The information content of a dividend increase generally signals that:

Question

Quizplus · Accepted Answer

A dividend increase generally signals that management believes that the future earnings of the firm will be strong. This is because a dividend increase is typically seen as a way for the firm to share its current and projected growth and profitability with its shareholders. If management expects weak future earnings, they are unlikely to increase dividends because they will need to conserve cash to support future operations. Therefore, choice (C) is the best option. The other options do not generally hold true for dividend increases.

The Information Content of a Dividend Increase Generally Signals That