Question #47
Reading: Reading 15 Analysis of Dividends and Share Repurchases
PDF File: Reading 15 Analysis of Dividends and Share Repurchases.pdf
Page: 18
Status: Unattempted
Correct Answer: A
Question
Dividend payments are most likely to be associated with:
Answer Choices:
A. increased agency conflict between shareholders and managers
B. increased agency conflict between bondholders and shareholders
C. increased agency conflict between bondholders and managers
Explanation
Paying dividends can be helpful in reducing agency conflicts between shareholders and
managers because dividend payouts constrain managers' ability to invest in negative NPV
projects that benefit the managers at the expense of shareholders.
Paying dividends is likely to intensify the agency conflict between bondholders and
shareholders, as it represents a transfer of wealth from bondholders to shareholders.
There is no agency conflict between bondholders and managers.