Asked by Kelley Mcbride on May 02, 2024
Verified
An example of the existence of an information content effect of dividends is when GM's share price falls on the same day the firm announces a stock dividend.
Information Content Effect
The market's reaction to the announcement of new, relevant information, highlighting how the release of information can affect a company's stock price.
Share Price
The current price at which a single share of a company's stock can be bought or sold in the market.
Stock Dividend
A dividend payment made in the form of additional shares rather than a cash payout, increasing the total number of shares owned by shareholders.
- Comprehend how dividends' information content influences stock prices.
Verified Answer
ZK
Zybrea KnightMay 04, 2024
Final Answer :
False
Explanation :
An information content effect of dividends refers to the market's reaction to what the dividend change implies about the firm's future prospects, not the immediate mechanical effect of a stock dividend announcement on share price. A stock dividend announcement might lead to various interpretations by investors, but a fall in share price on the same day could be due to many factors and does not directly illustrate the information content effect.
Learning Objectives
- Comprehend how dividends' information content influences stock prices.