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Rella

Why do firms pay dividends?

Spanish:

Firms pay dividends in order to maintain incentives for investors to continue to invest in the company. This is especially true for companies that are very mature and are not expected to grow--as a percentage--as much as smaller companies in emerging markets.

In order to keep investors happy and create demand to buy stock (and hence demand to finance the company), mature companies generally have to provide incentives to buy their stock.

This is also the reason why a company, after publishing a dividend schedule with dates and dividend amounts, will lose a lot of value if they "miss their dividend" by delaying it or paying out less than they initially stated. Dividends are a form of good faith to investors who have their money in mature companies. If a company misses a dividend, then a big portion of that good faith from investors goes out the window and the stock price will plummet as a result.

Rick:

to finance investment.

Rella:

can u provide a more detailed answer?

Answer:
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