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This refers to the idea that the price of a dividend (a corporate payment made by a corporation to its shareholders) signals positive future performance of the company.

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Q: What is dividend signaling theory?
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The relevance theory of dividends suggests that dividends impact a firm's value, investor preferences, and information signaling. In contrast, the irrelevance theory of dividends proposes that dividend policy does not affect a firm's value because investors are indifferent between dividends and capital gains.


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