If the information content,or signaling,hypothesis is correct,then a change in a firm's dividend policy can have an important effect on its stock price and cost of equity.

Question

Quizplus · Accepted Answer

The information content hypothesis suggests that dividend policy acts as a signal to investors about a firm's future prospects, and therefore a change in dividend policy can affect stock price and cost of equity.

If the Information Content,or Signaling,hypothesis Is Correct,then a Change in a Firm's