Which of the Following Statements Is FALSE

question 43

Multiple Choice

Which of the following statements is FALSE?

• A) Firms adjust dividends relatively infrequently, and dividends are much less volatile than earnings. This practice of maintaining relatively constant dividends is called dividend signaling.
• B) When a firm increases its dividend, it sends a positive signal to investors that management expects to be able to afford the higher dividend for the foreseeable future.
• C) The average size of the stock price reaction increases with the magnitude of the dividend change, and is larger for dividend cuts.
• D) When managers cut the dividend, it may signal that they have given up hope that earnings will rebound in the near term and so need to reduce the dividend to save cash.

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Definitions:

Credible Threat

A declaration or action by a party that it will follow through with a particular response if certain conditions are met, believed to be feasible by the other party.

Warranty

A guarantee, typically made by a manufacturer or seller, to repair or replace a product within a specified period if it is found to be faulty.

Dominant Strategy

A strategy that always provides greater utility to a player, regardless of the opponent's strategy.

Nash Equilibria

Nash Equilibria refer to a situation in a game where no player can benefit by changing strategies if other players keep theirs unchanged.