Dividend Policy and Reputation

25 Pages Posted: 22 Apr 2008

See all articles by Roland L. Gillet

Roland L. Gillet

Université Paris I Panthéon-Sorbonne

Marc-André Lapointe

affiliation not provided to SSRN

Philippe Raimbourg

Université Paris I Panthéon-Sorbonne

Abstract

We examine the role of reputation when firms use dividends to signal their profitability. We analyze a signaling model in which reputation plays no role in equilibrium. We then show that taking reputation into account as a link between sequential dividend decisions makes it possible to endogenize signaling costs and obtain a separating equilibrium. Lastly, we use the reversibility hypothesis and assume that in each period, managers can reverse their choices in terms of dividend distribution. We find that in most cases, the signaling equilibrium becomes unstable, causing any dividend signaling policy to become difficult to implement.

Suggested Citation

Gillet, Roland L. and Lapointe, Marc-André and Raimbourg, Philippe, Dividend Policy and Reputation. Journal of Business Finance & Accounting, Vol. 35, Nos. 3-4, pp. 516-540, April/May 2008, Available at SSRN: https://ssrn.com/abstract=1122929 or http://dx.doi.org/10.1111/j.1468-5957.2008.02074.x

Roland L. Gillet (Contact Author)

Université Paris I Panthéon-Sorbonne ( email )

12, place du Panthéon
Paris, IL
France

Marc-André Lapointe

affiliation not provided to SSRN ( email )

Philippe Raimbourg

Université Paris I Panthéon-Sorbonne ( email )

12, place du Panthéon
Paris, IL
France
+33 1 40 46 27 62 (Phone)
+33 1 40 46 31 77 (Fax)

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