What is the information content effect?
A) Any type of new information that causes a company to cease paying dividends
B) Any news announcement that was anticipated and thus produces no reaction from investors
C) The primary contributing data that helps directors determine the amount of a particular dividend payment
D) Any type of reaction from a shareholder in response to a news announcement related to the stock issuer
E) The financial market's reaction to a change in the amount of a company's dividend

Question

Quizplus · Accepted Answer

The information content effect refers to the financial market's reaction to a change in the amount of a company's dividend. It can impact the stock price and investor behavior, as investors may view a higher dividend as a positive signal from the company about its financial health and potential for growth. Similarly, a decrease in dividend payments may lead investors to believe that the company is struggling or facing financial difficulties. The information content effect can be an important factor for investors to consider when making decisions about whether to buy, hold, or sell a particular stock.

What Is the Information Content Effect