The market's reaction to the announcement of a change in the ﬁrm's dividend payout is the:

Question

Quizplus · Accepted Answer

The market's reaction to a change in a firm's dividend payout is known as the information content effect. This is because the market considers the dividend payout as valuable information about the company's financial health, growth prospects, and profitability. When a company increases its dividend payout or announces a dividend cut, investors respond by adjusting their valuation of the company's shares, resulting in a change in the stock price. Therefore, A is the best choice. B, C, D, and E are not applicable in this case.

The Market's Reaction to the Announcement of a Change in the ﬁRm's