When a firm pays out a dividend, the share price ________, and when it conducts a share repurchase at the market price, the share price ________.

Question

Quizplus · Accepted Answer

When a firm pays out a dividend, it decreases its cash balance and earnings, which would then decrease the share price as it will likely have less money to reinvest and grow the company. On the other hand, when a firm conducts a share repurchase at the market price, the number of outstanding shares decreases, which increases the earnings per share and makes each share more valuable, leading to an unchanged share price.

When a Firm Pays Out a Dividend, the Share Price