Match List-I (factors affecting dividend decision) with List-II (what the factor says):
| List-I | List-II | ||
|---|---|---|---|
| (A) | Stability of earnings | (I) | Firms with good chances to expand keep back more money to finance the required investment. |
| (B) | Stability of dividends | (II) | Large and reputed companies may depend less on retained earnings and so pay higher dividends. |
| (C) | Growth opportunities | (III) | The payout per share is not altered if a change in profits is small or seen to be temporary. |
| (D) | Access to capital market | (IV) | A company whose profits stay steady over the years is in a better position to declare higher dividends. |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A)-(IV), (B)-(III), (C)-(I), (D)-(II)
| List-I | List-II | Reason |
|---|---|---|
| (A) Stability of earnings | (IV) A company whose profits stay steady over the years is in a better position to declare higher dividends. | Dividends come out of earnings. Steady earnings let a company declare higher dividends. |
| (B) Stability of dividends | (III) The payout per share is not altered if a change in profits is small or seen to be temporary. | Companies try to keep the dividend per share steady. They raise it only when earning power has really gone up. |
| (C) Growth opportunities | (I) Firms with good chances to expand keep back more money to finance the required investment. | A growing firm needs funds for new investment. So it retains more and pays a smaller dividend. |
| (D) Access to capital market | (II) Large and reputed companies may depend less on retained earnings and so pay higher dividends. | Big, well-known companies can raise funds easily from the market. So they need to keep back less of their profit. |
NCERT (2026-27 Edition): “(b) Stability Earnings: Other things remaining the same, a company having stable earning is in a better position to declare higher dividends. As against this, a company having unstable earnings is likely to pay smaller dividend. “(d) Growth Opportunities: Companies having good growth opportunities retain more money out of their earnings so as to finance the required investment. The dividend in growth companies is, therefore, smaller, than that in the non-growth companies.” “(i) Access to Capital Market: Large and reputed companies generally have easy access to the capital market and, therefore, may depend less on retained earning to finance their growth. These companies tend to pay higher dividends than the smaller companies which have relatively low access to the market.” |