This theory argues that dividends that the firm has committed to pay are less risky to risk-averse investors than are potential future capital gains.

Question

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The theory that argues that dividends committed to be paid are less risky to risk-averse investors than potential future capital gains is known as the bird-in-the-hand theory. This theory suggests that investors prefer the certainty of dividend payments rather than the uncertainty of future capital gains, which may or may not materialize. The other choices are not relevant to this theory; the dividend irrelevance theorem argues that dividends do not affect the value of a firm, the dividend indifference theory suggests investors are indifferent between receiving dividends and capital gains, and the Jobs and Growth Tax Relief Reconciliation Act is not related to this theory.

This Theory Argues That Dividends That the Firm Has Committed