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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Empirical Finance.
Volume (Year): 12 (2005)
Issue (Month): 1 (January)
Contact details of provider:
Web page: http://www.elsevier.com/locate/jempfin
Other versions of this item:
- Bernhardt, Dan & Robertson, Fiona J., 1993. "Testing Dividend Signalling Models," Working Papers 828, California Institute of Technology, Division of the Humanities and Social Sciences.
- Dan Bernhardt & J. Fiona Robertson & Ray Farrow, 1994. "Testing Dividend Signalling Models," Working Papers 895, Queen's University, Department of Economics.
- G0 - Financial Economics - - General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Eades, Kenneth M. & Hess, Patrick J. & Kim, E. Han, 1984. "On interpreting security returns during the ex-dividend period," Journal of Financial Economics, Elsevier, vol. 13(1), pages 3-34, March.
- Praveen Kumar, 1988. "Shareholder-Manager Conflict and the Information Content of Dividends," Review of Financial Studies, Society for Financial Studies, vol. 1(2), pages 111-136.
- Charest, Guy, 1978. "Dividend information, stock returns and market efficiency-II," Journal of Financial Economics, Elsevier, vol. 6(2-3), pages 297-330.
- Allen, Franklin & Michaely, Roni, 2003.
Handbook of the Economics of Finance,
in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 7, pages 337-429
- Brennan, Michael J & Thakor, Anjan V, 1990.
" Shareholder Preferences and Dividend Policy,"
Journal of Finance,
American Finance Association, vol. 45(4), pages 993-1018, September.
- Laub, P Michael, 1976. "On the Informational Content of Dividends," The Journal of Business, University of Chicago Press, vol. 49(1), pages 73-80, January.
- Litzenberger, Robert H. & Ramaswamy, Krishna, 1979. "The effect of personal taxes and dividends on capital asset prices : Theory and empirical evidence," Journal of Financial Economics, Elsevier, vol. 7(2), pages 163-195, June.
- Christie, William G., 1994. "Are Dividend Omissions Truly the Cruelest Cut of All?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 29(03), pages 459-480, September.
- Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
- Asquith, Paul & Mullins, David W, Jr, 1983. "The Impact of Initiating Dividend Payments on Shareholders' Wealth," The Journal of Business, University of Chicago Press, vol. 56(1), pages 77-96, January.
- Robert B. Avery & Gregory E. Elliehausen, 1986. "Financial characteristics of high-income families," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Mar, pages 163-177.
- Pettit, R Richardson, 1972. "Dividend Announcements, Security Performance, and Capital Market Efficiency," Journal of Finance, American Finance Association, vol. 27(5), pages 993-1007, December.
- Amihud, Yakov & Murgia, Maurizio, 1997. " Dividends, Taxes, and Signaling: Evidence from Germany," Journal of Finance, American Finance Association, vol. 52(1), pages 397-408, March.
- Shefrin, Hersh M. & Statman, Meir, 1984. "Explaining investor preference for cash dividends," Journal of Financial Economics, Elsevier, vol. 13(2), pages 253-282, June.
- Keim, Donald B., 1983. "Size-related anomalies and stock return seasonality : Further empirical evidence," Journal of Financial Economics, Elsevier, vol. 12(1), pages 13-32, June.
- Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
- Raj Chetty & Joseph Rosenberg & Emmanuel Saez, 2005. "The Effects of Taxes on Market Responses to Dividend Announcements and Payments: What Can we Learn from the 2003 Dividend Tax Cut?," NBER Working Papers 11452, National Bureau of Economic Research, Inc.
- Raj Chetty & Emmanuel Saez, 2004.
"Dividend Taxes and Corporate Behavior: Evidence from the 2003 Dividend Tax Cut,"
NBER Working Papers
10841, National Bureau of Economic Research, Inc.
- Raj Chetty & Emmanuel Saez, 2005. "Dividend Taxes and Corporate Behavior: Evidence from the 2003 Dividend Tax Cut," The Quarterly Journal of Economics, MIT Press, vol. 120(3), pages 791-833, August.
- Chetty, Raj & Saez, Emmanuel, 2004. "Dividend Taxes and Corporate Behaviour: Evidence from the 2003 Dividend Tax Cut," CEPR Discussion Papers 4722, C.E.P.R. Discussion Papers.
- Tobias Basse & Sebastian Reddemann, 2011. "Inflation and the dividend policy of US firms," Managerial Finance, Emerald Group Publishing, vol. 37(1), pages 34-46, January.
- Kuo, Nan-Ting & Lee, Cheng-Few, 2013. "Effects of dividend tax and signaling on firm valuation: Evidence from taxable stock dividend announcements," Pacific-Basin Finance Journal, Elsevier, vol. 25(C), pages 157-180.
- Kao, Lanfeng & Chen, Anlin, 2013. "How product market competition affects dividend payments in a weak investor protection economy: Evidence from Taiwan," Pacific-Basin Finance Journal, Elsevier, vol. 25(C), pages 21-39.
- Blau, Benjamin M. & Fuller, Kathleen P. & Van Ness, Robert A., 2011. "Short selling around dividend announcements and ex-dividend days," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 628-639, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.