Hostname: page-component-cd9895bd7-dk4vv Total loading time: 0 Render date: 2024-12-25T07:53:17.719Z Has data issue: false hasContentIssue false
  • English
  • Français

Signaling, Information Content, and the Reluctance to Cut Dividends

Published online by Cambridge University Press:  06 April 2009

Avner Kalay
Get access Rights & Permissions [Opens in a new window]

Extract

Managerial aversion to reduce dividends is not only an assertion to be found in the financial literature (see, for example, [2], [4], [8], [9]), but is also the basis for the informational content of dividends hypothesis (see [8]). Furthermore, its existence, if known to investors, can explain dividend payments which involve tax and transaction related costs. Surprisingly, the empirical evidence on this assertion is less than satisfactory. This study examines the existing empirical evidence on this assertion and points out its limitations. A new test, that can refute the informational content associated with the reluctance to cut dividends, is then performed.

Type
Signaling
Information
Journal of Financial and Quantitative Analysis , Volume 15 , Issue 4 , November 1980 , pp. 855 - 869
Copyright
Copyright © School of Business Administration, University of Washington 1980

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]Akerlof, G. “The Market for ‘Lemons', Qualitative Uncertainty and the Market Mechanism.” Quarterly Journal of Economics (08 1970), pp. 488–500.CrossRefGoogle Scholar
[2]Beaver, W.; Kettler, P.; and Scholes, M.. “The Association between Market Determined and Accounting Determined Risk Measures.” The Accounting Review (10 1970), pp. 654–682.Google Scholar
[3]Bhattacharya, S. “Imperfect Information, Dividend Policy, and ‘the Bird in the Hand’ Fallacy.” The Bell Journal of Economics, Vol. 10, No. 1 (Spring 1979).CrossRefGoogle Scholar
[4]Black, F. “The Dividend Puzzle.” The Journal for Portfolio Management, Vol. 2, No. 2 (Winter 1976), pp. 5–8.CrossRefGoogle Scholar
[5]Brealey, R. A. “Security Prices in a Competitive Market.” The MIT Press (1971).Google Scholar
[6]Fama, E., and Babiak, . “Dividend Policy: An Empirical Analysis.” Journal of American Statistical Association, Vol. 63 (12 1968), pp. 1132–1161.CrossRefGoogle Scholar
[7]Fama, E., and Miller, M.. The Theory of Finance. New York: Holt, Rinehart and Winston (1972).Google Scholar
[8]Fama, E. F.; Fisher, L.; Jensen, M. C.; and Roll, R.. “The Adjustment of Stock Prices to New Information.” International Economic Review, Vol. 54 (09 1964), pp. 656–682.Google Scholar
[9]Friend, I., and Puckett, M.. “Dividend and Stock Prices.” American Economic Review, Vol. 54 (09 1964), pp. 656–682.Google Scholar
[10]Jensen, M. C., and Meckling, W. H.. “Theory of the Firm: Managerial Behavior Agency Costs and Capital Structure.” Journal of Financial Economics, Vol. 3, No. 4 (1976), pp, 305–360.CrossRefGoogle Scholar
[11]Kalay, A. “Towards a Theory of Corporate Dividend Policy.” Working Paper No. 166, New York University (1979).Google Scholar
[12]Kalay, A. “Corporate Dividend Policy: A Collection of Related Essays.” Unpublished Ph.D. dissertation, University of Rochester (1979).Google Scholar
[13]Lintner, J. “Distribution of Incomes of Corporations among Dividends, Retained Earnings, and Taxes.” American Economic Review (05 1956), pp. 97–113.Google Scholar
[14]Myers, S. C. “Determinants of Corporate Borrowing.” Journal of Financial Economics, Vol. 4, No. 2 (11 1977), pp. 147–175.Google Scholar
[15]Ross, S. A. “The Determination of Financial Structure: The Incentive Signaling Approach.” The Bell Journal of Economics, Vol. 8, No. 1 (Spring 1977), pp. 23–40.CrossRefGoogle Scholar
[16]Spence, A. M. “Competitive and Optimal Responses to Signals: Analysis of Efficiency and Distribution.” Journal of Economic Theory, Vol. 7, No. 3 (03 1974), pp. 296–332.CrossRefGoogle Scholar
[17]Smith, C., and Warner, J.. “On Financial Contracting: An Analysis of Bond Covenants.” Journal of Financial Economics, Vol. 7, No. 2 (06 1979), pp.CrossRefGoogle Scholar
[18]Watts, R. L. “The Information Content of Dividends.” The Journal of Business, Vol. 46, No. 2 (04 1973), pp. 191–211.CrossRefGoogle Scholar