Question:
There are two statements, Assertion (A) and Reason (R).
Assertion (A): The dividend in growth companies is more than that in the non-growth companies.
Reason (R) : Companies having good growth opportunities retain more money out of their earnings so as to finance the required investment.
Choose the correct alternative from those given below:
There are two statements, Assertion (A) and Reason (R).
Assertion (A): The dividend in growth companies is more than that in the non-growth companies.
Reason (R) : Companies having good growth opportunities retain more money out of their earnings so as to finance the required investment.
Choose the correct alternative from those given below:
Assertion (A): The dividend in growth companies is more than that in the non-growth companies.
Reason (R) : Companies having good growth opportunities retain more money out of their earnings so as to finance the required investment.
Choose the correct alternative from those given below:
Show Hint
Remember: High Growth Potential = High Retention = Low Dividend. Low Growth Potential = Low Retention = High Dividend.
Updated On: Jun 25, 2026
- Assertion (A) is false and Reason (R) is true.
- Both Assertion (A) and Reason (R) are false.
- Assertion (A) is true and Reason (R) is false.
- Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
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The Correct Option is A
Solution and Explanation
Step 1: Concept
Dividend Decision and Growth Opportunities.
Step 2: Meaning
A company's dividend distribution policy is heavily influenced by its future investment and expansion plans.
Step 3: Analysis
• Companies with high growth potential require substantial and continuous funds for expansion, research, and launching new projects.
• Retained earnings (ploughing back of profits) are considered the cheapest and most accessible source of internal financing, as they do not involve explicit costs like interest.
• Consequently, growth-oriented companies deliberately declare lower dividends to retain a larger portion of their earnings for reinvestment.
• Conversely, mature or non-growth companies tend to declare higher dividends as they lack immediate, highly profitable investment avenues for those funds.
Step 4: Conclusion
The assertion that growth companies pay more dividends is incorrect, but the reason accurately explains their financial behavior.
Final Answer: (A)
Dividend Decision and Growth Opportunities.
Step 2: Meaning
A company's dividend distribution policy is heavily influenced by its future investment and expansion plans.
Step 3: Analysis
• Companies with high growth potential require substantial and continuous funds for expansion, research, and launching new projects.
• Retained earnings (ploughing back of profits) are considered the cheapest and most accessible source of internal financing, as they do not involve explicit costs like interest.
• Consequently, growth-oriented companies deliberately declare lower dividends to retain a larger portion of their earnings for reinvestment.
• Conversely, mature or non-growth companies tend to declare higher dividends as they lack immediate, highly profitable investment avenues for those funds.
Step 4: Conclusion
The assertion that growth companies pay more dividends is incorrect, but the reason accurately explains their financial behavior.
Final Answer: (A)
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