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REIT Splits and Dividend Changes: Tests of Signaling and Information Substitutability

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  • Qiang Li

    ()

  • Hua Sun

    ()

  • Seow Ong

    ()

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Abstract

Recent work on stock splits have attempted to relate the information value associated with splits with that from dividends signaling. This paper extends this genre of research by evaluating the issue of dividend predictability using REIT data where the self-selection issue associated with dividend payment is minimized. The use of REIT data also eliminates the “differential expectations” effect for non-dividend paying firms, thus rendering a more robust test of the information substitutability hypothesis postulated by Nayak and Prabhala ( 2001 ). To the extent that stock splits are signals of future cash flows, we further examine the question of leverage predictability associated with REIT splits, particularly for highly levered firms. We find that REITs that use dividend changes as a signaling mechanism prior to splits have smaller price responses to the private information revealed by splits than those that do not provide such signals, consistent with the notion that dividends and splits are indeed information substitutes. Further, REIT splits provide useful information about future dividend and leverage changes. Copyright Springer Science + Business Media, LLC 2006

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Bibliographic Info

Article provided by Springer in its journal The Journal of Real Estate Finance and Economics.

Volume (Year): 33 (2006)
Issue (Month): 2 (September)
Pages: 127-150

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Handle: RePEc:kap:jrefec:v:33:y:2006:i:2:p:127-150

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Web page: http://www.springerlink.com/link.asp?id=102945

Related research

Keywords: REIT split; Dividend; Leverage; Signaling; Conditional event study;

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Cited by:
  1. Gow-Cheng Huang & Kartono Liano & Ming-Shiun Pan, 2011. "REIT Stock Splits and Liquidity Changes," The Journal of Real Estate Finance and Economics, Springer, vol. 43(4), pages 527-547, November.
  2. Wen-Hsiu Chou & William Hardin & Matthew Hill & G. Kelly, 2013. "Dividends, Values and Agency Costs in REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 46(1), pages 91-114, January.

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