Assume That a Firm Has a Steady Record of Paying

question 81

Multiple Choice

Assume that a firm has a steady record of paying high dividends for years.A new management team decided to cut the current year's dividend in half without disclosing why.The market value of the stock fell 35% on the day the dividend cut was announced.Which of the following would best explain the stock market's reaction to the announcement?

• A) Empirical theory
• B) Dividend Irrelevance theory
• C) Residual Dividend theory
• D) Information effect

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Definitions:

Global Co-Exist

The concept of various cultures, nations, or global businesses working together in harmony or mutual respect.

Deterritorialization

The process by which social, cultural, or political boundaries become less relevant due to globalization and technological advancements.

Local Tradition

Cultural practices and beliefs that are specific to a particular geographic area or community.

Fragmented

Characterizes something that is broken or separated into parts, often making it difficult to function as a whole.