Final answer:
Dividends are optional distributions of company earnings approved by the board of directors, aimed at enhancing shareholder value and potentially improving productivity.
Step-by-step explanation:
Dividends are an optional distribution of earnings to stockholders, approved by the company's board of directors. Profits and earnings distributed among shareholders often lead to increased productivity due to employees directly benefiting from the success of the business.
The board of directors and the shareholders decide whether to distribute these earnings as dividends or reinvest them into the company for further growth. This decision is significant since issuing stock allows a company to access financial capital for expansion without the need to repay the money, thus potentially increasing shareholder value if the firm is successful.