Dividends as Reference Points: A Behavioral Signaling Approach

Review of Financial Studies (Forthcoming)

NYU Working Paper No. 2451/31372

64 Pages Posted: 16 Dec 2011 Last revised: 5 Dec 2015

See all articles by Malcolm P. Baker

Malcolm P. Baker

Harvard Business School; National Bureau of Economic Research (NBER)

Brock Mendel

Harvard University

Jeffrey Wurgler

NYU Stern School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: January 22, 2015

Abstract

We outline a dividend signaling model that features investors who are averse to dividend cuts. Managers with strong unobservable cash earnings pay high dividends but retain enough to be likely not to fall short next period. The model is consistent with a Lintner partial-adjustment model, modal dividend changes of zero, stronger market reactions to dividend cuts than increases, comparatively infrequent and irregular repurchases, and a mechanism that does not depend on public destruction of value, which managers reject in surveys. New tests involve stronger reactions to changes from longer-maintained dividend levels and reference point currencies of American Depository Receipt dividends.

Suggested Citation

Baker, Malcolm P. and Mendel, Brock and Wurgler, Jeffrey A., Dividends as Reference Points: A Behavioral Signaling Approach (January 22, 2015). Review of Financial Studies (Forthcoming); NYU Working Paper No. 2451/31372. Available at SSRN: https://ssrn.com/abstract=1973474

Malcolm P. Baker

Harvard Business School ( email )

Boston, MA 02163
United States
617-495-6566 (Phone)

HOME PAGE: http://www.people.hbs.edu/mbaker

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Brock Mendel

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

Jeffrey A. Wurgler (Contact Author)

NYU Stern School of Business ( email )

Stern School of Business
44 West 4th Street, Suite 9-190
New York, NY 10012-1126
United States
212-998-0367 (Phone)
212-995-4233 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~jwurgler/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
309
rank
59,817
Abstract Views
1,251
PlumX Metrics