Costly dividend signaling
Subtitle: the case of lost firms with negative cash flows
By: Peter R. Joos and George A. Plesko.
Contributors: Plesko, George A.; Sloan School of Management.
Series: MIT Sloan working paper -- no. 4474-04; Working paper (Sloan School of Management) -- 4474.
Publisher: MIT Sloan School of Management
Published: 2004
Place of publication: [Cambridge, Mass.]
Language: eng
Number of pages: 26
Description: We examine the dividend-signaling hypothesis in a sample of firms for which dividend increases are particularly costly, namely loss firms with negative cash flows. When compared to loss firms with positive cash flows, we find the predictive power of dividend increases for future return on assets to be greater for loss firms with negative cash flows, consistent with the predictive power of the dividend signal being stronger when its cost is higher. Our results provide support for the dividend-signaling hypothesis and have broader implications since loss firms comprise a large and increasing share of publicly-traded firms. Keywords: dividends, dividend signalling, losses. JEL Classifications: G35, G32, M41.