Dividend changes are perceived important than the absolute level of dividends because.

April 16, 2024 by rawan239

generate strong earnings and cash flow in the future. This can lead to an increase in the company’s stock price. Conversely, when a company decreases its dividend, it is sending a signal to investors that it expects its earnings and cash flow to decline in the future. This can lead to a decrease in the company’s stock price.

The other options are incorrect for the following reasons:

• Option A is incorrect because management does not change dividends to protect their seats. In fact, management is more likely to increase dividends when they are confident in the company’s future prospects.
• Option C is incorrect because MM state that the absolute level of dividends is irrelevant. They argue that the only thing that matters is the total return to shareholders, which can be achieved through a combination of dividends and capital appreciation.
• Option D is incorrect because dividend changes do not determine the level of borrowing. The level of borrowing is determined by the company’s financial needs and its ability to service its debt.