A Firm Unexpectedly Decreases Its Dividend Payout and Its Stock

question 96

Multiple Choice

A firm unexpectedly decreases its dividend payout and its stock price falls. The information content effect at least partially explains the fall in stock price since

• A) An unexpected decrease in dividends means management is signaling that the firm has no positive NPV projects in which to invest.
• B) Investors will always react unfavourable to changes in dividends.
• C) Investors react to the change as new information regarding expected future dividends.
• D) This unexpected decrease may likely be viewed as an attempt by management to manipulate the stock price.
• E) Unexpected changes in dividends will not affect stock prices if the firm has a written dividend policy.

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Definitions:

Stocking Locations

Specific places where inventory is stored and managed, such as warehouses or retail storerooms.

Aggregate Inventory

The total stock of all items held across different locations within a supply chain.

Information Technology

The use of computers, storage, networking, and other physical devices, infrastructure, and processes to create, process, store, secure, and exchange all forms of electronic data.

Exchange

The act of giving one thing and receiving another in return, especially in a commercial context.