Why do share prices usually drop when news about decline in a company’s earnings per share is reported?
A.
Because a reduction in a earnings means that the firm has less money with which to pay dividends and therefore the market fears a reduction in the company’s future dividends.
B.
Because the share market anticipates that a decreased level of earning power might be the indicator of default and perhaps even bankruptcy.
C.
The statement is false. Share prices do not usually react about current earnings.
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