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A firm declared a dividend of $2 per share, which was an increase of 25% from...

A firm declared a dividend of $2 per share, which was an increase of 25% from the prior year, yet the stock declined by 3% the day of the announcement. Another firm declared a dividend of $2 per share, which was the same as the prior year, and its stock increased in value by 2% on the day of the announcement. These events could be most readily explained by the _________ Information effect. Residual dividend theory. Clientele effect. Expectations theory.

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These events could be most readily explained by the expectations theory i.e. expectations theory is the correct answer.

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