The Dividend Initiation Decision of Newly Public Firms: Some Evidence on Signaling with Dividends
64 Pages Posted: 13 Jul 2006 Last revised: 30 Jan 2011
Date Written: January 4, 2011
We track the dividend initiation decisions of a sample of 6,588 firms that went public during the period 1979-2005 and find that 873 of them initiated dividends. Our primary objective is to determine whether information signaling can explain the dividend initiation (DI) decision. We find that variables suggested by the dividend-signaling models of John and Williams (1985) and Allen, Bernardo, and Welch (2000) are significant determinants of the DI decision and the associated announcement-period stock price effect. We also find support for the residual, agency, tax, clientele, transactions costs, catering, and life cycle explanations of dividend policy.
Keywords: Dividend Initiation, Dividend Level, Dividend Initiation Timing, Payout Policy
JEL Classification: G35, G32, G31
Suggested Citation: Suggested Citation