The information content effect implies that stock prices will rise when dividends are increased provided that the dividend increase:

Question

Quizplus · Accepted Answer

The information content effect suggests that stock prices will rise when dividends are increased, but this increase will only be sustained if it causes stockholders to increase their expectations of future cash flows. Therefore, the most important factor in determining whether a dividend increase will lead to a rise in stock price is whether it signals that the company's future cash flows are likely to be higher than previously expected.

The Information Content Effect Implies That Stock Prices Will Rise