Signaling Safety

110 Pages Posted: 4 Nov 2017 Last revised: 26 Feb 2020

See all articles by Roni Michaely

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

Stefano Rossi

Bocconi University; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Michael Weber

University of Chicago - Finance

Multiple version iconThere are 5 versions of this paper

Date Written: February 1, 2020


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 repurchase announcements signal changes in cash-flow volatility (in opposite direction); (2) larger cash-flow volatility changes come with larger announcement returns; and (3) neither discount-rate news, nor the level of cash-flow news, nor total stock return volatility change following dividend changes. We conclude cash-flow news—and not discount-rate news—drive payout policy, and payout policy conveys information about future cash-flow volatility.

Keywords: Dividends, Payout Policy, Cash-Flow Volatility, Signaling Model

JEL Classification: G35

Suggested Citation

Michaely, Roni and Rossi, Stefano and Weber, Michael, Signaling Safety (February 1, 2020). Chicago Booth Research Paper 17-30, Fama-Miller Working Paper, European Corporate Governance Institute – Finance Working Paper No. 653/2020, Swiss Finance Institute Research Paper No. 17-30, Available at SSRN: or

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

Stefano Rossi

Bocconi University ( email )

Via Roentgen 1
Milano, MI 20136

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Michael Weber (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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