The idea that dividend changes reflect managers' views about a firm's future earnings prospects is called the ________ hypothesis.
A) signaling
B) predictor
C) instrumental
D) none of the above

Question

Quizplus · Accepted Answer

The signaling hypothesis suggests that managers use dividend changes to signal their optimism or pessimism about the company's future earnings prospects. This way, investors can interpret changes in dividends as a signal of management's view on the future of the company. The predictor and instrumental hypotheses are not related to dividend changes.

The Idea That Dividend Changes Reflect Managers' Views About a Firm's