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25 November, 09:21

A corporate CEO wished to relay good news about the prospect of a new technology being created, but was reluctant to do so. Instead, the CEO announces that the firm has decided to increase its dividend. This story is illustrative of what view of dividend relevancy

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  1. 25 November, 10:06
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    Information signaling

    Explanation:

    Information signalling is defined as the various actions a firm takes that communicates it's financial outlook. For example if a firm releases a dividend policy it communicates the value of the firm's stock.

    In this scenario the CEO announced increase in the firm's dividend. This will convey to investors that the company has a competitive advantage which will result in additional income, so dividends are being raised.

    It is an indirect way of announcing good news about the prospect of a new technology being created.
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