Dividends versus Capital Gains If the market places the same value on $1 of dividends as on
Question:
Dividends versus Capital Gains If the market places the same value on $1 of dividends as on $1 of capital gains, then firms with different payout ratios will appeal to different clienteles of investors. One clientele is as good as another;
therefore, a firm cannot increase its value by changing its dividend policy. Yet empirical investigations reveal a strong correlation between dividend payout ratios and other firm characteristics. For example, small, rapidly growing firms that have recently gone public almost always have payout ratios that are zero; all earnings are reinvested in the business. Explain this phenomenon if dividend policy is irrelevant.
Step by Step Answer:
Corporate Finance With Connect Access Card
ISBN: 978-1259672484
10th Edition
Authors: Stephen Ross ,Randolph Westerfield ,Jeffrey Jaffe