Question

If the board is optimistic about the firm's future and declares a dividend larger than anticipated,...

If the board is optimistic about the firm's future and declares a dividend larger than anticipated, this policy could best be described as:

  • clientele dividend policy

  • a bird-in-the-hand dividend policy

  • signaling dividend policy

  • continuous growth dividend policy


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Answer #1

Option C is correct. signaling dividend policy.

Signaling Dividend Policy is the policy where more dividend is paid than the expected dividend. That occurs when the anticipated Earnings are high in the foreseeable future. This increased Dividend is a signal of high earnings potentials.

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