The model that states,all else equal,dividend-paying companies are less risky than non-dividend-paying companies is called:
A) Residual dividend model
B) Modigliani and Miller dividend irrelevance model
C) The "bird in the hand" model
D) The signalling model

Question

Quizplus · Accepted Answer

The "bird in the hand" model states that in the absence of information asymmetry, investors consider dividend-paying companies less risky than non-dividend paying companies. This is because dividend payments provide a certain return, which is seen as a "bird in the hand," as opposed to potential future capital gains, which are uncertain and considered a "bird in the bush." As a result, investors are willing to pay more for shares of dividend-paying companies, making them less risky than non-dividend-paying companies.

The Model That States,all Else Equal,dividend-Paying Companies Are Less Risky