• 3. The Irrelevance of Payouts

    Does it matter whether firms pay dividends or repurchase shares? This section studies the basic mechanics of dividend payments and share buybacks. We show that, in a very stylized world, payout decisions are actually irrelevant: How much cash the firm returns to shareholders and how that cash is distributed does, in principle, not matter. Moreover, if shareholders have different payout preferences, they can implement such "payout policies" on their own with homemade dividends.

    With these considerations, we lay an important building block to better understand how and why payout decisions do matter in the real world, where many of the strict assumptions that we make in this section do not hold.

2. Payout Basics4. The Relevance of Payouts