Assume that as the result of a firm announcing a large unexpected increase in its dividend payment, the price of the firm's common stock rises. This event would be consistent with which of the following?
A) The dividend irrelevance theory
B) The tax preference theory
C) The information effect
D) The beta effect

Question

Quizplus · Accepted Answer

The announcement of a large unexpected increase in dividend payment can be seen as new information being revealed to the market, leading to an increase in the price of the stock. This is consistent with the information effect theory, which suggests that changes in stock prices are driven by new information about the company or the market. The dividend irrelevance theory suggests that changes in dividend payments do not affect the value of the firm, while the tax preference theory suggests that investors prefer to receive their returns in the form of capital gains rather than dividends. The beta effect refers to changes in the stock price due to changes in the market risk of the firm.

Assume That as the Result of a Firm Announcing a Large