Dividend Signaling Research Articles

Information Asymmetry Effect on Stock Liquidity Effect on Dividend Payout in Market Microstructure in Indonesia

The impact of market microstructure in shaping corporate governance has been distinguished in several previous research. Market Microstructure becomes prominent factor in emerging markets. This study tested the effect of market microstructure, in the scheme of stock liquidity, on dividend payouts. This study has set focus mainly on the impact of stock liquidity on the corporate payout policy. Later, the researcher examined the interaction given to the stock liquidity factor with information transparency and agency problem properties since the researcher believed that transparency is linked to the and, subsequently, affecting the corporate agents. This research examined observations using quantitative research method, Tobit regression on 256 non-financial firms of the Indonesian capital market during 2010-2018. Stock liquidity significantly impacted dividend policy. The result showed robustness with other stock liquidity measures. This study found that information asymmetry and agency problems had a moderation effect on stock liquidity effect on dividend payout. However, the interaction of stock liquidity and disparity of control rights and cash flow rights did not give a moderation effect on the dividend payout policy. The result supports the notion that dividend payout is an outcome of firm good governance and an inverse of dividend signaling theory.

A cross-country, macro-level investigation into earnings retention during the COVID-19 pandemic

Orientation: Many shareholders rely on dividends for income. During crisis periods, managers, however, tend to retain rather than distribute earnings. Most prior research during the coronavirus disease 2019 (COVID-19) pandemic focussed on company-specific factors and industry association that favour earnings retention. As far as could be ascertained, no studies to date have investigated the role that macro-level factors could have played.Research purpose: The authors hence examined the extent to which government efficiency, business efficiency, infrastructure, economic performance, uncertainty avoidance, long-term orientation and indulgence influenced earnings retention at listed companies in 62 countries from 2019 to 2021.Motivation for the study: Additional insights were uncovered regarding the earnings retention decision during an economic crisis.Research approach/design and method: Earnings retention data were downloaded from Bloomberg database, and country-level data from the International Institute for Management Development, the World Bank, Hofstede Insights and the World Federation of Exchanges. Panel regressions were used to examine hypothesised relationships.Main findings: Contrary to expectation, earnings retention was negatively associated with the cultural dimension that measures uncertainty avoidance. The notion that less earnings would be retained in countries with high indulgence scores was, however, supported. Significant differences in earnings retention were observed across geographic regions and income groups. This descriptive study provides support for the dividend signalling theory in some countries.Practical/managerial implications: Shareholders who rely on dividends should be mindful of signalling behaviour during economic crises.Contribution/value-add: The findings enrich the extant literature on the earnings retention decision during an economic crisis by highlighting the importance of cultural dimensions, notably uncertainty avoidance and indulgence. Recommendations are offered to managers, shareholders and policymakers.

Dividend signalling and investor protection: An international comparison

This study examines whether dividend changes signal future earnings growth in non-US markets following the Ham et al. (2020) methodology and whether the strength of the earnings signal varies with the level of investor protection. Based on the notion that weak investor protection reduces the cost of cutting dividends and as such increases managers’ discretion to change dividends, we expect that the strength of the earnings signal in dividend increases becomes weaker as investor protection decreases. In a sample drawn from 38 different markets, our results indicate while dividends can signal future earnings in non-US markets, the strength of the signal is weaker than that in the US. In line with our predictions, we find that for firms in a strong investor protection environment, dividend changes are correlated more strongly with subsequent earning changes than is the case for firms in weak investor protection environments.

Do dividends signal earnings quality in the emerging markets? Large sample evidence from India

Do dividends signal earnings quality in the emerging markets? Large sample evidence from India

Quick Ratio and Financial Performance of Agricultural Firms Listed at the Nairobi Securities Exchange, Kenya

The study was informed by the continuous decline in financial performance of the Agricultural firms listed at the Nairobi Securities Exchange, Kenya. The study emanates from the Doctoral dissertation of the first author in which the co-authors served as supervisors. A census approach was adopted where secondary data from audited annual financial reports of all the six Agricultural firms listed at the Nairobi Securities exchange, Kenya was used, covering the period 2015 to 2022. Descriptive analysis and panel regression analysis were applied. Based on the outcome of the panel regression analysis, the study established that quick ratio has significant effect on financial performance of the Agricultural firms listed at the Nairobi Securities Exchange, Kenya. The study established that quick ratio has significant effect on financial performance of the Agricultural firms listed at the Nairobi Securities Exchange, Kenya. The study further recommends that holding of quick assets should be done with caution by firms. Holding of quick assets should be done in view of underlying short-term liabilities since excessive levels lead to declining financial performance. Keywords: Quick Ratio, Financial Performance, Trade-Off Theory and Dividend Signaling Theory

Signaling Effect of Dividend on Firm’s Future Performance: A Study of Select Emerging Economies

The present study examines the signaling effects of a firm’s dividend policy in developing economies (India, Brazil, China, and Taiwan) from 2010 to 2020 in 4,630 companies’ observations. It highlights that the Indian market indicates greater intensity to the signaling model, though no such reactions were recorded in the Brazilian and Taiwanese markets. Further, the Lintner partial adjustment model reveals that companies in India adjust dividends at a slower rate as compared to other emerging markets like China, Brazil, and Taiwan. We found that the Lintner model is the behavioral consequence of the applicability or non-applicability of dividend signaling theory in these emerging economies. JEL Codes: G35, C32, G15

Factors that Correlate Between Dividend Signaling and Dividend Acceleration Through Digital Investment Among Online Investors in Iligan City

Digital investments are becoming mainstream but must be secured to avoid sudden loss. This study measures the correlation between dividend signaling and acceleration through digital assets among online jobbers in Iligan City. It has become a full-fledged investment tool, creating a new, booming market with unknown potential. Thanks to the Internet, many businesses are interconnected worldwide, which sparked the industrial revolution centered on globalization. Several solutions have been developed to provide fast and low-cost payments globally in the Philippines, but third parties manage these payments. Cryptocurrency has drawn the attention of online jobbers during the lockdown, but many people need to learn what they can do for financial services or start investing. This research employed a descriptive correlational research design to describe the profile of respondents in terms of age, gender, salary, Investment capital, and length of the Investment. It was a correlation to determine the relationship between demographic profiles and dividend signaling in dividend acceleration. Only those online Investors who were available and signified their interest in participating in the study were included as the sources of the respondents. The research environment of this study covered online Investors in Iligan City. This study examines how investing in digital Investment has become a full-fledged investment tool, enabling rapid and low-cost payments worldwide. It is recognized in the market for dividend signaling and acceleration, but many people hesitate to start investing. Some of the biggest financial companies still need to build and launch digital investment solutions, creating a new, booming market with unknown potential.

Dividend payouts under a societal crisis: Financial constraints or signaling?

Dividend payouts of Chinese firms are typically flexible and unstable, and firms have leeway to change dividends in response to a crisis. Using this setting, we document that Chinese listed firms tend to decrease dividend payouts under the coronavirus crisis, supporting our financial constraints hypothesis instead of the alternative dividend signaling hypothesis. The baseline result is robust to a series of sensitivity checks. Underlying mechanism tests show that the negative effect of COVID-19 on dividend policies is enhanced in high-constrained groups compared to that in low-constrained groups. Further analysis of crisis-related factors reveals that the main result is enhanced when firms engage in international diversification, when firms have greater labor intensity and when firms are nonstate-owned.

배당공시가 주가에 미치는 영향에 관한 실증 연구

This paper investigates the effects of dividend announcements of culture contents companies on stock prices from the perspective of the dividend signaling hypothesis, focusing on the recent data from 2016 to 2021. The empirical tests reveal that, compared to the extant literature, stock price reactions surrounding the dividend date in the culture contents industry are negative rather than positive. In addition, these negative effects are observed even before the dividend announcement. These results suggest that the dividend signaling hypothesis in prior research does not hold in the culture contents industry, delivering important implications for decision making of firm managers and investors in this industry. We expect this paper to enhance understanding of the culture contents industry from a financial veiwpoint.

Dividend signaling or dividend smoothing? New empirical evidence from the italian insurance industry after the global financial crisis

This empirical study examines the dividend policy of insurance companies in Italy after the Global Financial Crisis. There is clear evidence for dividend signaling in this period of time. Moreover, the relationship between stock prices and dividend payments is analyzed in more detail. Additionally, the paper also discusses macroeconomic and regulatory issues that could be of relevance for the dividend policy of the Italian insurance industry. In this context the study exemplarily discusses the possible role of inflation and of regulatory restrictions on dividend payouts in the financial services industry.

The Different Dividend Signaling Effect under Tax Deduction around Ex-Right Day: Evidence from Taiwan Stock Exchange

Dividend tax policy is one of the important tools of government taxation. Observing the dividend tax policy and the behavior of stock prices around ex-rights will not only shed light on investment strategies, but also give us a clearer understanding of the microstructure of the capital market. Taiwan went through dividend tax policy and National Health Insurance (NHI) supplementary premium changes from 2014 to 2016. Therefore, this paper adopts the event study method to conduct empirical research on this major event period. The research conclusion points out: (1) During the research period, the company studied had a positive cumulative abnormal return before and on the ex-right day, and there was a negative cumulative abnormal return after the ex-right day. (2) When the tax reduction effect is more favorable to investors, there will be only a positive relationship with positive abnormal returns. (3) There is no statistical significance between the dividend tax reform policy and the negative abnormal return after ex-rights. The empirical results of this paper can help to better understand the pricing process of stocks by market microstructure systems such as dividend tax policies and help build a more stable stock market transaction structure. On the other hand, investors and companies can also gain their own investment or dividend policy inspiration from this research.

Dividend policy issues in the European pharmaceutical industry: new empirical evidence

This paper examines dividend policy issues in the European pharmaceutical industry. This sector is of particular interest because of the high research and development expenditures and the associated risks characterizing the business models of many firms in this industry. In fact, from the perspective of corporate finance theory, this is a particular challenge for the managers of these corporations that may also have implications for the dividend policy implemented by the firms forming this sector. Moreover, the level of internal financing and litigation risks also seem to be high in the pharmaceutical industry. These facts could also affect the payout policy of the firms. Employing techniques of time series analysis, there is no evidence for dividend signaling and clear evidence for dividend smoothing in the European pharmaceutical industry. Given that dividend increases under certain assumptions can negatively affect the firms' ability to finance new investments in general and research and development projects in particular, these results of our empirical investigations could be described as highly plausible.

Do dividends signal safety? Evidence from China

Our paper examines whether dividends convey information about future cash-flow volatility in the Chinese stock markets. We observe that dividend changes are followed by cash-flow-volatility changes in the opposite direction. Taking advantage of the unique context of China, we show, in both the two-way sorting analysis and the regression analysis, that the strong relation between changes in dividend and cash-flow volatility is robust after controlling for potential confounders, including firm-level financial market frictions, macroeconomic and market conditions, and government intervention in firms' decision-making, and holds after we control for endogeneity concerns. Furthermore, we perform the theoretic mechanism tests of the relation and present supporting evidence on the signaling theory under the setting of asymmetric information, instead of the free cash flow theory based on the assumption of agency conflict. This study enriches our understanding of the source and nature of cash-flow information contained in dividends.

Dividend policy, risk and the cross-section of stock returns: Evidence from India

We invoke theories of dividend policy and asset pricing to investigate the impact of dividend changes on stock price risk, stock returns, and the cross-sectional risk-return tradeoff. We use a large sample of Indian firms during the period from 1999 to 2018. We find that favorable dividend changes trigger higher stock returns because they convey new information about firm's future profitability, as posited by the dividend signaling theory. Our analysis also shows that the higher (lower) stock returns following dividend increases (decreases) are more pronounced among stocks with greater information asymmetry. The results reveal a new empirical evidence of the heterogeneity of the risk–return trade-off across firms with different dividend changes. We show that the positive risk–return relation is much more pronounced among dividend-increasing firms, but the risk–return relation is negative among dividend-decreasing firms.

Corporate dividend policy in the time of COVID-19: Evidence from the G-12 countries

This paper examines how the COVID-19 pandemic affects corporate dividend policy. Utilizing a sample of 8889 firms listed in the G-12 countries, the findings show that although the proportion of dividend cuts and omissions is significantly higher during the pandemic, yet the majority of firms could either maintain or increase dividends. By doing so, firms might aim to purse more stable dividend policies and signal their financial prospects during the crisis, as posited by dividend signaling theory. Logit regression findings reveal that firm profitability, earnings prospects, size and leverage appear to be important determinants of dividend policy decisions during the pandemic.

Investment as the Opportunity Cost of Dividend Signaling

ABSTRACTWe 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.JEL Classifications: G15; G32; G35.

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.

Are Emerging Markets Efficient? Evidence from Informational Content of Dividend Changes in Polish Stock Market

Purpose: The objective of this paper is to present the dividend signaling hypothesis, in particular, an empirical analysis of the relationship between the current changes in the level of a dividend paid (t0) and the future profitability of the companies. Design/Methodology/Approach: The dividend signaling hypothesis is empirically tested using the dynamic causality analysis based on the regression approach monitoring for expected earnings changes and past returns with a set of linear and non-linear controls. The conducted analyses comprised the domestic companies quoted on the Warsaw Stock Exchange, which paid dividends in 2001-2016. Findings: The empirical results confirm that in the audited period, dividend decisions bring some information about the current situation (t = 0) and future (t = 1, t = 2) of the analyzed companies. It is also worth noting that among the analyzed indicators, the gross profit ratio (PBT) referred either to the market value or the book value of equity was most often in the statistically significant analyzes. In general, our results confirm the validity of the signaling hypothesis in the case of continuation-growth and initiation of payments in the Polish capital market as in the developed market. Practical Implications: We can say that investors, based on signals coming out of dividends advertisements, may conclude the future-income potential of a given company. Originality/value: As mentioned, the gross profit ratio (PBT) referred either to the market value or the book value of equity was most often in the statistically significant analyses. Thus, it seems that, contrary to the adopted assumptions in the literature, gross profit (PBT) in dividend signaling is more important than net profit (E).

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.