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Estimate the correctness of each of given statements:

- a. If dividend irrelevance theory (that is related with Modigliani and Miller) were exactly correct, and if this theory could be tested with good data, then we would find in regression of dividend yield and capital gains, a line with slope of -1.0.

b. Tax preference and bird-in-the-hand theories lead to similar conclusions as to optimal dividend policy.

c. If company raises its dividend by unexpectedly large amount, announcement of this new and higher dividend is normally accompanied by increase in stock price. This is consistent with bird-in-the-hand theory, and Modigliani and Miller used these findings to support their position on dividend theory.

d. If it could be showed that clientele effect exists, this would recommend that firms could alter their dividend payment policies from year to year to take advantage of investment opportunities without having to worry about effects of altering dividends on capital costs.

Business Management, Management Studies

  • Category:- Business Management
  • Reference No.:- M934994

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