Use the following statements to answer this question:
I.The Lintner equation shows that the relationship between past and current dividends exists
II."Stickiness" of dividends contradicts the M&M irrelevance theory
A)I and II are correct.
B)I and II are incorrect.
C)I is correct and II is incorrect.
D)I is incorrect and II is correct.

Question

Quizplus · Accepted Answer

Both statements are correct. The Lintner model indeed suggests that companies smooth dividends over time, indicating a relationship between past and current dividends. The concept of dividend "stickiness" and firms' reluctance to cut dividends supports the idea that dividends do matter, which contradicts the Modigliani-Miller dividend irrelevance theory.

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