Question

information signaling effect theory

Answer 1

Signalling effect theory indicates that when a publically listed entity declares dividends, it is generally perceived as a positive outcome by investors and analysts in a wat that the company has profiltable outcomes and thus is willing to share its earnings with the shareholders. This makes the investors motivated to invest in the company for more robust returns

Whereas a lesser or no dividend is seen as a negative outcome in a way that the entity has a negative outlook in future profits/growth opportunities and this is avoiding paying dividends to shareholders.

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