Share prices react to dividend announcements because the amount of the dividend sends a signal to investors about management's view of the company's prospects.

Question

Quizplus · Accepted Answer

When a company announces a dividend, it signals to investors that the company has good prospects for future earnings and cash flow. This can lead to a positive reaction in the stock price as investors become more optimistic about the company's future prospects. Conversely, a reduction or elimination of a dividend can signal issues with the company's financial health or outlook, which could lead to a negative reaction in the stock price.

Share Prices React to Dividend Announcements Because the Amount of the Dividend