Why may a large increase in earnings not translate into a large increase in dividends?
A) The earnings will be taxed.
B) Some investors may prefer capital gains.
C) Managers wish to assess the earning's persistence.
D) The earnings may already be a part of retained earnings.

Question

Quizplus · Accepted Answer

Managers may wish to assess the persistence of increased earnings before deciding to increase dividends. This means they need to evaluate whether the increase in earnings is a temporary or a long-term trend before deciding to distribute the earnings to shareholders. Therefore, there may not be an immediate correlation between a large increase in earnings and a large increase in dividends.

Why May a Large Increase in Earnings Not Translate into a Large