ACCA Advanced Financial Management (AFM) Practice Exam

Who generally sets the dividend amounts a company pays?

1. The finance committee

2. The shareholders in a vote

3. The board of directors

4. The CEO exclusively

The correct answer is: The board of directors

The board of directors is responsible for setting the dividend amounts that a company pays to its shareholders. This authority generally comes from their role in overseeing the company's operations and making strategic financial decisions. The board reviews the company's financial performance, retains earnings for future investments, and considers the overall financial health of the organization before deciding on the amount and timing of dividends. While shareholders have a say in some aspects of company governance, including voting on certain matters during annual general meetings, the actual decision regarding dividends is typically delegated to the board. This delegation allows for the application of expertise in evaluating the company's cash flow needs, future operations, and market conditions. The finance committee may provide recommendations and insights to the board regarding dividend policy, but it does not have final authority over the decision. The CEO plays a crucial role in guiding the company's overall strategy and financial health, but the CEO does not unilaterally decide on dividend payouts without the oversight and approval of the board of directors.