If investors do not like dividends because of the additional taxes that they have to pay, how would you expect stock prices to behave on the ex-dividend date?
A)Fall by more than the amount of the dividend
B)Fall exactly by the amount of the dividend
C)Fall by less than the amount of the dividend
D)Cannot be predicted.

Question

Quizplus · Accepted Answer

Typically, stock prices fall by less than the amount of the dividend on the ex-dividend date because while the dividend payment reduces the company's assets (and thus its stock value), investors may not sell off their shares aggressively due to the tax disadvantage of dividends. The market often partially prices in the dividend payment, but not fully, due to the perceived value of receiving a dividend despite the tax implications.

If Investors Do Not Like Dividends Because of the Additional