Testing dividend signaling models
AbstractThis paper derives a key monotonicity property common to dividend signalling models: the greater the rate that dividend income is taxed relative to capital gains income, the greater the value of information revealed by a given dividend yield, and hence the greater the associated excess return. This monotonicity condition allows us to distinguish the hypothesis that dividends are used as a signalling device from the hypothesis that dividends contain information but are not used as Spencian signals. The monotonicity conditions are tested with robust non-parametric techniques. Although we find strong evidence that dividend announcements contain information, we find no evidence to support dividend signalling. The same results are inconsistent with tax-based CAPM arguments.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Empirical Finance.
Volume (Year): 12 (2005)
Issue (Month): 1 (January)
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Web page: http://www.elsevier.com/locate/jempfin
Other versions of this item:
- Dan Bernhardt & J. Fiona Robertson & Ray Farrow, 1994. "Testing Dividend Signalling Models," Working Papers 895, Queen's University, Department of Economics.
- Bernhardt, Dan & Robertson, Fiona J., 1993. "Testing Dividend Signalling Models," Working Papers 828, California Institute of Technology, Division of the Humanities and Social Sciences.
- G0 - Financial Economics - - General
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