If investors prefer firms that retain most of their earnings, then a firm that wants to maximize its stock price should set a low payout ratio.

Question

Quizplus · Accepted Answer

If investors prefer firms that retain most of their earnings, then setting a low payout ratio would indicate to investors that the firm is retaining its earnings and therefore may increase the demand for its stock, leading to a higher stock price.

If Investors Prefer Firms That Retain Most of Their Earnings