Corporate Risk Management and Dividend Signaling Theory
AbstractThis paper investigates the effect of corporate risk management on dividend policy. We extend the signaling framework of Bhattacharya (1979) by including the possibility of hedging the future cash flow. We find that the higher the hedging level, the lower the incremental dividend. This result is in line with the purpoted positive relation between information asymmetry and dividend policy (e.g., Miller and Rock, 1985) and the assertion that risk management alleviates the information asymmetry problem (e.g., DaDalt et al., 2002). Our theoretical model has testable implications.
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Bibliographic InfoPaper provided by CIRPEE in its series Cahiers de recherche with number 1008.
Date of creation: 2010
Date of revision:
Signaling theory; Dividend policy; Risk management policy; Corporate hedging; Information asymmetry;
Other versions of this item:
- Dionne, Georges & Ouederni, Karima, 2011. "Corporate risk management and dividend signaling theory," Finance Research Letters, Elsevier, vol. 8(4), pages 188-195.
- G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-02-27 (All new papers)
- NEP-BEC-2010-02-27 (Business Economics)
- NEP-CFN-2010-02-27 (Corporate Finance)
- NEP-CTA-2010-02-27 (Contract Theory & Applications)
- NEP-RMG-2010-02-27 (Risk Management)
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.:
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NBER Working Papers
10321, National Bureau of Economic Research, Inc.
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9657, National Bureau of Economic Research, Inc.
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4084, National Bureau of Economic Research, Inc.
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Center for Financial Institutions Working Papers
01-21, Wharton School Center for Financial Institutions, University of Pennsylvania.
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