An increase in share price following an increase in dividends is logical if the:
A)firm borrows to obtain cash for the dividend.
B)increased dividend signals higher future earnings.
C)financial markets are efficient.
D)clientele effect is not important.

Question

Quizplus · Accepted Answer

An increase in dividends signals higher future earnings potential for the company, leading to an increase in share price. The other options are not relevant to the logic of share price increase following an increase in dividends.

An Increase in Share Price Following an Increase in Dividends