Testing Dividend Signalling 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 InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 895.
Length: 49 pages
Date of creation: Jan 1994
Date of revision:
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- G0 - Financial Economics - - General
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