Assume that a firm has a steady record of paying stable dividends for years. Market analysts had
expected management to increase the dividend by 7.5% in the latest quarter.
However,
management announced a 15% increase in the current year's dividend. The market value of the
stock rose 20% on the day of the announcement. Which of the following would best explain the
stock market's reaction to the announcement?
A) residual dividend theory B) expectations theory
C) dividend irrelevance theory D) agency theory
B
Business
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