The agency cost model of dividend payments assumes that

Question

Quizplus · Accepted Answer

The agency cost model of dividend payments assumes that dividend payments arise as an attempt to overcome the agency problems that result when there is a separation of corporate ownership and control. This model suggests that paying dividends can reduce the conflict of interest between shareholders and management, which ultimately benefits shareholders. Therefore, option C is the correct choice. Option A states that agency problems are distinct from the amount of cash paid out to shareholders, which is not the assumption of the agency cost model. Similarly, option B suggests that dividend payments aim to address agency problems between bondholders and management, which is not the focus of the agency cost model. Option D is a general statement and does not provide a specific explanation of the agency cost model of dividend payments.

The Agency Cost Model of Dividend Payments Assumes That