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) Stability of earnings	(I) Share prices tend to rise when investors see a higher dividend.
(B) Growth opportunities	(II) Provisions of the Companies Act place restrictions on payouts.
(C) Stock market reaction	(III) A company with a steady profit record is in a better position to declare higher dividends.
(D) Legal constraints	(IV) A company that needs money for new investment pays a smaller dividend.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → (A)-(III), (B)-(IV), (C)-(I), (D)-(II)

List-I	List-II	Reason
(A) Stability of earnings	(III) A company with a steady profit record is in a better position to declare higher dividends.	A company whose earnings are stable can safely declare higher dividends. One with unstable earnings is likely to pay less.
(B) Growth opportunities	(IV) A company that needs money for new investment pays a smaller dividend.	A growing company retains more of its earnings to finance new investment. So its dividend is smaller.
(C) Stock market reaction	(I) Share prices tend to rise when investors see a higher dividend.	Investors take a rise in dividend as good news, and the share price goes up. A cut in dividend can pull the price down.
(D) Legal constraints	(II) Provisions of the Companies Act place restrictions on payouts.	The Companies Act limits how much can be paid as dividend. These provisions must be followed while declaring it.

NCERT (2026-27 Edition): “Factors Affecting Dividend Decision … (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.”

“(h) Stock Market Reaction: Investors, in general, view an increase in dividend as a good news and stock prices react positively to it. Similarly, a decrease in dividend may have a negative impact on the share prices in the stock market. Thus, the possible impact of dividend policy on the equity share price is one of the important factors considered by the management while taking a decision about it.”

“(j) Legal Constraints: Certain provisions of the Companies Act place restrictions on payouts as dividend. Such provisions must be adhered to while declaring the dividend.”