The idea that dividend changes reflect managers' views about a firm's future earnings prospects is called the ________ hypothesis.

Question

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The signalling hypothesis asserts that dividend changes serve as signals to investors about a company's future profitability prospects. Companies that raise dividends are indicating that they have sufficient confidence in their future profitability to commit to paying higher dividends, while companies that reduce dividends are conveying a lack of confidence in their future prospects. Thus, dividend changes are thought to provide important information to investors and are widely interpreted as a reflection of managers' views about a firm's future earnings prospects.

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