Share price changes around the time of announcements of dividend changes are positively related to the change in dividends.This evidence may not invalidate the dividend irrelevance theorem because:

Question

Quizplus · Accepted Answer

The evidence that share price changes around dividend announcements are positively related to the change in dividends does not necessarily invalidate the dividend irrelevance theorem because the value of a share is determined by its future cash flows, and dividend payments may simply convey information about those future cash flows. Therefore, investors may adjust their valuation of the share based on this information, but ultimately, the value is determined by the company's expected future cash flows, not the dividend payments alone.

Share Price Changes Around the Time of Announcements of Dividend