Download or read book Signalling with Dividends The Signalling Effects of Dividend Change Announcements written by Elisabete Simões Vieira and published by . This book was released on 2007 with total page 73 pages. Available in PDF, EPUB and Kindle. Book excerpt: The dividend policy is one of the most debated topics in the finance literature. One of the different lines of research on this issue is based on the information content of dividends, which has motivated a significant amount of theoretical and empirical research. According to the dividend signalling hypothesis, dividend change announcements trigger share returns because they convey information about management's assessment on firms' future prospects. We start by analysing the classical assumptions of dividend signalling hypothesis. The evidence gives no support for a positive relation between dividend change announcements and the market reaction for French firms, and only a weak support for the Portuguese and the UK firms. After accounting for non-linearity in the mean reversion process, the global results do not give support to the assumption that dividend change announcements are positively related with future earnings changes.Afterwards, we formulate two hypotheses in order to explore the window dressing phenomenon and the maturity hypothesis, finding some evidence, especially in the UK market, for both of the phenomenon.

Download or read book Theory of Signalling Dividends written by Shebani Bhargava and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The dividend policy is one of the most debated topics in finance literature. Dividend announcements can contain information about the company's future performance and hence, since decades many researches have argued that the dividend policy decisions of firms are very important mainly due to the signalling effect they have on the firms future performance. According to the dividend signalling hypothesis, dividend change announcements trigger share returns because they convey information about management's assessment on firms' future prospects. This paper begins by explaining certain concepts which are useful in understanding the theory at hand. It then moves on to studying the Theory of Signalling Dividends. Two hypotheses are formed and in order to explore them, an empirical case study is undertaken whereby the dividend announcements, divided rates, share prices, and profits of two companies listed on the Indian stock market are compared and analysed. This paper therefore attempts to analyse the theory of signalling dividends and to contribute positively to the understanding of the behaviour of Indian share prices in relation to dividend announcements.

Download or read book The Phenomenon of the Adverse Market Reaction to Dividend Change Announcements written by Elisabete Simões Vieira and published by . This book was released on 2007 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: The dividend policy is one of the most debated topics in the finance literature. According to the dividend signalling hypothesis, which has motivated a significant amount of theoretical and empirical research, dividend change announcements trigger share returns because they convey information about management's assessment on firms' future prospects. Consequently, a dividend increase (decrease) should be followed by an improvement (reduction) in a firm's value. Although there are empirical evidence supporting the positive relationship between dividend change announcements and the subsequent share price reactions, some studies have not supported this idea. Furthermore, several studies found evidence of a significant percentage of cases where share prices reactions are opposite to the dividend changes direction, like the works of Asquith and Mullins (1983), Benesh, Keown and Pinkerton (1984), Born, Mozer and Officer (1988), Dhillon and Johnson (1994) Healy, Hathorn and Kirch (1997), and, more recently, Vieira (2005). We introduce a new approach to investigate the relationship between the market reaction to dividend changes and future earnings changes with the purpose of understanding why the market sometimes reacts negatively (positively) to dividend increases (decreases). We find only weak evidence for the dividend information content hypothesis. The Portuguese results suggest that the adverse market reaction to dividend change announcements is basically due to the fact that the market does not understand the signal given by firms though dividend change announcements. Moreover, we find no evidence of the inverse signalling effect, except for the UK market. The results suggest that the UK market investors have more capability to predict future earnings than the investors of the Portuguese and the French markets.

Download or read book Signalling with Dividends New Evidence from Europe written by Elisabete Simões Vieira and published by . This book was released on 2007 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: According to the dividend signalling hypothesis, dividend change announcements trigger share returns because they convey information about management's assessment on firms' future prospects.We analyse the classical assumptions of the dividend signalling hypothesis, using data from three European countries. The evidence gives no support to a positive relation between dividend change announcements and the market reaction for French firms, and only weak support for the Portuguese and UK firms. After accounting for non-linearity in the mean reversion process, the global results do not give support to the assumption that dividend change announcements are positively related with future earnings changes.We also formulate two hypotheses in order to explore the window dressing phenomenon and the maturity hypothesis, finding some evidence in favour of both, especially in the UK market.

Download or read book A Tax based Test of the Dividend Signaling Hypothesis written by B. Douglas Bernheim and published by . This book was released on 1992 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose and implement a new test of the dividend signaling hypothesis that is designed to discriminate between dividend signaling and other theories that would account for the apparent existence of a dividend preference. Our test refines the use of data on stock price responses to dividend announcements. In particular, we study the effect of dividend taxation on the bang-for-the-buck, which we define as the share price response per dollar of dividends. Most dividend signaling models imply that an increase in dividend taxation should increase the bang-for-the-buck. In contrast, other dividend preference theories imply that an increase in dividend taxation should decrease the bang-for-the-buck. Since there have recently been considerable variation in the tax treatment of dividends, we are able to study dividend announcement effects under different tax regimes. Our central finding is that there is a strong positive relationship between dividend tax rates and the bang-for-the-buck. This result supports the dividend signaling hypothesis, and is consistent with alternatives. The paper also provides corroborating evidence based on the relationship between the bang-for-the-buck and bond ratings.

Download or read book The Impact of Informed Trading on Dividend Signaling A Theoretical and Empirical Examination written by Kathleen P. Fuller and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines how the trading behavior of various investors impacts a firm's need to employ dividend changes to signal private information to the market. The dividend signaling model incorporates asymmetric information among traders as well as between firm insiders and the market. The model explains why, in the cross-section of firms, not all dividend increases are viewed by the market as good news. The model generates the following testable predictions. First, the model predicts a post-signal price increase (on average) for firms increasing their dividends. Second, the market's reaction to an announced dividend increase is inversely related to the measure of informed traders active in a firm's stock. Third, the price reaction to the unexpected dividend change, is conditional upon the disparity between the buy and sell demand; the greater the buy demand relative to the sell demand, the smaller the price reaction. Fourth, the larger the measure of informed traders, the larger the unexpected dividend increase. Finally, these predictions are confronted and supported by the data.

Download or read book Revisiting the Contemporaneous Signaling Effects of Earnings and Dividend Announcements written by Louis T. W. Cheng and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Existing literature suggests that earnings and its forecasts provide stronger signal than dividends about firms' future performance. We test the signaling effects of earnings and dividends under a market setting which has 1) low informativeness of earnings due to concentrated family-shareholding ownership structure; 2) low corporate transparency; and 3) no tax on dividends. Our results show significant share price reactions during earnings and dividend announcements. While the non-taxable feature of dividends does not substantially weaken its signaling effect, the low information content of earnings and low corporate transparency of firms reduce the signaling power of earnings. We find that dividend, from the perspective of the firms, is a more effective and cost-efficient channel to signal future performance.

Download or read book Share Price Reaction to Dividend Announcements written by John Capstaff and published by . This book was released on 2017 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study tests the signaling theory of dividends by investigating the stock price reaction to dividend announcements on the Oslo Stock Exchange (OSE), and subsequent changes in the cash flows of the firms involved. This paper adds to existing evidence by examining the role of dividends in a market where the corporate ownership structure is notably different from the U.S. and the U.K., and where the motivation to use dividends as a signaling mechanism appears to be stronger. The results indicate significant abnormal stock returns are associated with announcements of dividend changes. The results are robust to alternative models of dividend expectations, after controlling for the impact of earnings announcements, and are consistent across sub-periods in the sample. The stock market reaction is most pronounced for large, positive dividend announcements that are followed by permanent cash flow increases. This evidence provides modest support for the signaling theory of dividends in Norway, but it does not support the proposition that corporate ownership structure is an important influence on the use of dividends as a signaling mechanism.

Download or read book Signaling Investment Opportunities and Dividend Announcements written by Pyung Sig Yoon and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines potential explanations for the wealth effects surrounding dividend change announcements. We find that new information concerning managers' investment policies is not revealed at the time of the dividendannouncement. We also find that dividend increases (decreases) are associated with subsequent significant increases (decreases) in capital expenditures over the three years following the dividend change and that dividend change announcements are associated with revisions in analysts' forecasts of current earnings. These results are consistent with the cash-flow-signaling hypothesis rather than the free-cash-flow hypothesis as an explanation for the observed stock price reactions to dividend change announcements.

Download or read book Dividends as Reference Points written by Malcolm P. Baker and published by . This book was released on 2012 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We outline a dividend signaling approach in which rational managers signal firm strength to investors who are loss averse to reductions in dividends relative to the reference point set by prior dividends. Managers with strong but unobservable cash earnings separate themselves by paying high dividends but retain enough earnings to be likely not to fall short of the same level next period. The model is consistent with several features of the data, including equilibrium dividend policies similar to a Lintner partial-adjustment model; modal dividend changes of zero; stronger market reactions to dividend cuts than increases; relative infrequency and irregularity of repurchases versus dividends; and a core mechanism that does not center on public destruction of value, a notion that managers reject in surveys. Supportive new tests involve nominal levels and changes of dividends per share, announcement effects, and reference point currencies of ADR dividends.

Download or read book The Existence of the Dividend Signaling Equilibria written by Francisca Beer and published by . This book was released on 1990 with total page 264 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book A Tax Based Test of the Dividend Signaling Hypothesis written by B. Douglas Bernheim and published by . This book was released on 2010 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose and implement a new test of the dividend signaling hypothesis that is designed to discriminate between dividend signaling and other theories that would account for the apparent existence of a dividend preference. Our test refines the use of data on stock price responses to dividend announcements. In particular, we study the effect of dividend taxation on the bang-for-the-buck, which we define as the share price response per dollar of dividends. Most dividend signaling models imply that an increase in dividend taxation should increase the bang-for-the-buck. In contrast, other dividend preference theories imply that an increase in dividend taxation should decrease the bang-for-the-buck. Since there have recently been considerable variation in the tax treatment of dividends, we are able to study dividend announcement effects under different tax regimes. Our central finding is that there is a strong positive relationship between dividend tax rates and the bang-for-the-buck. This result supports the dividend signaling hypothesis, and is consistent with alternatives. The paper also provides corroborating evidence based on the relationship between the bang-for-the-buck and bond ratings.

Download or read book Does Dividend Announcement Generate Market Signal Evidence from Pakistan written by Ghulam Chaudhary and published by . This book was released on 2016 with total page 8 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study is aimed at investigating the signaling effect of cash dividend announcements by employing the standard event methodology over the companies listed on Karachi Stock Exchange. The companies are randomly selected from different sectors that have announced cash dividends during calendar year 2010 and total 30 companies are included in the study. The standard event methodology is applied to explore the impact of cash dividend announcements upon stock returns and an event window of 15 days with dividend announcement date as the event day is constructed. The results show that the average abnormal returns (AARs), by and large, remained positive and statistically significant in post-event window days. The results of study tend to support dividend signaling hypothesis indicating that the dividend announcement may be used as a tool to generate positive signals in the market.

Download or read book The Signaling Effects and Predictive Powers of Dividend Announcements written by Anas Al Qudah and published by . This book was released on 2018 with total page 8 pages. Available in PDF, EPUB and Kindle. Book excerpt: The objective of this study is to see how the signaling hypothesis manifests itself in a small market, such as KSA, characterized by concentrated family-ownerships, non-taxability of dividends, and high degree of information asymmetry. In this context, we hypothesize that there is a positive relationship between dividend announcement and stock prices in the Saudi market. This study tests this hypothesis using all publically traded firms listed on the Saudi Exchange Market (Tadawul). We use event study to test stock market responses to dividend announcements. To test the signaling hypothesis we used our cross section data to calculate accumulated average abnormal returns using 100 days as estimation period and 21 days as window period. We used parametric CAAR (t test) and nonparametric (G sign) significance tests to verify that our results are significant and not due to pure chance. Our results show no significant reaction of prices to the dividend announcements, which means that signaling hypothesis cannot be generalized to all types of markets and that each market own characteristics have significant effect on the applicability of the signaling hypothesis. Further research is suggested to include earnings in the analysis.

Download or read book Payout Policy written by and published by . This book was released on 2007 with total page 83 pages. Available in PDF, EPUB and Kindle. Book excerpt: Dividend policy continues to be among the premier unsolved puzzles in finance. A number of theories have been advanced to explain dividend policy. This e-book briefly reviews the principal theories of payout policy and dividend policy and summarizes the empirical evidence on these theories. Empirical evidence is equivocal and the search for new explanation for dividends continues.

Download or read book The Effect of Firm Specific Factors on the Market Reaction to Dividend Change Announcements written by Elisabete Simões Vieira and published by . This book was released on 2007 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: The dividend policy is one of the most debated topics in the finance literature. According to the dividend signalling hypothesis, which has motivated a significant amount of theoretical and empirical research, dividend change announcements trigger share returns because they convey information about management's assessment on firms' future prospects. Consequently, a dividend increase (decrease) should be followed by an improvement (reduction) in a firm's value. However, some studies have not supported the hypothesis of a positive relationship between dividend change announcements, and the subsequent share price reaction, such as the ones of Lang and Litzenberger (1989), Benartzi, Michaely and Thaler (1997), Chen, Firth and Gao (2002), Abeyratna and Power (2002) and Vieira (2005). Furthermore, some authors found evidence of a significant percentage of cases where share prices reactions are opposite to the dividend changes direction, like the works of Asquith and Mullins (1983), Benesh, Keown and Pinkerton (1984), Born, Mozer and Officer (1988), Dhillon and Johnson (1994) Healy, Hathorn and Kirch (1997), and, more recently, Vieira (2005). Consequently, we try to identify firm-specific factors that contribute in explaining the adverse market reaction to dividend change announcements. Globally, our evidence suggests that only for the UK sample we have firm-specific factors influencing the market reaction to dividend change announcements. We conclude that the UK firms with a negative market reaction to dividend increase announcements have, on average, higher size, lower earnings growth rate and lower debt to equity ratios.

Download or read book Information Environment Dividend Changes and Signaling written by Raj Aggarwal and published by . This book was released on 2016 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: While theory suggests that dividends can be an important signal for firm performance, prior studies have been unable to provide strong evidence of dividend signaling among publicly listed U.S. companies. One potential explanation for this inconsistency between theory and empirical evidence is that the cross-sectional variation in information asymmetry across U.S. firms is insufficient to provide adequate test power. In this study, we revisit the link between dividend signaling and firms' information environment by examining the dividend behavior of foreign firms that cross-list on the U.S. stock market in the form of American Depository Receipts (ADRs). Our evidence suggests that ADR firms with poorer information environments have stronger incentives to adopt dividend increases as a signaling device. We also find that such firms experience an increase in one-year-ahead earnings and a decline in systematic risk following a dividend increase. Additional analysis shows that ADR firms have fewer other information channels compared to similar U.S. firms. Overall, we provide evidence consistent with the importance of dividend signaling, especially for firms with poorer information environments.