How can management best signal the market that a firm is doing well?

Question

Quizplus · Accepted Answer

Increasing the regular dividend amount is seen as a positive signal to the market as it demonstrates the firm's strong financial performance and ability to generate profits. It also indicates the management's confidence in the company's future growth and cash flow. This can result in increased demand for the company's stock and potentially lead to a rise in stock price.

Option A is not an appropriate choice as it suggests that the company is struggling and liquidating assets to distribute dividends. Option B may dilute the existing shareholders' ownership and reduce the stock price. Option D and E are not recommended as they do not necessarily reflect a strong financial performance but may be seen as financial engineering.

How Can Management Best Signal the Market That a Firm