Failure to pay a preferred dividend signals to the market that the firm is in serious financial trouble.

Question

Quizplus · Accepted Answer

Preferred dividends are a fixed obligation and failure to pay them can indicate that the company is facing financial difficulties and is unable to meet its financial obligations. This can lead to a loss of investor confidence and a decline in the company's stock price. Therefore, failing to pay preferred dividends can be seen as a warning sign of serious financial trouble.

Failure to Pay a Preferred Dividend Signals to the Market