The optimal distribution policy for a firm strikes a balance between current dividends and capital gains, and results in the maximization of stock price.

Question

Quizplus · Accepted Answer

This statement is generally true. The optimal distribution policy depends on various factors such as the firm's growth opportunities, cash flow, and financial health. However, in general, a balanced approach between paying dividends and investing in growth opportunities that lead to capital gains can result in maximizing the overall value of the firm, which translates to higher stock prices.

The Optimal Distribution Policy for a Firm Strikes a Balance