Which of the following is true of arguments for dividend relevance?
A) A firm's value is determined solely by the earning power and risk of its assets.
B) Investors are generally risk averse and attach less risk to current dividends than future dividends or capital gains.
C) The value of a firm is unaffected as it functions in a perfect market.
D) A clientele effect exists which causes a firm's shareholders to receive the dividends that they expect.

Question

Quizplus · Accepted Answer

Arguments for dividend relevance suggest that investors generally attach less risk to current dividends than to future dividends or capital gains. This is because dividends are seen as a more certain return on investment compared to the possibility of future gains. Therefore, investors are more likely to prefer companies that pay dividends over those that do not, leading to higher demand for dividend-paying stocks and potentially higher stock prices.

Which of the Following Is True of Arguments for Dividend