When a firm begins to pay dividends, it is signalling that it always expects to have enough cash flow to maintain and increase its dividend payout.

Question

Quizplus · Accepted Answer

When a firm begins paying dividends, it is a positive signal to investors that the company has sufficient cash flow and earnings to maintain and possibly increase the dividend payouts. It is a sign of financial stability and investor confidence in the company's future prospects.

When a Firm Begins to Pay Dividends, It Is Signalling