Question
Because of dividend irrelevance, the stock market does not react to unanticipated changes in dividend.
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True false question.
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Answers
Answer
wrong. this is false
Answered by
GPT-4o mini
True.
The concept of dividend irrelevance, presented by Franco Modigliani and Merton Miller in their dividend irrelevance theory, posits that in a perfect market (without taxes, transaction costs, or asymmetric information), the value of a firm is determined by its earning power and risk rather than the way it distributes its earnings (i.e., through dividends or share buybacks). Therefore, the stock price should not react to unanticipated changes in dividends. However, it is important to note that real markets do not always fit these assumptions perfectly, and stock prices may still react to dividend changes due to various factors, including investor psychology and market sentiment. Nonetheless, the statement reflects the theoretical perspective of dividend irrelevance.
The concept of dividend irrelevance, presented by Franco Modigliani and Merton Miller in their dividend irrelevance theory, posits that in a perfect market (without taxes, transaction costs, or asymmetric information), the value of a firm is determined by its earning power and risk rather than the way it distributes its earnings (i.e., through dividends or share buybacks). Therefore, the stock price should not react to unanticipated changes in dividends. However, it is important to note that real markets do not always fit these assumptions perfectly, and stock prices may still react to dividend changes due to various factors, including investor psychology and market sentiment. Nonetheless, the statement reflects the theoretical perspective of dividend irrelevance.
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