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Theoretical and Applied Economics
No. 7 / 2008 (524)

The Dividend – a Source for the Development of Companies or for the Growth of Market Value?

Petru Prunea
Universitatea Tenhica din Cluj-Napoca

Abstract. Usually the dividend policy is seen as a way to approach the distribution of profit on the two classical directions. But the dividend policy influences the market value of a company, and if those who decide over this problem do not have an ethical behaviour, but pursue to distribute a great part of the profit as dividends under the form of free shares, contributes to the decrease in the current price of the company’s shares. The conclusion drawn from the present study is that the market value of a company will grow only if the distributed dividend is situated on a continuous upward curve. This fact imposes to resort sometimes to accumulated dividends and other times to the reduction of the part from the profit meant for investments in order to complete the dividends so that they are greater than in the previous year.

Keywords: the dividend policy; the company’s market value; the invested profit; the rate of dividend per share; the residual dividends; the accumulated dividends; the free shares; the company’s market image; the subscription rights.

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