The optimal distribution policy strikes a balance between cash dividends and capital gains that maximizes the firm's stock price.

Question

Quizplus · Accepted Answer

The optimal distribution policy aims to achieve the maximum stock price, which requires balancing between cash dividends and capital gains. Companies need to keep a portion of their earnings to reinvest in their business operations to generate future growth and increase their stock prices. However, they also need to provide some returns to their shareholders in the form of dividends to maintain their trust and loyalty. Finding the optimal balance between these two factors is crucial for maximizing the overall value of the company's stock.

The Optimal Distribution Policy Strikes a Balance Between Cash Dividends