Baker and Wurgler $(2004)$ test the catering theory of dividends. The theory predicts that

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a$.$

Target pay$-$out ratio is about $60$ percent of earnings.

b$.$

Dividend initiation takes place when companies anticipate that their future stock returns are low.

c$.$

Companies begin to pay dividends when they have plenty of free cash flow.

d$.$

Companies begin to pay dividends when dividend premium for nonpayers is low compared to payers.