An example of the existence of an information content effect of dividends is when GM's share price falls on the same day the firm announces a stock dividend.

Question

Quizplus · Accepted Answer

An information content effect of dividends refers to the market's reaction to what the dividend change implies about the firm's future prospects, not the immediate mechanical effect of a stock dividend announcement on share price. A stock dividend announcement might lead to various interpretations by investors, but a fall in share price on the same day could be due to many factors and does not directly illustrate the information content effect.

An Example of the Existence of an Information Content Effect