Market movements and the excess cash theory

Ebenezer Asem and Shamsul Alam

The Quarterly Review of Economics and Finance, 2015, vol. 55, issue C, 140-149

Abstract: This study examines the effects of changes in the market's outlook for investment on the returns of dividend payers and non-payers to test the excess cash theory for dividends. When the market's outlook declines, the adverse effect is stronger for non-payers than payers and the difference concentrates among firms with high excess cash. When the outlook improves, the positive effect is stronger for non-payers than payers and the difference also concentrates among firms with high excess cash. These results support the theory that a dividend payment is a signal that the firm will not overinvest.

Keywords: Excess cash theory; Dividend payments; Market's outlook (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:55:y:2015:i:c:p:140-149

DOI: 10.1016/j.qref.2014.07.003

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