Executive salaries have been shown to be more closely correlated to the size of the firm than

Question:

Executive salaries have been shown to be more closely correlated to the size of the firm than to its profitability. If a firm’s board of directors is controlled by management rather than outside directors, this might result in the firm’s retaining more earnings than can be justified from the stockholders’ point of view. Discuss those statements, being sure
(a) To discuss the interrelationships among cost of capital, investment opportunities, and new investment and
(b) To explain the implied relationship between policy and stock prices.

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...