A high-dividend policy is more difficult for a weak firm than a strong firm because it likely will not have the cash to support it.

Question

Quizplus · Accepted Answer

A weak firm is already struggling with cash flow and profitability, and committing to a high-dividend policy would require them to pay out a significant amount of their cash reserves. This can put the firm at risk of not being able to meet other financial obligations and can further weaken their financial position. A strong firm, on the other hand, is better equipped to support a high-dividend policy as they have sufficient cash reserves and profitable operations to sustain it.

A High-Dividend Policy Is More Difficult for a Weak Firm