In theory,dividends are determined as a residual item.Therefore,the better the firm's investment opportunities,the lower its dividend payments should be.

Question

Quizplus · Accepted Answer

Dividends are determined as a residual item after the firm has made its necessary investments. If the firm has better investment opportunities, it should reinvest its earnings into those opportunities instead of paying out larger dividends. Thus, the better the firm's investment opportunities, the lower its dividend payments should be.

In Theory,dividends Are Determined as a Residual Item