Explain the relationship between the life cycle concept and dividend policy

Expert Solution

dividend policy of a firm is also related to its life cycle because it is a general phenomenon that firm which are young and growing would not be preferring to pay the dividend to the shareholders, they would infact reinvest their profit into the business because they want to grow larger.

Firm which are mature and which are well established in nature always prefer to pay a part of their profit as dividend to the shareholders. this is because, firm which are already mature does not have the same probability of growing as it is already acquired with its market share and they do not have a higher reinvestment rate so they prefer on to paying dividend to their shareholders .firm which are growing and new in nature does not prefer to pay any dividend to their shareholders because they believe in the theory of reinvestment and growth.

so the relationship between life cycle and dividend policy is very common because a growing firm will not pay the dividend while mature firm will pay the dividend.

jeff jeffy answered 1 year ago

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