A policy of "sticky dividends," meaning one in which dividends tend to stick at newly raised levels,is used more frequently by firms than a residual dividend policy.

Question

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Research has shown that firms tend to prefer a sticky dividend policy over a residual dividend policy. The sticky dividend policy involves a company setting a steady and predictable pattern of dividend payments that is resistant to change. While the residual dividend policy involves returning any leftover earnings to shareholders after the company has made all the necessary investments and retained earnings for future growth.

A Policy of "Sticky Dividends," Meaning One in Which Dividends