Stockholders perceive blocked earnings as contributing to the value of the firm.

Question

Quizplus · Accepted Answer

Stockholders generally prefer to receive dividends or see an increase in the company's stock price as a result of the company's earnings, rather than having those earnings possibly blocked or reinvested back into the company. Therefore, blocked earnings are not typically seen as contributing to the value of the firm from the perspective of stockholders.

Stockholders Perceive Blocked Earnings as Contributing to the Value of the Firm