Question

Select the correct term for each of the following descriptions.

Descriptions	Terms
This theory argues that there is no optimal dividend policy because a firm’s dividend policy does not affect the value of the firm.	Stock dividend
According to this theory, an announced dividend payment that exceeds investors’ expectations is interpreted to be “good” news and should be expected to increase the price of the firm’s common stock, whereas an announced dividend that is less than investors’ expectations is construed as “bad” news and should be expected to decrease the firm’s share price.	Dividend reinvestment plans
If a shareholder owns a firm’s shares on this date, he or she will receive the firm’s next declared dividend.	Residual dividend policy
According to this policy, the amount of dividends paid is equal to the amount of the firm’s net earnings minus the amount of retained earnings necessary to finance the firm’s optimal capital budget.	Dividend irrelevance theory
Under this activity, a firm with 100,000 shares of outstanding stock, each trading for $44 per share, doubles the number of shares outstanding, causing the per-share market value of the shares to decrease to $22.	Stock split
Under this dividend policy, a firm pays a constant proportion of its net earnings as dividends each year.	Stock repurchase
This program automatically uses a shareholder’sdividends to acquire additional shares of a firm’s outstanding or newly issued stock.	Optimal dividend policy
This dividend policy maximizes the value of a firm.
A dividend that is paid in the form of additional shares of the paying firm’s stock rather than in cash.	Holder-of-record date
An earnings distribution activity used to adjust the firm’s capital structure, acquire additional shares for its employee option or compensation plans, prevent a possible takeover attempt, or increase the market value of the firm’s stock by reducing the number of shares outstanding.	Information content hypothesis

Answer 1

Description	Terms
This theory argues that there is no optimal dividend policy because a firm’s dividend policy does not affect the value of the firm.	Dividend irrelevance theory
According to this theory, an announced dividend payment that exceeds investors’ expectations is interpreted to be “good” news and should be expected to increase the price of the firm’s common stock, whereas an announced dividend that is less than investors’ expectations is construed as “bad” news and should be expected to decrease the firm’s share price.	Information content hypothesis
If a shareholder owns a firm’s shares on this date, he or she will receive the firm’s next declared dividend.	Holder-of-record date
According to this policy, the amount of dividends paid is equal to the amount of the firm’s net earnings minus the amount of retained earnings necessary to finance the firm’s optimal capital budget.	Residual dividend policy
Under this activity, a firm with 100,000 shares of outstanding stock, each trading for $44 per share, doubles the number of shares outstanding, causing the per-share market value of the shares to decrease to $22.	Stock split
Under this dividend policy, a firm pays a constant proportion of its net earnings as dividends each year.	Regular dividend policy
This program automatically uses a shareholder’sdividends to acquire additional shares of a firm’s outstanding or newly issued stock.	Stock repurchase
This dividend policy maximizes the value of a firm	optimal dividend policy
A dividend that is paid in the form of additional shares of the paying firm’s stock rather than in cash.	Stock dividend
An earnings distribution activity used to adjust the firm’s capital structure, acquire additional shares for its employee option or compensation plans, prevent a possible takeover attempt, or increase the market value of the firm’s stock by reducing the number of shares outstanding.	Stock reinvestment plan