In

perfect capital markets, investors are indifferent between the firm

distributing funds via dividends or share repurchases. By reinvesting dividends

or selling shares, they can replicate either payout method on their own.

In

perfect capital markets, holding fixed the investment policy of a firm, the

firm’s choice of dividend policy is irrelevant and does not affect the initial

share price.

In

perfect capital markets, an open market share repurchase has no effect on the

share price, and the share price is the same as the ex-dividend price if a

dividend were paid instead.

In a perfect capital

market, when a dividend is paid, the share price drops by the amount of the

dividend when the share begins to trade ex-dividend