High dividends may increase stock values due to all of the following reasons EXCEPT
A) dividends are more certain than capital gains.
B) higher dividends are used to signal higher expected future earnings.
C) dividends are used as a tool to minimize agency costs.
D) higher dividends allow companies to increase their proportion of external equity financing.

Question

Quizplus · Accepted Answer

Higher dividends do not necessarily allow companies to increase their proportion of external equity financing. Dividends are typically paid out of a company's existing earnings or cash reserves, rather than through new external equity financing. Instead, companies may issue new equity to raise additional funds for growth opportunities or other investments.

High Dividends May Increase Stock Values Due to All of the Following