One implication of the bird-in-the-hand theory of dividends is that a given reduction in dividend yield must be offset by a more than proportionate increase in growth in order to keep a firm's required return constant, other things held constant.

Question

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According to the bird-in-the-hand theory, investors prefer current dividends over the promise of potential future growth. Therefore, if a firm reduces its dividend yield, investors may require a higher rate of return to compensate for the loss of current income. In order to offset this increase in required return and keep the firm's overall required return constant, the firm would need to increase its growth rate by more than the proportionate decrease in dividend yield.

One Implication of the Bird-In-The-Hand Theory of Dividends Is That