Which one of the following is a drawback of cash dividends?
A)Firms may have to obtain additional external financing which would not be required in the absence of the dividends.
B)Stock prices tend to increase as annual dividend amounts increase.
C)Cash dividends support stock prices.
D)Dividends tend to lower agency costs.
E)Dividend-paying firms tend to attract a wider field of investors than do non-dividend-paying firms.

Question

Quizplus · Accepted Answer

Paying cash dividends can lead to a firm needing additional external financing because the cash used for dividends could have been used for other investments or expenses, potentially leading to a cash shortfall.

Which One of the Following Is a Drawback of Cash