Dividend Policy, Signaling, and Discounts on Closed-End Funds

Posted: 28 Aug 2011 Last revised: 18 Oct 2011

See all articles by Shane A. Johnson

Shane A. Johnson

Texas A&M University - Department of Finance

Ji-Chai Lin

Hong Kong PolyU

Kyojik Song

Sungkyunkwan University

Date Written: 2006

Abstract

We test the predictions of dividend signaling models using closed-end equity funds that adopt explicit policies committing them to pay minimum dividend yields. These policies represent deliberate attempts to reduce share price undervaluation relative to NAV. Funds that adopt minimum dividend policies experience reductions in their share price discounts, trade at smaller discounts than other funds, earn greater excess returns following policy adoption, and their managers survive longer than other managers do. The results are broadly consistent with the predictions of dividend signaling models, and suggest that high quality closed-end funds can reduce undervaluation via dividend policy.

Keywords: Dividend policy, Signaling, Closed-funds, Compensation

JEL Classification: G12, G35

Suggested Citation

Johnson, Shane A. and Lin, Ji-Chai and Song, Kyojik, Dividend Policy, Signaling, and Discounts on Closed-End Funds (2006). Journal of Financial Economics (JFE), Vol. 81, No. 3, 2006, Available at SSRN: https://ssrn.com/abstract=1918253

Shane A. Johnson

Texas A&M University - Department of Finance ( email )

Mays School of Business
College Station, TX 77843-4218
United States
979-862-3318 (Phone)

Ji-Chai Lin

Hong Kong PolyU ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon
China

Kyojik Song (Contact Author)

Sungkyunkwan University ( email )

53 Myeongnyun-dong 3-ga Jongno-ju
Guro-gu
Seoul, 110-745
Korea, Republic of (South Korea)
82-2-760-0497 (Phone)

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