Investment as the opportunity cost of dividend signaling

We provide evidence that dividends signal sustainable earnings generated by assets-in-place for firms with weak investment opportunities. In the cross-section, both dividend levels and changes contain more earnings information among firms with weaker investment opportunities. Intertemporally, when aggregate investment opportunities in the economy are worse, dividend changes convey more earnings information. In contrast, dividends have a more negative association with investment spending for firms with strong growth options, as funding investment is a higher priority for those firms. Collectively, our findings suggest that dividends serve as a counter-signal, whereby additional information about investment opportunities give rise to signaling that is non-monotonic in firm quality.

Signaling Hypothesis and Size Anomaly in Indian Stock Market

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

The Phenomenon of Dividend Announcement on Stock Abnormal Return (Case in ASEAN Countries)

Research aims: to examine the existence of stock’s abnormal return after dividend announcement activity.Design/methodology/approach: event study with 1.330 samples of dividend announcement in ASEAN countries during 2018. The research period was 21 days around the dividend announcement’s date.Research findings: this analysis's results agreed with the dividend signaling theory hypotheses, where the increase, decrease, or constant dividends could be an informative aspect for investors. Theoritical contribution/originality: it was shown by the presence of a positive abnormal return between an increase and a constant dividend, while a negative abnormal return between decrease dividends.Practitioner/policy implication: in the ASEAN capital market, it could be concluded that the change of dividend nominal would signal the firm’s prospect.Research limitation/implication: this research used the earliest dividend announcement before revision. Suggestions for further research are to pay attention to announcements of changes in dividend distribution dates and nominal revision, whether they contain information for investors, which will affect stock price movements.

The dividend signaling hypothesis and the corporate life cycle

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.

Pengaruh Pengumuman Kebijakan Dividen terhadap Volatilitas Harga Saham

This study aims to determine the effect of dividend policy announcements on stock price volatility. This research is an event study, with a period of observation 10 days before and after dividend announcement. According to the purposive sampling of 30 companies incorporated in the JII there are 20 companies that meet the criteria to be sampled. The variable used in this study is dividend policy announcements which are proxied by abnormal returns and stock price volatility. By using simple linear regression analysis, the results of the study found that the dividend announcement policy affects the volatility of stock prices. This means that dividend policy announcements contain information that causes shares to react. The results of this study are consistent with the dividend signaling theory which states that dividend policy announcements contain information that can cause stock prices to react.

The Relevance of Bird-in-Hand Theory to ShariahInclined Investors: A Case Study of Malaysia

The purpose of this study is to identify whether the wealth of Shariah-inclined investors is affected by dividend policy. This study is different from other studies because earlier studies do not differentiate between Shariah-compliant and non-Shariah compliant stocks, creating a gap for dividend signaling theory and bird-in-hand theory on Shariah-compliant financial products. This study employs panel data analysis and multiple linear regression with the most recent data representing eight (8) out of twelve (12) sectors in the Malaysian stock market. Dividend per share and retained earnings per share are used as a proxy for dividend policy while market price per share is used as a proxy for shareholders’ wealth. It was found that for Shariah-compliant stocks, both dividend per share and retained earnings per share are insignificant in affecting shareholders’ wealth. Unlike other studies on dividend policy which do not discriminate between Shariah-compliant and non-Shariah compliant stocks, this study finds that dividend policy to be irrelevant to Shariah-inclined investors.

Determinants of dividend policy

Pakistan’s capital market and economy have significant features for examining the dynamics of the dividend policy. The agency conflicts between the management and the investors of the firms are main barriers to the success of the firm. The shareholder is generally taking away all the rights and similarly has a control on the decision concerning the dividend policy. The dividends are conveying better information than any other source regarding the firm’s prospects. The aim of this research is to identify and analyze the influence of shareholder preference and dividend signaling on the dividend policy of the corporations in Pakistan. The respective study presents the analysis of top financial management beliefs by taking eighty listed corporations on Pakistani stock exchanges during 2017–2018. Pearson correlation and multiple regressions are applied on responses to explore whether there is an influence regarding the shareholder preferences and the signaling mechanism on the dividend policy of the listed firms in Pakistan. Through statistical techniques the findings proved that shareholder preferences and dividend signaling have a positive and significant relationship with the dividend policy of listed corporations. Dividend policy is the response of investor preferences and signaling aspect of dividends.