Dividend Changes May Be Used by Management as a Credible

question 62

Multiple Choice

Dividend changes may be used by management as a credible communication tool to signal investors about future earnings under which of the following dividend policy theories?

• A) the clientele effect
• B) the residual dividend theory
• C) the information effect
• D) the expectations theory

---

Definitions:

Fair Values

The amount one would expect to get from selling an asset or the cost to transfer a liability, in a structured deal involving participants in the market on the date it's evaluated.

Goodwill

An intangible asset that arises when a company acquires another business for more than the fair value of its identifiable tangible and intangible assets.

Voting Common Stock

Equity shares that give shareholders the right to vote on corporate policies and board of director elections.

Goodwill

An intangible asset that arises when a business is purchased for more than the fair value of its separate net assets, representing aspects like brand reputation, customer loyalty, and other non-physical assets.