One reason that investors may prefer dividends to reinvestment by the firm is that dividend payments provide information to the investor.

Question

Quizplus · Accepted Answer

Dividend payments provide information to the investor about the company's current financial status and future prospects. The decision to pay dividends signals that the company has sufficient profits and cash flows to distribute to shareholders, which can positively impact the stock price. Reinvestment by the firm, on the other hand, does not necessarily provide any immediate information to investors.

One Reason That Investors May Prefer Dividends to Reinvestment by the Firm