The Tax Effect Theory of Dividends says that:

Group of answer choices

Companies should pay a high dividend payout because the taxes are lower for dividends than for capital gains.

Companies should be pay low or no dividends because the effective tax rate on dividends is higher than that of capital gains.

Companies should pay high dividends because interest payments are tax deductible.

Companies should pay low or no dividends because dividends signal that the firm is paying a higher tax rate.