Signaling Safety

102 Pages Posted: 4 Nov 2017 Last revised: 7 Dec 2019

See all articles by Roni Michaely

Roni Michaely

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

Stefano Rossi

Bocconi University; Krannert School of Management; Centre for Economic Policy Research (CEPR)

Michael Weber

University of Chicago - Finance

Multiple version iconThere are 5 versions of this paper

Date Written: November 1, 2019


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-ow volatility (in opposite direction); (2) larger cash-ow volatility changes come with larger announcement returns; and (3) neither discount-rate news, nor the level of cash-ow 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 (November 1, 2019). Chicago Booth Research Paper 17-30; Fama-Miller Working Paper. Available at SSRN: or

Roni Michaely

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

40 Boulevard du Pont d'Arve
Geneva 4, 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

Krannert School of Management ( email )

West Lafayette, IN 47907-1310
United States

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

Michael Weber (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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