Birds-in-the-hand theory

Birds-in-the-hand theory

			Investors perception
Investors preference in Capital gain or Income gain?			Income gain would be preferable. (*2)
Dividends paid by a company		Instable	Negative(*1)
Stock price		Punished
Cost of equity		Higher
Equity value		Lower
Stock repurchase			Unpredictable and possibly one-time event. (*3)

(*1) Any volatility (both increase and decrease) in dividends is seen as a negative sign by investors.
(*2) Uncertainty associated with capital appreciation vs. relative certainty of dividends.
(*3) A repurchase does not provide the same type of assurance since it is an unpredictable and possibly one-time event.