The central predictions of the agency cost/contracting model of dividend payments include:

Question

Quizplus · Accepted Answer

The agency cost/contracting model of dividend payments predicts that dividend initiations and increases signal positive information to the market, leading to stock price increases (A), firms with more free cash flow will pay higher dividends to reduce agency costs (B), and managerial compensation will be aligned to encourage value-maximizing policies, including dividends (C). Thus, all of the statements are correct predictions of the model.

The Central Predictions of the Agency Cost/contracting Model of Dividend