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I am learning about dividends and read that the free cash flow of a company is the money it can payout to investors through dividends. Free cash flow is the cash left over after a company pays for its operating expenses and capital expenditures. My question is what prevents companies to use all their extra money to collect bigger bonuses and then leave no money left over for the investors. Additionally, wouldn't it make sense for the company to reinvest ALL its money because that will lead to long term growth, where handing out dividends would lead to no growth.

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My question is what prevents companies to use all their extra money to collect bigger bonuses and then leave no money left over for the investors.

Nothing prevents it, but corporate governance discourages it. If the managers took all of the profits for themselves, the board could fire them, or if the board was complicit, the shareholders could vote the board out and elect a new one.

Additionally, wouldn't it make sense for the company to reinvest ALL its money because that will lead to long term growth, where handing out dividends would lead to no growth.

In some cases, yes. It depends on what growth opportunities the company has. Shareholders might rather have a dividend in cash if they can reinvest the money at a higher rate of return that the growth that the company could obtain (although in that case an investor might just choose to sell all of their shares and reinvest somewhere else.

Dividend theory is a fairly complicated subject, and there aren't always black and white answers that work for all investors. There are a mix of financial and behavioral factors, not all of which are completely rational. Some investors want a portion of their investment periodically as income, while others would rather see the company invest the income internally rather than paying out dividends.

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