Final answer:
A lower dividend payout ratio can decrease the firm's need for borrowing by retaining more earnings for internal financing.
Step-by-step explanation:
A lower dividend payout ratio can decrease the firm's need for borrowing. This is because when a company retains more of its earnings instead of distributing them as dividends, it has more internal funds available to finance its operations and growth. By reducing the reliance on external borrowing, the firm can reduce its financial risk and potentially improve its creditworthiness.
For example, let's say a company has a dividend payout ratio of 60%. This means that it distributes 60% of its earnings as dividends to shareholders and retains only 40% for reinvestment. If the company decides to lower its dividend payout ratio to 30%, it will keep more earnings internally, reducing the need to borrow money.
In conclusion, a lower dividend payout ratio can indeed decrease the firm's need for borrowing, making option A (True) the correct answer.