Dividend signalling in the UK market
The main aim of this paper is to examine the relationship between changes in dividend payout, earnings and share price movement, and to evaluate the joint effects of earnings and dividend changes. Managers of a firm usually have more information about the firm's prospects than its shareholders; for example, they may know of deals about to be struck or of new senior appointments about to be made. Since this information cannot be openly communicated, managers may try to 'signal' the improved future prospects of the firm - and hence its increased value - through dividend payouts. The so-called dividend signalling hypothesis, which captures this mechanism, suggests that the market reacts to dividend increases in a positive fashion and therefore firms will have higher share prices because of such higher dividends. This paper attempts to provide a clearer theoretical understanding of dividend signalling by considering 234 non-financial UK PLCs over the period 1995 to 2006 using panel data and random effects regression models. The findings suggest firstly, dividend and earnings increases move in the same direction, as do share prices (in both the current and following year). Secondly, dividend payouts contain some information about earnings, although this link is confined to the current year. Finally, only marginal support is found for the dividend signalling hypothesis with earnings providing a stronger signal than dividends.
If 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.
Volume (Year): 4 (2012)
Issue (Month): 4 ()
|Contact details of provider:|| Web page: http://www.inderscience.com/browse/index.php?journalID=277 |
When requesting a correction, please mention this item's handle: RePEc:ids:injbaf:v:4:y:2012:i:4:p:294-314. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Graham Langley)
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.