High dividends may increase stock values due to all of the following reasons except:
A) dividends are more certain than capital gains.
B) higher dividends are used to signal higher expected future earnings.
C) dividends are used as a tool to minimize agency costs.
D) higher dividends allow companies to increase their proportion of external equity financing.

Question

Quizplus · Accepted Answer

Higher dividends would not allow companies to increase their proportion of external equity financing. In fact, higher dividends would decrease the company's retained earnings, which are a source of internal equity financing.

High Dividends May Increase Stock Values Due to All of the Following