Corporate Risk Management and Dividend Signaling Theory
This paper investigates the effect of corporate risk management on dividend policy. We extend the signaling framework of Bhattacharya (1979) by including the possibility of hedging the future cash flow. We find that the higher the hedging level, the lower the incremental dividend. This result is in line with the purpoted positive relation between information asymmetry and dividend policy (e.g., Miller and Rock, 1985) and the assertion that risk management alleviates the information asymmetry problem (e.g., DaDalt et al., 2002). Our theoretical model has testable implications.
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NBER Working Papers
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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
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"Taxation and Corporate Payout Policy,"
NBER Working Papers
10321, National Bureau of Economic Research, Inc.
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"Payout policy in the 21st century,"
Journal of Financial Economics,
Elsevier, vol. 77(3), pages 483-527, September.
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- Gerald D. Gay & Jouahn Nam & Marian Turac, 2002. "How Firms Manage Risk: The Optimal Mix Of Linear And Non-Linear Derivatives," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(4), pages 82-93.
- Dichev, Ilia D. & Tang, Vicki Wei, 2009. "Earnings volatility and earnings predictability," Journal of Accounting and Economics, Elsevier, vol. 47(1-2), pages 160-181, March.
- Pinghsun Huang & Harley E. Ryan & Roy A. Wiggins, 2007. "The Influence Of Firm- And Ceo-Specific Characteristics On The Use Of Nonlinear Derivative Instruments," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 30(3), pages 415-436.
- Dennis Frestad, 2009. "Why Most Firms Choose Linear Hedging Strategies," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 32(2), pages 157-167.
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