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Do dividends signal more earnings?

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  • Tsuchida, Marcos H.
  • Araújo, Aloísio Pessoa de
  • Moreira, Humberto Ataíde

Abstract

Signaling models have contributed to the corporate finance literature by formalizing 'the informational content of dividends' hypothesis. However, these models are under criticism of empirical literature, as weak evidences were found supporting one of the main predicitions: the positive relation between changes in dividends and changes in earnings. We claim thaht the failure to verify this prediction does not invalidate the signaling approach. The models developed up to now assume or derive utility functions with the single-crossing property. We show thaht signaling is possible in the absence of this property and, in this case, changes in dividend and changes in earnings can be positively or negatively related.

Suggested Citation

  • Tsuchida, Marcos H. & Araújo, Aloísio Pessoa de & Moreira, Humberto Ataíde, 2004. "Do dividends signal more earnings?," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 524, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  • Handle: RePEc:fgv:epgewp:524
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    Cited by:

    1. Flôres Junior, Renato Galvão, 2004. "On the use (fulness) of CGE modelling in trade negotiations and policy," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 564, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    2. Gottlieb, Daniel & Moreira, Humberto Ataíde & Araújo, Aloísio Pessoa de, 2004. "A model of mixed signals with applications to countersignaling an the GED," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 553, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).

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