The Information Signaling Hypothesis of Dividends: Evidence from Cointegration and Causality Tests
Mbodja Mougoué and
Ramesh Rao ()
Journal of Business Finance & Accounting, 2003, vol. 30, issue 3-4, 441-478
This paper uses cointegration and causality tests to study the temporal behavior of dividends and earnings at the individual firm level. We find that, for a sample of 143 non-utility firms, approximately one-fifth of the firms exhibits a temporal relationship between dividends and earnings that is consistent with the information signaling hypothesis of dividends. In the case of 72 utilities, about a third exhibit dividend policies that are consistent with the signaling notion of dividends. Further examination of firm characteristic differences between signaling and non-signaling firms shows that, in the case of non-utility firms, signaling firms tend to be smaller, have a lower growth rate of total assets, and have a higher leverage ratio. In the case of utilities, we find no major differences in firm characteristics between signaling and non-signaling firms. Copyright Blackwell Publishers Ltd, 2002.
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