Question

Empirical evidence suggests managers closely follow a residual model of dividend payments. keep nominal payments steady for long periods of time. keep payout ratios constant for long periods of time. prefer to increase dividends a small amount every period.

Answer 1

Answer: Empirical evidence suggests managers keep nominal payments steady for long periods of time.

A residual dividend policy is a policy that the companies fund their capital expenditures with the earnings before distributing the dividends to shareholders. It is not advised for the managers.

A constant dividend payout ratio policy is not possible for the company since the company may not be possible to make profits every year.

Studies do not suggest increasing dividends a small amount every year. Better to follow nominal dividends every year.