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A Study on the Relationship between a Firm's Cash Dividend Policy and Its Value in Korean Stock Market

In this paper, we confirm that a firm's cash dividend policy affects its value and is influenced by different industries, market and time(the alterations of macroeconomic conditions). Our results suggest that firm value is positively associated with both cash dividend payout ratios and cash dividend smoothing. This implies that firms with high cash dividend payout ratios have high stock prices. However, using the idea of cash dividend smoothing, firms with high dividend smoothing(less increasing cash dividends compared with the previous year’s dividends, per share) also have high stock prices. These results imply that market prefers cash dividend payers, not high level of volatility of dividend payouts. Furthermore, our results, likewise present different directions and magnitudes of relationships between firm value and cash dividend policy, in accordance with industry, market and year in which firms operate. Furthermore, we could say that our results can be explained by agency, catering, financial flexibility and life-cycle theories, together.