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:

Withdrawal Response

A defensive reaction to a threat or pain, characterized by pulling away or retreating.

Obvious Stimulus

A stimulus that is easily perceived or recognized by an individual due to its distinct characteristics.

Sensory Nerves

Nerves that transmit sensory information from the body's periphery to the central nervous system, enabling perception.

Motor Nerves

Nerves that transmit impulses from the brain or spinal cord to muscles, facilitating movement.