According to the dividend signalling hypothesis,firms smooth their dividends in order to maintain consistent cash flows and thus increase investor confidence in the firm.

Question

Quizplus · Accepted Answer

The dividend signalling hypothesis suggests that firms use dividend announcements as a way to signal their future prospects to investors, rather than to maintain consistent cash flows. Smoothing dividends is more related to the dividend smoothing theory, which posits that firms try to maintain stable dividends over time to convey stability and reliability to investors.

According to the Dividend Signalling Hypothesis,firms Smooth Their Dividends in Order