Comparable Firm Approach to Analyzing Dividend Policy

So far, we have examined the dividend policy of a firm by looking at its cash flows and the quality of its investments. There are managers who believe that their dividend policies are judged relative to those of their competitors. This "comparable-firm" approach to analyzing dividend policy is often used narrowly, by looking at only firms that are similar in size and business mix, for example. As we will illustrate, it can be used more broadly, by looking at the determinants of dividend policy across all firms in the market.

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