A ﬁrm unexpectedly decreases its dividend payout and its stock price falls. The information content effect at least partially explains the fall in stock price since

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The information content effect suggests that unexpected changes in dividends convey new and important information to investors regarding the firm's future prospects. Investors may react negatively to an unexpected decrease in dividends as it suggests a potential weakening of the firm's financial position, leading to a fall in stock price. However, it does not necessarily mean that management is signaling a lack of positive NPV projects or attempting to manipulate the stock price. Having a written dividend policy may provide some guidance to investors, but unexpected changes in dividends can still have an impact on stock prices.

A ﬁRm Unexpectedly Decreases Its Dividend Payout and Its Stock