All of the following factors support the proposition that dividend policy matters EXCEPT
A) investors desire to minimize and defer taxes, and capital gains get preferential tax treatment over dividend income.
B) perfect capital markets.
C) information asymmetry exists between shareholders and managers.
D) flotation costs significantly increase the cost of new common stock compared to retained earnings.

Question

Quizplus · Accepted Answer

Perfect capital markets assume that all investors have the same information and access to capital with no transaction costs, therefore dividend policy does not matter in such a scenario. The other options provide reasons why dividend policy is important.

All of the Following Factors Support the Proposition That Dividend