Which of the following statements is false?
A) Firms adjust dividends relatively infrequently, and dividends are much less volatile than earnings. This practice of maintaining relatively constant dividends is called dividend signalling.
B) When a firm increases its dividend, it sends a positive signal to investors that management expects to be able to afford the higher dividend for the foreseeable future.
C) The average size of the stock price reaction increases with the magnitude of the dividend change, and is larger for dividend cuts.
D) When managers cut the dividend, it may signal that they have given up hope that earnings will rebound in the near term and so need to reduce the dividend to save cash.

Question

Quizplus · Accepted Answer

Dividend signaling refers to the idea that changes in dividends convey information to investors about a company's future prospects. The statement incorrectly describes dividend signaling as the practice of maintaining relatively constant dividends.

Which of the Following Statements Is False