What is the major argument that supports the "bird in the hand theory"?
A)There is no difference between dividend yields and capital gains.
B)The risk profile of the firm depends on the risk of its cash flows, not its dividends.
C)Present value of growth opportunities are more volatile, hence increase the risk of the firm.
D)Dividend payments signal the good standing of the firm.

Question

Quizplus · Accepted Answer

The "bird in the hand theory" suggests that investors prefer the certainty of dividends over potential future capital gains, as the present value of growth opportunities is more volatile and increases the risk of the firm.

What Is the Major Argument That Supports the "Bird in the Hand