Which of the following is the most important factor influencing the level of dividends?

Question

Quizplus · Accepted Answer

Investment opportunities are the most important factor influencing the level of dividends. If a company has good investment opportunities, it may choose to reinvest its earnings instead of paying dividends to shareholders. On the other hand, if a company does not have good investment opportunities, it may choose to pay higher dividends to shareholders in order to maintain or increase its stock price. Residual theory of dividends, loan covenants, market expectations, and profit stability may also influence the level of dividends, but they are not as important as investment opportunities.

Which of the Following Is the Most Important Factor Influencing