice. Managers should always equilibrate between different interests of shareholders so that they could utilize investment profitable opportunities and would pay required cash dividends for some shareholders.