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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › dividend irrelevancy theory
sir it is known that in efficient market, dividend irrelevancy theory suggests that provided all retained earnings are reinvested in positive NPV projects, existing shareholders will be indifferent about the pattern of dividend payouts.
Sir I want to understand why is it said so? Is it that shareholders develop this understanding in efficient market that dividends will rise in the future, something like saying that Investors Rate of Return will increase going ahead in the future as the company is compounding its returns?
This is explained in Chapter 4 of our free lecture notes and the lectures that go with it 🙂