According to the perfect markets approach to dividend policy,
A) other things equal, the greater the payout ratio, the greater the share price of the firm.
B) the price of a share of stock is unrelated to dividend policy.
C) the firm should retain earnings so stockholders will receive a capital gain.
D) the firm should pay a dividend only after current equity financing needs have been met.

Question

Quizplus · Accepted Answer

According to the perfect markets approach, the price of a share of stock is unrelated to dividend policy because investors can use their own resources to replicate any desired cash flow patterns. Therefore, the decision to pay dividends or retain earnings should not affect the firm's market value.

According to the Perfect Markets Approach to Dividend Policy