The increase in the stock price after a dividend increase is called the information content effect because:

Question

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The information content effect refers to the market's reaction to a dividend increase as a positive signal about the company's future earnings prospects. When a company increases its dividend, it often signals to investors that the management is confident about the company's future earnings and financial health, leading investors to adjust their expectations of future earnings upward.

The Increase in the Stock Price After a Dividend Increase