Match List-I (factors affecting dividend decision) with List-II:List-…

Match List-I (factors affecting dividend decision) with List-II:

List-I	List-II
(A) Amount of earnings	(I) While granting a loan, the lender may restrict the payment of dividends in future.
(B) Taxation policy	(II) Large and reputed companies depend less on retained profits to finance growth and tend to pay higher dividends.
(C) Access to capital market	(III) Dividends are paid out of current and past profits, so these profits are a major determinant.
(D) Contractual constraints	(IV) If the levy on dividends is higher than on capital gains, it is better to pay less by way of dividends.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → (A)-(III), (B)-(IV), (C)-(II), (D)-(I)

List-I	List-II	Reason
(A) Amount of earnings	(III) Dividends are paid out of current and past profits, so these profits are a major determinant.	Dividends come out of profit, so more earnings allow more dividend.
(B) Taxation policy	(IV) If the levy on dividends is higher than on capital gains, it is better to pay less by way of dividends.	When dividends are taxed more, the company pays less as dividend and keeps more of the profit.
(C) Access to capital market	(II) Large and reputed companies depend less on retained profits to finance growth and tend to pay higher dividends.	Big firms can raise funds easily from the market. So they keep less profit and pay more as dividend.
(D) Contractual constraints	(I) While granting a loan, the lender may restrict the payment of dividends in future.	A loan agreement may limit future dividends. The company must not break its terms.

NCERT (2026-27 Edition): “(a) Amount of Earnings: Dividends are paid out of current and past earning. Therefore, earnings is a major determinant of the decision about dividend.”

“(g) Taxation Policy: The choice between the payment of dividend and retaining the earnings is, to some extent, affected by the difference in the tax treatment of dividends and capital gains. If tax on dividend is higher, it is better to pay less by way of dividends. …”

“(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.”

“(k) Contractual Constraints: While granting loans to a company, sometimes the lender may impose certain restrictions on the payment of dividends in future. …”