The dividend policy model that assumes that managers use dividends to covey positive information to shareholders is called the ...

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The signaling model assumes that managers use dividends as a way to signal positive information to shareholders about the future prospects and profitability of the company. The agency cost model focuses on the conflicts of interest between managers and shareholders, while the contracting cost model looks at the costs and benefits of various financing methods for the company. None of these models specifically address the use of dividends as a signal.

The Dividend Policy Model That Assumes That Managers Use Dividends