Abstract

Financial signaling theory has hypothesized that signals are backed up by improved cash flow. The relationship between signals and cash flow, however, has never been empirically investigated. The purpose of this paper is to conduct such an investigation by examining the relationship between cash flow and dividend signal, the most frequently employed financial signal. In particular, this study examines if there are false dividend signals that are not supported by better cash flow and how the market reacts to them. A two-stage empirical dividend signalling model is developed. Unexpected dividend increases of non-financial and non-regulated firms from 1982 through 1986 are investigated. Event study methodology and the Analysis of Variance comparison are used in the testing. The empirical results indicate that while the majority of signaling events are supported by improved cash flow, some dividend signals, especially strong ones, are not. The market is partly deceived by false signals at the dividend announcement. When the new cash flow information arrives, however, the market reacts negatively and quickly to the falsely signaling firms.

Notes

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Graduation Date

1991

Semester

Fall

Advisor

Putchinski, Linda B.

Degree

Doctor of Philosophy (Ph.D.)

College

College of Business Administration

Department

Finance

Format

PDF

Pages

137 p.

Language

English

Length of Campus-only Access

None

Access Status

Doctoral Dissertation (Open Access)

Identifier

DP0028077

Subjects

Business Administration -- Dissertations, Academic; Dissertations, Academic -- Business Administration

Accessibility Status

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