What are some of the factors affecting a company's dividend policy?


Quick Answer

Some factors that may affect a company's dividend policy and be used to justify a decision to keep all of the net profits within the company are an upcoming acquisition or business expansion, a need to finance research and development or any upcoming situation that the company believes may require an adequate amount of available cash. The decision to pay shareholders a dividend is made by the company's board of directors. Despite a company's profitability, its board may decide against distributing a portion of the company's net profits to shareholders, as reported on the Wharton School's online journal.

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Full Answer

Although shareholders may disagree with a board's decision to not pay them dividends, courts will not force a company to reverse the decision unless there is an indication of corporate fraud. Courts tend to view the board as being the group which is best equipped to decide company matters. Certain shareholders, however, may feel that keeping too much cash within the company can be a temptation to squander it or use it for executive raises, as noted by Accounting Professor Stephanie Sikes on the Wharton School's online journal.

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