The signaling effect implies that dividends do indeed affect stock prices.

Name: The signaling effect implies that dividends do indeed affect stock prices.
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Question

Quizplus · Accepted Answer

The signaling effect theory suggests that when a company declares and pays dividends, it signals to investors that the company is financially stable and profitable, leading to an increase in demand and a rise in stock prices. Therefore, dividends do affect stock prices via the signaling effect.

The Signaling Effect Implies That Dividends Do Indeed Affect Stock