💰 Dividend Policy Game: Nvidia Edition

Step 1: Choose a Dividend Policy

You are Nvidia's CFO. Choose a dividend policy that reflects your priorities and expectations.

High Dividend Low Dividend No Dividend Share Repurchase

Step 2: Implications of Your Choice

Next: Shareholder Strategy ⬅ Back

Step 3: Shareholder Strategy

⬅ Back

📚 Dividend Policy Theories (Textbook Summary)

• 📘 Dividend Irrelevance Theory (Modigliani & Miller):
  • 🔹 Assumes perfect capital markets (no taxes, no floatation costs, etc.)
  • 🔹 Dividend policy does not impact firm value
  • 🔹 Investors are indifferent between dividends and capital gains
• 🐦 Bird-in-the-Hand Theory:
  • 🔹 Investors prefer "certain" dividends today to uncertain capital gains tomorrow
  • 🔹 Higher dividends = lower perceived risk
  • 🔹 Firms with high payouts can have higher valuation
• 💸 Tax Preference Theory:
  • 🔹 Capital gains taxed less favorably than dividends
  • 🔹 Investors prefer low or zero dividends to defer taxes
  • 🔹 Firms retain more earnings to increase shareholder value
• 📢 Signaling Theory:
  • 🔹 Dividend increases = positive signal about future earnings
  • 🔹 Dividend cuts = negative signal (often causes stock price to drop)
  • 🔹 Firms use dividend policy to communicate confidence
• 🔐 Agency Cost Theory:
  • 🔹 Dividends reduce free cash flow that managers might misuse
  • 🔹 Payouts align interests of management and shareholders
  • 🔹 More relevant in firms with dispersed ownership