||This thesis focuses on dividend policy of a firm, specifically on the relevance of dividend policy and the relationship between dividends and share repurchases. A brief summary of the perfect capital market model is followed by the examination of theoretical and empirical research on dividend policy theories. The thesis concentrates on three major theories including clientele theory, signaling theory and agency theory, because they incorporate the most important frictions on the market. Despite the existence of vast literature, questions of whether the dividend policy affects the value of a firm or why firms prefer dividends over share repurchases have not been answered yet. Also, the thesis is not finding definite answers but it provides thorough analysis and reveals new possibilities for further research.