Final answer:
The statement is false; dividends on preferred stock are generally fixed and are paid before common shareholders receive any. Decisions about dividends, stock issuance, and profit reinvestment are made by a firm's management and board of directors. Returns to investors come in the form of dividends or capital gains from selling shares at a profit.
Step-by-step explanation:
The statement that 'Dividends on preferred stock generally increase over time as the corporation's profits grow. Dividends are paid first to common shareholders, then to preferred shareholders' is not true. In reality, dividends on preferred stock are typically fixed and do not increase with the growth in corporate profits. Moreover, dividends are generally paid first to preferred shareholders, before any dividends are paid to common shareholders. Dividends represent a portion of the company's profits distributed to shareholders, and the amount one receives is proportional to the number of shares owned.
When it comes to decision-making about issuing stock, paying dividends, or reinvesting profits, the authority typically rests with the firm's management and board of directors, with public companies also answering to their shareholders. Both private and public firms can decide to return a portion of their profits to investors as dividends or reinvest back into the company for growth.
Investors receive returns either through dividends or through capital gains achieved when they sell their shares at a higher price than they purchased them. The distribution and amount of dividends can be a signal to investors about the firm's performance and stability, as stable companies often offer dividends and can be seen as a reliable source of income for the shareholders.