The middle-of-the-road party holds that dividend policy doesnt matter because the supply of high-, medium-, and low-payout

Question:

The middle-of-the-road party holds that dividend policy doesn’t matter because the supply of high-, medium-, and low-payout stocks has already adjusted to satisfy investors’ demands. Investors who like generous dividends hold stocks which give them all the dividends that they want. Investors who want capital gains see a surfeit of low payout stocks to choose from. Thus, high-payout firms cannot gain by transforming to low-payout firms, or vice versa. Suppose the government equalizes the tax rates on dividends and capital gains.

Suppose that before this change the supply of dividends matched investor needs. How would you expect the tax change to affect the total cash dividends paid by U.S. corporations and the proportion of high- versus low-payout companies? Would dividend policy still be irrelevant after any dividend supply adjustments are completed? Explain.

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... 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...