IDEAS home Printed from https://ideas.repec.org/a/ssi/jouesi/v8y2020i2p10-32.html
   My bibliography  Save this article

Strategic reactions to information content of dividend change: applying BCG growth share matrix when signalling hypothesis identified

Author

Listed:
  • Alireza Aghaee Shahrbabaki

    (Bocconi University, Italy)

  • Saeed Sakkaki

    (Sharif University of Technology, Iran)

  • Peyman Parsa

    (K. N. Toosi University of Technology, Iran)

  • Mohammad Saeed Heidary

    (Allameh Tabataba'i University, Iran)

  • Vahid Yousefi Pour

    (Allameh Tabataba'i University, Iran)

Abstract

The signaling hypothesis has been vastly under investigation for many years. There are two attitudes towards this phenomenon; some believe that firms increase (decrease) their dividend to signal about the future increases in earnings due to asymmetric information that managers have. Adversely, others believe that firms usually increase their dividends when they do not have further lucrative projects with positive net present values. Although there is a lot of empirical testing about this hypothesis that has been placed, there is no investigation about agency costs and cheating potential signaling hypothesis can provide for managers to cheat shareowners and market if it happens in the stock market. Through this article, we will test the signaling hypothesis for the firms listed in Tehran Stock Exchange, a rather volatile emerging market. We concluded that while dividend increases have no significant information content about future earnings, dividend decreases have meaningful information content about decreasing earning in the future. We use different scenarios that managers can react if the signaling hypothesis occurs and analyze the agency cost these scenarios bear on shareowners.

Suggested Citation

  • Alireza Aghaee Shahrbabaki & Saeed Sakkaki & Peyman Parsa & Mohammad Saeed Heidary & Vahid Yousefi Pour, 2020. "Strategic reactions to information content of dividend change: applying BCG growth share matrix when signalling hypothesis identified," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 8(2), pages 10-32, December.
    • Handle: RePEc:ssi:jouesi:v:8:y:2020:i:2:p:10-32
    DOI: 10.9770/jesi.2020.8.2(1)
    as

    Download full text from publisher

    File URL: https://jssidoi.org/jesi/uploads/articles/30/Shahrbabaki_Strategic_reactions_to_information_content_of_dividend_change_applying_BCG_growth_share_matrix_when_signalling_hypothesis_identified.pdf
    Download Restriction: no
    File URL: https://jssidoi.org/jesi/article/683
    Download Restriction: no
    File URL: https://libkey.io/10.9770/jesi.2020.8.2(1)?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Denis, David J. & Osobov, Igor, 2008. "Why do firms pay dividends? International evidence on the determinants of dividend policy," Journal of Financial Economics, Elsevier, vol. 89(1), pages 62-82, July.
    2. Wasim Khalil Al-Shattarat & Basiem Khalil Al-Shattarat & Ruba Hamed, 2018. "Do dividends announcements signal future earnings changes for Jordanian firms?," Journal of Financial Reporting and Accounting, Emerald Group Publishing Limited, vol. 16(3), pages 417-442, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fidrmuc, Jana P. & Jacob, Marcus, 2010. "Culture, agency costs, and dividends," Journal of Comparative Economics, Elsevier, vol. 38(3), pages 321-339, September.
    2. Su, Zhong-qin & Fung, Hung-Gay & Huang, Deng-shi & Shen, Chung-Hua, 2014. "Cash dividends, expropriation, and political connections: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 260-272.
    3. Ayyagari, Meghana & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2014. "Does local financial development matter for firm lifecycle in India ?," Policy Research Working Paper Series 7008, The World Bank.
    4. Nishant B. Labhane, 2019. "Dividend Policy Decisions in India: Standalone Versus Business Group-Affiliated Firms," Global Business Review, International Management Institute, vol. 20(1), pages 133-150, February.
    5. Ali, Heba & Hegazy, Aya Yasser, 2022. "Dividend policy, risk and the cross-section of stock returns: Evidence from India," International Review of Economics & Finance, Elsevier, vol. 79(C), pages 169-192.
    6. Pantelis Longinidis & Panagiotis Symeonidis, 2013. "Corporate Dividend Policy Determinants: Intelligent Versus A Traditional Approach," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 20(2), pages 111-139, April.
    7. Smietanka, Pawel & Bloom, Nicholas & Mizen, Paul, 2018. "Business investment, cash holding and uncertainty since the Great Financial Crisis," Bank of England working papers 753, Bank of England.
    8. Thomas McCluskey & Aoife Broderick & Amanda Boyle & Bruce Burton & David Power, 2010. "Evidence on Irish financial analysts' and fund managers' views about dividends," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 2(2), pages 80-99, June.
    9. Lior Cohen & Marta Gómez-Puig & Simón Sosvilla-Rivero, 2019. "Has the ECB’s monetary policy prompted companies to invest, or pay dividends?," Applied Economics, Taylor & Francis Journals, vol. 51(45), pages 4920-4938, September.
    10. Fabio Braggion & Lyndon Moore, 2011. "Dividend Policies in an Unregulated Market: The London Stock Exchange, 1895--1905," The Review of Financial Studies, Society for Financial Studies, vol. 24(9), pages 2935-2973.
    11. Thomas O'Connor, 2013. "Dividend payout and corporate governance in emerging markets: which governance provisions matter?," International Journal of Corporate Governance, Inderscience Enterprises Ltd, vol. 4(2), pages 181-207.
    12. Blau, Benjamin M. & Fuller, Kathleen P. & Van Ness, Robert A., 2011. "Short selling around dividend announcements and ex-dividend days," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 628-639, June.
    13. Kuo, Jing-Ming & Philip, Dennis & Zhang, Qingjing, 2013. "What drives the disappearing dividends phenomenon?," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3499-3514.
    14. Paul Tanyi & David B. Smith & Xiaoyan Cheng, 2021. "Does firm payout policy affect shareholders’ dissatisfaction with directors?," Review of Quantitative Finance and Accounting, Springer, vol. 57(1), pages 279-320, July.
    15. Noha Said Mohamed Gabr & Rawan Hamed Abd Elkhaliq Mohamed, 2024. "Retained Earnings and Dividends in Real Estate Sector in Egypt," International Real Estate Review, Global Social Science Institute, vol. 27(2), pages 249-274.
    16. Duo Xu & Christopher Gan & Zhaohua Li & Pengcheng Wang, 2021. "Earnings, Working Capital and Dividend Payout: Evidence from the London Stock Exchange," Annals of Economics and Finance, Society for AEF, vol. 22(2), pages 421-449, November.
    17. du Jardin, Philippe & Séverin, Eric, 2011. "Dividend policy," MPRA Paper 44382, University Library of Munich, Germany.
    18. Michael A. Goldstein & Abhinav Goyal & Brian M. Lucey & Cal B. Muckley, 2015. "The Global Preference for Dividends in Declining Markets," The Financial Review, Eastern Finance Association, vol. 50(4), pages 575-609, November.
    19. Xiaoqiao Wang & Jing Xie & Bohui Zhang & Xiaofeng Zhao, 2024. "Unraveling the Dividend Puzzle: A Field Experiment," Working Papers 202406, University of Macau, Faculty of Business Administration.
    20. Meshal Harbi ODAH & Bahr KADHIM MOHAMMED & Ali SADIG MOHOMMED BAGER, 2018. "Tobit Regression Model to Determine the Dividend Yield in Iraq," Book chapters-LUMEN Proceedings, in: Veaceslav MANOLACHI & Cristian Mihail RUS & Svetlana RUSNAC (ed.), New Approaches in Social and Humanistic Sciences, edition 1, volume 3, chapter 30, pages 347-354, Editura Lumen.

    More about this item

    Keywords

    dividend policy; signaling theory; agency cost; BCG matrix;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ssi:jouesi:v:8:y:2020:i:2:p:10-32. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Manuela Tvaronaviciene (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.