Costly Dividend Signaling: The Case of Loss Firms with Negative Cash Flows

28 Pages Posted: 4 Feb 2004

See all articles by Peter R. Joos

Peter R. Joos

INSEAD

George A. Plesko

University of Connecticut School of Business

Date Written: January 2004

Abstract

We examine the dividend-signaling hypothesis in a sample of firms for which dividend increases are particularly costly, namely loss firms with negative cash flows. When compared to loss firms with positive cash flows, we find the predictive power of dividend increases for future return on assets to be greater for loss firms with negative cash flows, consistent with the predictive power of the dividend signal being stronger when its cost is higher. Our results provide support for the dividend-signaling hypothesis and have broader implications since loss firms comprise a large and increasing share of publicly-traded firms.

Keywords: dividends, dividend signalling, losses

JEL Classification: G35, G32, M41

Suggested Citation

Joos, Peter R. and Plesko, George A., Costly Dividend Signaling: The Case of Loss Firms with Negative Cash Flows (January 2004). MIT Sloan Working Paper No. 4474-04. Available at SSRN: https://ssrn.com/abstract=494742 or http://dx.doi.org/10.2139/ssrn.494742

Peter R. Joos (Contact Author)

INSEAD ( email )

1 Ayer Rajah Avenue
Singapore, 138676
Singapore

George A. Plesko

University of Connecticut School of Business ( email )

School of Business
Storrs, CT 06269-2041
United States
860-486-6421 (Phone)

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