A valid reason for a firm to reduce or eliminate its cash dividends is if the tax laws have recently changed such that dividends are taxed at an investor's marginal rate while capital gains are tax exempt.

Question

Quizplus · Accepted Answer

If tax laws change so that dividends are taxed at an investor's marginal rate while capital gains are tax exempt, firms might reduce or eliminate cash dividends to favor capital gains, which would be more tax-efficient for investors.

A Valid Reason for a Firm to Reduce or Eliminate