From watching the dividend policy and FPL case lectures, I learned that anything dealing with

dividends affects the stock price. When dividends are paid, the stock price decreases. This is due to the
fact that assets are being reduced. They later return to pre-issue prices. The same effect occurs when a
company announces a cut in dividends, the share price drops.
When an announcement of a dividend is made, the stock shoots up; this is responsible for the
second highest increase. The reason makes much sense; people are willing to pay for the periodic
dividend payouts, its an incentive. Also, when there is a repurchase announced, share price raises based
on the assumptions that the company believes the stock is underpriced; this indicates that the company
is doing favorably. A tender offer raises the stock price up between 15 and 20% because of the premium
the company will pay; this is the highest increase possible. After the purchase, they usually come back
down to pre-announcement prices as assets have lowered. Open market purchases rarely raise the price
of the stock as there is no commitment on behalf of the company; investors are skeptical as to what is
going on in the background.
Dividend reductions create a drop in the stock price; there no longer is an incentive. A perceived
reason for the dividend decrease may be that not enough funds are available for future dividends due to
income problems. This may further reduce the stock than what was expected. The FPL case showed
exactly this, there was a 14% decrease in stock price as a result of cutting the dividend by 1/3. The
psychology behind the demand for dividends claims that investors prefer to spend their earnings than
have it reinvested. Also, the demand for dividends is higher due to the differing tax rates; capital gains
are taxed heavier.