Why are dividend changes rather than their absolute level perceived to be more important to managers and shareholders?

Question

Quizplus · Accepted Answer

Dividend changes are thought to signal future expectations because they reflect management's view on the company's future prospects and expected earnings. Therefore, changes in dividends can provide important information about the company's financial health and management's confidence in its future performance. MM theory, which is based on perfect markets, assumes that the absolute level of dividends is irrelevant, so choice C is not correct. Choice A is also not correct, as dividend changes can be made for reasons other than threatening conditions. Choice D is not directly relevant to why dividend changes are perceived as important.

Why Are Dividend Changes Rather Than Their Absolute Level Perceived