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...

We build an information-based two-country general equilibrium model. There are two dividend processes with correlated growth rates. Agents observe a global public signal informative about both growth rates. We first let agents rationally process information, and then we allow for reasonable...