Home › CA Inter › Financial Management › Dividend Determinants › The "Bird in Hand" argument supports:
The "Bird in Hand" argument supports:
ADividend relevance — investors prefer certain dividends over uncertain capital gains
BDividend irrelevance
CZero dividends
DRandom dividends
Answer & Solution
Correct answer: A. Dividend relevance — investors prefer certain dividends over uncertain capital gains
1. Bird-in-Hand: A rupee of dividend today is worth more than a rupee of expected future capital gain.
2. Implies higher dividends lower required return and raise share price.
3. Counter to MM Irrelevance.
_Source: ICAI BoS CA Inter Paper 6A, Ch 8 "Dividend Decisions", §1 — Relevance Theory_