Informational content of dividends throws light with respect to future earnings. In other words, investors view a change in dividends, up or down, as a signal that management expects future earnings to change in the same direction.

Question

Quizplus · Accepted Answer

The statement is true. Dividend changes are often seen as an indicator of a company's expected future performance. When a company increases its dividends, investors may interpret it as a sign of confidence in the company's future earnings, while a decrease in dividends may be seen as a warning that future performance may not meet expectations.

Informational Content of Dividends Throws Light with Respect to Future