A firm declared a dividend of $2 per share, which was an increase of 25% from th

Question

A firm declared a dividend of $2 per share, which was an increase of 25% from the prior year, yet the stock declined by 3% the day of the announcement. Another firm declared a dividend of $2 per share, which was the same as the prior year, and its stock increased in value by 2% on the day of the announcement. These events could be most readily explained by the _________

Information effect.

Residual dividend theory.

Clientele effect.

Expectations theory.

Information effect.

Residual dividend theory.

Clientele effect.

Expectations theory.

Explanation / Answer

Expectations theory.

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