According to the information content hypothesis that has been proposed to explain how dividend policies affect stock prices, if a firm increases its dividend, but at a rate that is lower than investors expect, the price of its stock probably would decrease.

Question

Quizplus · Accepted Answer

The information content hypothesis suggests that changes in dividend policies convey information to investors about a company's expected future earnings and growth prospects. If a firm increases its dividend at a rate lower than expected, it may signal to investors that the company is facing financial difficulties or has limited growth opportunities, causing the stock price to decrease.

According to the Information Content Hypothesis That Has Been Proposed