High-dividend-payout policy increases transaction costs for both the firm and the shareholder compared to a simple sale of stock by the shareholder to get cash.

Question

Quizplus · Accepted Answer

A high-dividend-payout policy typically involves the firm directly distributing cash to shareholders, which generally incurs lower transaction costs compared to shareholders selling stock to obtain cash. Selling stock involves brokerage fees and potentially capital gains taxes, which are usually higher than the transaction costs associated with receiving dividends.

High-Dividend-Payout Policy Increases Transaction Costs for Both the Firm and the Shareholder