Dividend Policy, Signaling Theory: A Literature Review

27 Pages Posted: 23 Apr 2019

See all articles by Lotfi Taleb

Lotfi Taleb

Ecole Superieure des Sciences Economiques et Commerciales de Tunis (ESSECT), Université de Tunis

Date Written: March 24, 2019

Abstract

With imperfect market hypothesis, it is widely accepted that announcements of dividend payouts affect firm value. An explanation has been proposed with the cash flow signaling theory and the dividend information content hypothesis. This original explanation, was developed in theoretical models by Bhattacharaya (1979), John and Williams (1985) and Miller and Rock (1985). All these authors argue that since managers possess more information about the firm's cash flow than do individuals outside the firm and they have incentives to convey that information to investors in order to inform the true value of the firm. This paper aims at providing the reader with a comprehensive understanding of dividend policy by reviewing the main theories and empirical findings under this signaling hypothesis.

Keywords: dividend; dividend policy; signaling theory; signaling equilibrium; literature review

JEL Classification: G35; D82

Suggested Citation

Taleb, Lotfi, Dividend Policy, Signaling Theory: A Literature Review (March 24, 2019). Available at SSRN: https://ssrn.com/abstract=3359144 or http://dx.doi.org/10.2139/ssrn.3359144

Lotfi Taleb (Contact Author)

Ecole Superieure des Sciences Economiques et Commerciales de Tunis (ESSECT), Université de Tunis ( email )

4 rue Abou Zakaria El Hafsi
Montfleury, 1089
Tunisia

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