A fiRm Unexpectedly Decreases Its Dividend Payout and Its Stock

question 144

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:

Appliance Stores

Retail outlets specializing in the sale of electrical or mechanical devices used in the home or for personal care.

Manufacturer's Branch

A local office or division of a manufacturing company responsible for distributing its products in a specific geographical area.

Wholesaling Activities

Encompasses the operations involved in selling goods or merchandise to retailers, other merchants, or industrial, commercial, and institutional users, but not to consumers directly.

Producer

An entity or individual that creates goods or services, ranging from physical products to digital or intellectual properties.