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Dividend Signaling and Unions

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  • Arturo, Ramirez Verdugo

Abstract

Dividend signaling models suggest that dividends are used to convey information about future earnings to investors. However, in a world where unions also receive these signals, managers are less inclined to send the signal in order to avoid the union capturing these future earnings through higher salaries. Using information from IRS 5500 Forms to measure firm level unionization, I found that the power of dividends as predictors of future earnings tends to be higher for non-unionized firms. Moreover, I use the variation at the state level in the adoption of right-to-work laws to overcome the possible endogeneity of unionization with an instrumental variables approach. The empirical results are robust to different specifications and time periods

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2273.

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Date of creation: 02 Feb 2004
Date of revision: 04 Oct 2006
Handle: RePEc:pra:mprapa:2273

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Keywords: Dividends; Signaling; Unions;

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    • Allen, Franklin & Michaely, Roni, 2003. "Payout policy," 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 Elsevier.
  16. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411.
  17. Healy, Paul M. & Palepu, Krishna G., 1988. "Earnings information conveyed by dividend initiations and omissions," Journal of Financial Economics, Elsevier, vol. 21(2), pages 149-175, September.
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  20. Henry S. Farber, 1984. "Right-to-Work Laws and the Extent of Unionization," NBER Working Papers 1136, National Bureau of Economic Research, Inc.
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