The Lintner (1956) study reinforces the notion that dividend policy conveys information to investors. Many financial managers strive to maintain steady or modestly growing dividends and avoid large fluctuations or changes in dividend policies. Reducing dividend fluctuations helps reduce investor uncertainty about future dividends. Lower risk leads to higher stock prices. Managers resist increasing dividends if they do not expect to maintain the increase in the future. This supports a predominant policy of maintaining historical dividends. If firms hesitate to raise dividends too quickly, they positively abhor the prospect of reducing dividends, for several reasons. First, many individuals and institutions require large cash flows from their investments. For example, retired people in lower tax brackets generally covet high dividend payments. Tax-exempt institutions, such as endowment funds or pension funds, also need high current income and therefore desire high dividends. Miller and Modigliani argue that these individuals or institutions should ignore a stock’s level of dividends because they always can liquidate some of their holdings in order to generate substantial transaction costs, especially brokerage fees. In addition to the time involved in deciding to sell securities, investors may exhaust all of their principal, leaving none for future income requirements. Second, managers often resist reducing dividends also because a cut in dividends may be interpreted by the investment community as a signal of trouble with the firm or a result of poor management. Even if the reduction is intended to allow the firm to pursue an attractive opportunity, it may adversely affect stock prices. A third reason that firms resist reducing dividends involves the legal list. Many large, institutional investors are bound by the prudent man rule, or by legislation, to buy only securities that are included on the legal list. One criterion of the list is a long history of continued dividend payments without dividend reductions. Therefore, a firm that reduces or omits a dividend payment faces the risk of being ineligible for purchase by certain institutional investors. A stable dividend policy can become a sort of self-fulfilling prophecy. An unexpected rise or reduction in dividends can have an announcement effect on the firm’s share price. An increase in dividends may lead investors to perceive a promising future and share price may increase. A drop in dividends may lead investors to fear a less promising future, resulting in a drop in share price. These perceptions may be accurate if managers themselves feel it is important to avoid fluctuations, especially cuts. In such a company, investors would be correct in viewing dividend declarations as sources of information.