Surveys conducted of managers tell us that they primarily see regular cash dividends as a way to precisely adjust the leverage ratio to the target suggested by the trade-off theory of capital structure.

Question

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While regular cash dividends may affect the overall capital structure of a company, managers typically view them as a way to distribute profits to shareholders rather than as a tool to adjust leverage ratios. The trade-off theory of capital structure proposes that firms balance the benefits of debt financing (such as tax advantages and increased financial leverage) against the costs (such as increased bankruptcy risk and agency costs), but this theory doesn't necessarily suggest that dividends are a key part of that balance.

Surveys Conducted of Managers Tell Us That They Primarily See