Which of the following explanations is NOT a possible benefit of dividends?
A) Some investors prefer dividend-paying stocks and will be willing to pay a higher price for stocks with regular dividends.
B) Paying out large regular dividends can force management to regularly raise more capital. The extra scrutiny involved in raising capital can increase the incentives of management to run the company efficiently.
C) Dividends can be used to manage the capital structure of the company.
D) Paying dividends reduces the probability that the firm will enter financial distress.
Answer: D
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