1. 🧠 Modigliani–Miller (MM) Theory (1961)
🔍 Core Idea:
In a perfect market, dividend policy is irrelevant.
The value of a firm depends only on its earnings, not on whether it pays dividends.
⚙️ Key Assumptions:
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No taxes
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No transaction or flotation costs
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Perfect capital markets (equal access to information)
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Rational investors
🇺🇿 Application in Uzbekistan:
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Uzbekistan has dividend taxation (5%) and transactional barriers
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Information asymmetry and low liquidity in the stock market
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Most investors are not institutional or fully rational
➡️ MM theory has limited relevance in Uzbekistan’s real-world conditions.
2. 🐦 Bird-in-Hand Theory (Lintner & Gordon)
🔍 Core Idea:
Investors prefer certain and immediate dividends over uncertain future capital gains.
“A bird in the hand is worth two in the bush.”
✔️ Investor Behavior:
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Stable dividend payments build trust
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Dividend-paying firms are seen as less risky
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Higher payout ratios may lead to higher stock valuations
🇺🇿 In Uzbekistan:
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Investors prefer immediate cash flow from dividends
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The market is not liquid enough to easily sell shares for profits
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Long-term capital gains are uncertain
➡️ This theory closely fits Uzbekistan’s investor mindset and market reality.
3. 💸 Tax Preference Theory
🔍 Core Idea:
Dividends are taxed immediately, while capital gains may be deferred or taxed at lower rates, so investors prefer firms to retain earnings and reinvest.
🏦 Tax-based Motivation:
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Investors seek to minimize tax liability
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Companies that retain earnings can grow internally without distributing dividends
🇺🇿 Tax Treatment in Uzbekistan (as of 2024):
| Factor | Treatment under Uzbek Law |
|---|---|
| Dividend tax | 5% for individuals, 0% for resident legal entities |
| Capital gains tax | 0% if sold through regulated stock market |
| Reinvestment benefit | Retained earnings can be reinvested with no extra tax burden |
➡️ This theory is partially applicable — high-net-worth and institutional investors may prefer reinvestment over dividends for tax efficiency.
🧾 Comparative Summary for Uzbekistan
| Theory | Relevance in Uzbekistan | Notes |
|---|---|---|
| Modigliani–Miller | 🔴 Low | Unrealistic assumptions under local conditions |
| Bird-in-Hand | 🟢 High | Fits investor preference for immediate cash |
| Tax Preference | 🟡 Medium | Tax rates encourage reinvestment, but most investors still prefer dividends |
📚 Conclusion
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In Uzbekistan’s context, dividends matter for most investors.
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Bird-in-Hand is the most realistic theory due to investor psychology and market structure.
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Tax Preference matters more to large or institutional investors who strategically manage tax exposure.
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MM theory is more theoretical and doesn’t reflect the real environment in emerging markets like Uzbekistan.