Question: If high dividend stocks offer a higher expected and required
If high- dividend stocks offer a higher expected (and required) return than low- dividend stocks, due to the higher personal taxes levied on the former, why don’t corporations simply reduce dividend payments and thus lower their cost of capital?
Answer to relevant QuestionsWhich U. S. industries are characterized by relatively high dividend payout ratios? Are these same industry patterns observed in other industrialized countries? What explains these industry patterns? How do the industrial patterns observed for dividend payouts compare to the patterns observed for capital structures? For example, are industries characterized by high dividend payouts also characterized by high leverage? Suppose that a firm follows the matching strategy. Does this imply that the firm’s current assets will equal its current liabilities? What are the key variables to consider when evaluating the benefits and costs of changing credit standards? How do these variables differ when evaluating the benefits and costs of changing credit terms? What is the ABC system? What role does the EOQ model play in controlling inventory? How does it capture the opportunity costs associated with inventory investment?
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