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Should companies treat dividends as a residual payment

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What are the arguments that may arise when discussing : should companies treat dividends as a residual payment to shareholders

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Solution Summary

The solution explains why dividends should not be treated as residual payment

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Treating dividends as a residual payment is a passive dividend policy. The arguments against such a policy would be -

1. Dividends have information content, they provide signal to the market regarding the financial health of the company. Treating dividends as a residual would mean that dividends would change every year and investors would find it ...

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