Which statement related to the signaling effect of dividends is true?

A) The signaling effect can explain why an increase in the dividend is often followed by an increase in stock price.
B) The signaling effect is a reason a firm may follow a constant or steadily increasing dividend policy.
C) Changes in dividends can be interpreted as a signal from management about changes in the company's future earnings.
D) All of the above

Signaling Effect

The phenomenon where actions by a company provide clues or signals to the market about its potential performance or financial health.

Dividend Policy

A company's stance on distributing earnings back to shareholders through dividends, including considerations on the timing and amount of those dividends.

Stock Price

The cost of purchasing a share of a company in the stock market, reflecting the company's current market value.