Distribution policy is part of the finance function. Managements make explicit decisions about the level of dividends to be paid to shareholders. These decisions have a direct influence on the liquidity of companies and the quantity of finance available for expansion. It has been said that ‘pay-out, under an ideal dividend policy in a growth situation, should not exceed the minimum amount necessary to maintain the market position and integrity of existing debt and equity issues and of issues contemplated in the near future’. (1) Companies concerned to grow must respect shareholders, preserve the market position of their shares, service existing debt and adjust dividend policy to potential issues of capital.
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