A Tax-Based Test of the Dividend Signaling Hypothesis

PurposeThis paper aims to examine the relationship between the dividend signaling hypothesis and a firm's life cycle.Design/methodology/approachThe authors use Dickinson's (2011) methodology to develop a proxy for the firm's stages in its life cycle and to examine the relationship between dividends and future earnings following a nonlinear setting.FindingsUsing a sample of US firms during the 2000–2014 period, the authors find that the signaling hypothesis can be dependent on firm-specific characteristics, such as life cycle stages. The authors report that the relationship between dividend changes and subsequent earnings changes is different for different life stages. They also find that changes in the amount of the dividend provide some information about future earnings, especially during the early (introductory and growth) stages. These results are consistent with the use of earnings or return on assets as the dependent variables in models of earnings expectations.Originality/valueThe authors believe that this is the first time that the dividend signaling hypothesis has been linked to the life cycle of the firm.

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Dividend Smoothing And The Long-Run Stability Between Dividends And Earnings In Korea

International Business & Economics Research Journal (IBER) ◽

10.19030/iber.v8i3.3118 ◽

2011 ◽

Vol 8 (3) ◽

Author(s):

Jin-Ho Jeong

Keyword(s):

Information Asymmetry ◽

Stock Exchange ◽

Series Data ◽

Annual Series ◽

Signaling Model ◽

Long Run ◽

Dividend Signaling ◽

Dividend Smoothing ◽

Signaling Hypothesis ◽

Insight Into

There have been no empirical attempts to estimate and verify the dividend-earnings relation reflecting both the signaling and dividend smoothing hypotheses. This study proposed a cointegration model to test both hypotheses in an integrated framework in order to provide better insight into the dividend and earning relation. We are particularly interested in the issue of whether the model can detect a presence of inter-temporal relations between dividends and earnings. The implications of the signaling model and smoothing model of dividends were empirically tested using the recent 26 annual series data of dividends and earnings up to year 2006 for 226 firms listed on the Korea Stock Exchange. The results of t-test and logistic regression show that the presence of cointegration is positively related to the degree of information asymmetry, a result consistent with the dividend signaling hypothesis. In addition, dividend smoothing is identified as an underlying force to make dividends and earnings cointegrated.

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Signaling Hypothesis and Size Anomaly in Indian Stock Market

International Business Research ◽

10.5539/ibr.v14n9p94 ◽

2021 ◽

Vol 14 (9) ◽

pp. 94

Author(s):

Nagendra Marisetty ◽

Pardhasaradhi Madasu

Keyword(s):

Stock Market ◽

Size Effect ◽

Abnormal Returns ◽

Small Sample ◽

Market Model ◽

Market Capitalization ◽

Dividend Signaling ◽

Small Sample Sizes ◽

Indian Stock Market ◽

Signaling Hypothesis

The dividend signaling hypothesis means that dividend change announcements send signals to the market about its prospects. Market capitalization anomaly or size effect means small-cap stocks variances and returns are different than the large-cap stocks. The sample was tested for dividend change announcement, and the sample was divided into large, medium, and small sample sizes based on the market capitalization of the stocks to test the size effect. Event methodology market model used to calculate the abnormal returns on the dividend announcement day. We found that dividends send signals to the market, and the market reacts positively to the dividend change announcements on event day (Aharony and Swary 1980, Litzenberger and Ramaswamy 1982, Dhillon and Johnson 1994, Below and Johnson 1996), but results may vary with the size of the company. Small-cap companies' variances are higher than the large-cap and mid-cap companies, and also small-cap variances are not equal to other variances results similar to Wong (1989), Bandara and Samarakoon (2002), Sehgal and Tripathi (2006), and Switzer (2010). Finally, we concluded that the dividend signaling hypothesis and market capitalization or size effect anomaly exist in the Indian stock market

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Does Dividend Signaling Hypothesis Still Relevant? Evidence from Malaysian Main Market

International Business Management ◽

10.3923/ibm.2012.426.432 ◽

2012 ◽

Vol 6 (4) ◽

pp. 426-432

Author(s):

Zunaidah Sulong ◽

Ahmad Shukri Yazid

Keyword(s):

Relevant Evidence ◽

Dividend Signaling ◽

Signaling Hypothesis

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Information Asymmetry and Dividend Policy: The Consequences of Dividend Signaling Hypothesis

Korean Journal of Financial Engineering ◽

10.35527/kfedoi.2010.9.1.005 ◽

2010 ◽

Vol 9 (1) ◽

pp. 99-124

Author(s):

Byoung Gon Kim ◽

김동욱 ◽

Dong Hoe Kim

Keyword(s):

Information Asymmetry ◽

Dividend Policy ◽

Dividend Signaling ◽

Signaling Hypothesis

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The Effects of Share Repurchase Announcements on Returns in the Malaysia Stock Market

Indonesian Journal of Business Finance and Accounting ◽

10.32455/ijbfa.v1i1.44 ◽

2018 ◽

Vol 1 (1) ◽

pp. 1 ◽

Cited By ~ 1

Author(s):

Tze San Ong ◽

Pei San Ng

Keyword(s):

Stock Market ◽

Abnormal Return ◽

Small Firms ◽

Abnormal Returns ◽

Share Repurchase ◽

Before And After ◽

Positive Abnormal Return ◽

Repurchase Announcements ◽

Signaling Hypothesis ◽

Firm Characteristic

This paper examines the market response surrounding the share repurchase announcements of Malaysia Listed Companies from years 2012 to 2016. One sample T-test was carried out to identify the abnormal return in the range before and after 20 days from share repurchase announcements. The result shows a significant positive abnormal return in the day of repurchase announcements and continuously until day 1 after the announcements. Multiple regression analysis was performed in order to identify the firm characteristic of share repurchase. The finding is supported with information asymmetric, which shows that stock market reacts more favorably through the repurchase announcements by small firms than large firms. This study is consistent with the signaling hypothesis that shows share repurchase announcement can be an effective tool in stabilizing the stock market in Malaysia. The finding of this study acts as a useful tool for managers and investors to improve their decisions on share repurchase announcements in Malaysia. Company’s managers can conduct share repurchase announcements that are able to make the stock market react positively in order to generate positive abnormal returns.

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