Which
of the following statements is least accurate with
respect to the various theories that exist about dividend
policies?
a) The clientele effect asserts that a change in dividend
policy would simply substitute one set of investors
with another, and thus leaving the stock price largely
unchanged.
b) The tax preference theory argues that interest
is tax deductible and thus the lower the proportion
of equity and thus dividends, the greater will be
each share value.
c) The bird in the hand theory argues that dividends
are the more certain component of total return, and
hence, the higher this component, the more valuable
the share will be.
d) The dividend irrelevance theory argues that dividends
are simply how the firm's cash flows are distributed
and thus should have no impact on stock price.
