A firm that follows a residual distribution policy must believe that the dividend irrelevance theory is correct.

Question

Quizplus · Accepted Answer

A residual distribution policy means that a company first invests its profits in projects with positive net present values, and then pays out the remaining amount as dividends. This policy does not necessarily indicate a belief in the dividend irrelevance theory, as the company is still paying out dividends based on its residual earnings.

A Firm That Follows a Residual Distribution Policy Must Believe