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:

Price Hike

An increase in the selling price of goods or services, which can be due to factors like higher production costs, supply shortages, or increased demand.

Traceable Fixed Expense

A traceable fixed expense is a cost that can be directly linked to a specific business segment or department without influencing other areas of the business.

Net Operating Income

A measure of company profitability equal to revenue minus operating expenses, excluding taxes and interest.

Price Reduction

A decrease in the selling price of a product or service, often to increase demand or sales volume.