Which of the following is true if dividend policy is irrelevant?
A) Perfect capital markets exist.
B) The clientele effect exists.
C) The information effect exists.
D) Tax deferral on capital gains exists.

Question

Quizplus · Accepted Answer

If dividend policy is irrelevant, it means that the value of the firm is not affected by whether or not it pays dividends. This is only possible in a perfect capital market where all information is available to investors, there are no taxes or transaction costs, and investors can buy and sell securities at the same price. Therefore, if dividend policy is irrelevant, it implies the existence of perfect capital markets.

Which of the Following Is True If Dividend Policy Is