Answer to Question #235958 in Microeconomics for Mememe

Question

 Other than price, identify one market signal. Show how that market signal influences decision-making, with a case study of your own choice. 

Answer 1

The information which is being either passed unintentionally or passively between market participants is known as market signaling. Here, one party in turn credibly conveys some of the information about itself to another party effectively.

The market signal other than price is the dividend. The theory depicts that announcement about an increase in payouts of a dividend of a company is an indication about the future prospects being positive is known as dividend signaling.

Managers with investment potential being positive would be more likely to signal, while managers tend to refrain without such prospects. An increase in dividend depicts future results which are positive for a firm, and the only managers who tend to oversee positive potential would tend to provide such a signal.

The favorable company's stock performance would be due to an increase in a dividend payout of a company in the future. The theory tends to suggest that companies paying the highest dividends tend to be more profitable as compared to those who are paying smaller dividends.

There is a rise in prices of stock when an increase in dividend payouts is being announced by a company along with an increase in future revenues and a fall in prices of stock when there is a decrease in prices of dividends along with a decrease in the future revenues.