Which of the following explanations is NOT a possible benefit of dividends?
A) Some investors prefer dividend-paying shares and will be willing to pay a higher price for shares with regular dividends.
B) Paying out large regular dividends can force management to regularly raise more capital. The extra scrutiny involved in raising capital can increase the incentives of management to run the company efficiently.
C) Dividends can be used to manage the capital structure of the company.
D) Paying dividends reduces the probability that the company will enter financial distress.

Question

Quizplus · Accepted Answer

Paying dividends reduces the company's retained earnings and cash reserves, which could increase the probability of financial distress, not reduce it.

Which of the Following Explanations Is NOT a Possible Benefit