Investigating the Relationship between Asymmetric Information and Dividend Policy in Iranian Industrial Companies

Seyedhossein Naslmosavi,Ibrahim Danjuma,Mohammadghorban Mehri,Mohammed Sangiru Umar

doi:10.19026/ajbm.5.5326

Abstract

This study aims to examine the relationship between asymmetric information and dividend policy. Today, researchers and economists have divided the capital market into two distinct forms: The first one is the Perfect Competition Market. Since in this form of market, the level of knowledge is equal among the market factors, there is no possibility to benefit from obtaining hidden information. The second type of market is the Imperfect Competition Market in which the market information is not fully available to everyone rather it can be bought and sold like a commodity. Thus, it gives the chance to those who have more knowledge to gain more profits. Thus, considering the lack of an efficient performance of the capital market, the current study intends to investigate whether there is a significant relationship between asymmetric information and dividend policy. To do so, among the various components of information asymmetry index, asymmetric information is considered as the difference between forecasted earnings and dividends paid to shareholders in the present study. Among the most influential cases affecting stock dividend policy, the index proposed by Fama and French (2001) is used in this study. Basically, the index includes cases such as the firm size, firm risk, profitability and the percentage of dividend and the ratio of market value to book value.

Highlights

The stock dividend has been always a challenging concept for economists, financial analysts and other investors
Scope of the study: The purpose of this study is to provide evidence on the relationship between asymmetric information and dividend policy of industrial companies listed in Tehran Stock Exchange
From the discussion so far, asymmetric information investigated through identifying the difference between Earning Per Share (EPS) and Dividends Per Share (DPS), which the findings revealed that, based on this index, the amount of difference in stock market is significantly high

Summary

INTRODUCTION

The stock dividend has been always a challenging concept for economists, financial analysts and other investors. The investors who are more informed will probably gain the higher profits As a result, this issue regardless of dividing or non-dividing a company's earnings, might have the greatest influence on the company's stock price fluctuation. The stock dividend signaling is applied as a signal to reduce the level of asymmetric information in the capital market. This theory could not have a major impact on the reduction of the level of asymmetric information and company own people including the managers, who possess important information is likely to make more profit from the trading of stock dividend than other investors. In the current project, asymmetric information (difference between DPS and EPS) used in the main hypothesis is the dependent variable and other variables are considered as the independent variable

LITERATURE REVIEW

CONCLUSION AND RECOMMENDATIONS