other group driven by transaction’s cost who appreciate dividends payment as they do not like to afford for paying the cost of the securities transactions. 2.2.4 Signaling theory The price of the stock change when the dividend payment change (linter, 1956) one of the most influential theory (Bhattacharya, 1979). An inclining in the dividends signalizes the management expect increasing in the upcoming cash flow. The theory based on assumption that the investors have not certain information about the expected future cash flow and profit figures in addition to the tax that deducted from the dividends which consider wastage (Bhattacharya, 1979) but firms would pay dividends to send a signal to shareholders and investor about gaining profit. Increase dividends payment reflects on incline shareholder wealth (Asquith and Mullins Hr, 1983). 2.2.5 Agency cost theory Decision taken by the firm’s managers not always in the interest of the shareholders who being aware of this fact, so they use means of controlling managers behaviors (Jensen and Meckling, 1976, Fama and Jensen, 1983, Jensen, 1986, Shleifer and Vishny, 1997). The agency cost is for monitoring manager’s performance and duties. As it is difficult to the shareholders to monitor the duties that undertake by the managers as it is much. so it is more effective the presences of specialized outsider to monitor the performance of the managers. Separation management from the ownership leads to interest conflict between shareholders and managers. This type of conflict may lead to more cost called agency cost with could take different forms such managers control costs. The cash dividend policy can be useful as a way of controlling managers and monitoring their performance. This realized by inclining the cash dividends. Plus maximizing cash dividend lead to withdraw the cash from the manager control. As the misuse of the fund likely reduce. 2.2.6 Tax effect theory The theory presumes that if there is no tax on capital gain investors prefer the firms that do not pay dividends. When the cash dividend proportion decrease at the expense of undistributed profit the wealth of the owners will increase. So the investors going to ask firms that pay cash dividend for a higher return, comparing the return of the firms that do not distribute cash dividends to cover the tax they will pay for dividends (Brennan, 1970, Litzenberger and Ramaswamy, 1982). Investors ready to pay a higher price for shares of firms that do not distribute dividends but keep the return as capital gain. Retaining the gain and turn it into capital gain affects positively the firm’s value and shareholders wealth. The impact of the taxes on dividend policy depends on the taxation system, so it differs.