Assuming a company's return on equity is less than the required return, which of the following would cause a decrease in the stock price, all else the same?

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Quizplus · Accepted Answer

When the payout ratio decreases, it implies that the company is retaining more earnings rather than distributing them as dividends. For investors expecting dividends, this can be seen negatively, especially if the company's return on equity is less than the required return, indicating that the company may not be efficiently using its retained earnings to generate shareholder value. This can lead to a decrease in stock price.

Assuming a Company's Return on Equity Is Less Than the Required