This paper reconsiders the issue of share price reactions to dividend announcements. Previous papers rely almost exclusively on a naive dividend model in which the dividend change is used as a proxy for the dividend surprise. We use the difference between the actual dividend and the analyst...

Bank managers often claim that equity is expensive relative to debt, which contradicts the Modigliani-Miller irrelevance theorem. This paper combines dividend signalling theories and the Diamond-Dybvig bank run model. An opaque bank must signal its solvency by paying high and stable dividends in...

Contrary to signaling models' central predictions, changes in the level of cash flows do not empirically follow changes in dividends. We use the Campbell (1991) decomposition to construct cash-flow and discount-rate news from returns and find the following: (1) Both dividend changes and...

We propose a behavioral signaling explanation for the positive announcement effects of stock splits. There are two key behavioral ingredients in our model. First, (retail) investors have misconceptions about stock splits that make them view stock splits as good news. Second, investors are...

In frictionless markets dividends are irrelevant to firm value (Miller and Modigliani 1961), but in practice we propose that they affect valuation and stewardship, roles traditionally filled by accounting information. Using a variety of econometric methods to control for differences between...

We provide evidence that firms with weak investment opportunities (those whose current earnings justify a greater valuation than firms with strong investment opportunities) signal their permanent earnings level through their dividends. In the cross-section, we show that both dividend levels and...

With imperfect market hypothesis, it is widely accepted that announcements of dividend payouts affect firm value. An explanation has been proposed with the cash flow signaling theory and the dividend information content hypothesis. This original explanation, was developed in theoretical models...

We propose a “noisy signaling" hypothesis of open market share repurchase (OMSR) programs, where the equity market equilibrium that prevails after OMSR program announcements is a partial pooling rather than a fully separating equilibrium. We argue that two complementary mechanisms, namely,...

This paper reconsiders the issue of share price reactions to dividend announcements. Previous papers rely almost exclusively on a naive dividend model in which the dividend change is used as a proxy for the dividend surprise. We use the difference between the actual dividend and the analyst...

Contrary to the central prediction of signaling models, changes in profits do not empirically follow changes in dividends. We show both theoretically and empirically that dividends signal safer, rather than higher, future profits. Using the Campbell (1991) decomposition, we are able to estimate...