Question: If the tax differential theory of dividend policy is correct, then 1. The stock price will decrease as the retained earnings increase (dividends decrease). 2.

If the tax differential theory of dividend policy is correct, then

1.

The stock price will decrease as the retained earnings increase (dividends decrease).
2.

The stock price will increase as the retained earnings increase (dividends decrease).
3.

Firms should follow a high payout policy.
4.

The stock price will either rise or fall by a change in dividend policy.
5.

Dividend policy is irrelevant.

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