The theory that dividend policy can create value because decisions regarding the size of the dividend may convey information about the future prospects of the firm is known as what?
A)Signalling theory
B)The irrelevance proposition
C)Clientele effect
D)None of the above

Question

Quizplus · Accepted Answer

Signalling theory suggests that dividend policy can create value by conveying information about a firm's future prospects to the market. This information can affect the market's perception of the firm's value and may result in an increase in the firm's stock price. The other options (B and C) are not related to this concept.

The Theory That Dividend Policy Can Create Value Because Decisions