Assume that firm has a stead record of paying stable dividend 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. Expectations TheoryB. Dividend Irrelevance TheoryC. Residual Dividend TheoryD. Agency Theory
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