JBC Corp.declared a dividend of $2 per share,which was an increase of 25% from the prior year,yet JBC Corp.stock declined by 3% the day of the announcement.RBG Corp.declared a dividend of $2 per share,which was the same as the prior year,and its stock increased in value by 2% on the day of the announcement.These events could be most readily explained by the
A) information effect.
B) clientele effect.
C) expectations theory.
D) residual dividend theory.

Question

Quizplus · Accepted Answer

The expectations theory suggests that stock prices react to the difference between expected and actual announcements. JBC's stock declined because the market may have expected a higher dividend increase, while RBG's stock increased because the dividend met or exceeded market expectations.

JBC CorpDeclared a Dividend of $2 Per Share,which Was an Increase