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Rev Fin 1995; 8:995-1018
© 1995 the Society for Financial Studies

Article

Signaling, investment opportunities, and dividend announcements

PS Yoon and LT Starks
Department of Finance, University of Texas at Austin, Austin, TX 78712-1179, USA

Abstract

This article examines potential explanations for the wealth effects surrounding dividend change announcements. We find that new information concerning managers' investment policies is not revealed at the time of the dividend announcement. We also find that dividend increases (decreases) are associated with subsequent significant increases (decreases) in capital expenditures over the three years following the dividend change, and that dividend change announcements are associated with revisions in analysts' forecasts of current earnings. These results are consistent with the cash flow signaling hypothesis rather than the free cash flow hypothesis as an explanation for the observed stock price reactions to dividend change announcements.


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Home page
 REV FINANC STUDHome page
G. Hoberg and N. R. Prabhala
Disappearing Dividends, Catering, and Risk
Rev. Financ. Stud., August 21, 2008; (2008) hhn073v1.
[Abstract] [Full Text] [PDF]


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