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The following table lists some factors that might affect an investor's preference for dividends. Indicate whether the given factors are likely to make an investor
The following table lists some factors that might affect an investor's preference for dividends. Indicate whether the given factors are likely to make an investor prefer to receive more or fewer dividends. In examining investors' preferences for dividends, it is useful to begin with the concept of dividend irrelevance. Dividend irrelevance suggests that in a world with no market frictions or taxes, firms and investors are indifferent to the paying or receiving of dividends. However, as these restrictions are relaxed, various factors suggest that firms should pursue high or low payouts. One such factor is: Firms incur various legal and administrative costs (called flotation costs) when they issue new stock. Based on the factor given, identify whether firms, in general, will tend to favor high or low payout ratios. Favor a low payout Favor a high payout
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