Gordon's "bird-in-the-hand" argument suggests that ________.
A) dividends are irrelevant
B) firms should have a 100 percent payout policy
C) shareholders are risk averse and attach less risk to current dividends
D) the market value of a firm is unaffected by dividend policy

Question

Quizplus · Accepted Answer

Gordon's "bird-in-the-hand" argument states that investors are risk-averse and prefer to receive current dividends rather than uncertain future capital gains. This suggests that shareholders attach less risk to current dividends and are more likely to value them more than potential future earnings, leading to the conclusion that dividend policy can affect a firm's value. However, it does not necessarily suggest that firms should have a 100 percent payout policy or that dividends are irrelevant, and it does not imply that the market value of a firm is unaffected by dividend policy.

Gordon's "Bird-In-The-Hand" Argument Suggests That ________