REIT Splits and Dividend Changes: Tests of Signaling and Information Substitutability

34 Pages Posted: 18 Oct 2005

See all articles by Qiang Li

Qiang Li

National University of Singapore (NUS) - Department of Real Estate

Hua Sun

Iowa State University

Seow Eng Ong

National University of Singapore (NUS) - Department of Real Estate

Abstract

Recent work on stock splits have attempted to relate the information value associated with splits with that from dividends signaling. This paper extends this genre of research by evaluating the issue of dividend predictability using REIT data where the self-selection issue associated with dividend payment is minimized. The use of REIT data also eliminates the "differential expectations" effect for non-dividend paying firms, thus rendering a more robust test of the information substitutability hypothesis postulated by Nayak and Prabhala (2001). To the extent that stock splits are signals of future cash flows, we further examine the question of leverage predictability associated with REIT splits, particularly for highly levered firms. We find that REITs that use dividend changes as a signaling mechanism prior to splits have smaller price responses to the private information revealed by splits than those that do not provide such signals, consistent with the notion that dividends and splits are indeed information substitutes. Further, REIT splits provide useful information about future dividend and leverage changes.

Keywords: REIT split, dividend, leverage, signaling, conditional event study

JEL Classification: G14, G32, G35

Suggested Citation

Li, Qiang and Sun, Hua and Ong, Seow Eng, REIT Splits and Dividend Changes: Tests of Signaling and Information Substitutability. Journal of Real Estate Finance and Economics, Vol. 3, No. 2, 2006, Available at SSRN: https://ssrn.com/abstract=819746

Qiang Li

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore

Hua Sun

Iowa State University ( email )

Ames, IA 50011-2063
United States
1-5152947514 (Phone)

Seow Eng Ong (Contact Author)

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore
01-65-6516-3552 (Phone)
01-65-6774-8684 (Fax)

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