Dividends as a signaling device and the disappearing dividend puzzle

Dmitry Shapiro and Anan Zhuang

Journal of Economics and Business, 2015, vol. 79, issue C, 62-81

Abstract: In this paper we develop a generalization of the Baker and Wurgler (2012) signaling model where investors are loss-averse to dividend cuts. We apply our framework to study how a firm's characteristics and manager's incentives affect payout policy properties. In equilibrium firms with riskier earnings are less likely to pay dividends, however, those that pay, payout more. Similarly, firms whose managers have a higher share of stock options in their compensation package are less likely to pay positive dividends. There is a clientele effect. Investors’ preferences and choices affect the payout policy and two otherwise identical firms can greatly differ in how they pay dividends. Finally, we relate our model's predictions to the disappearing dividend puzzle.

Keywords: Dividends; Signaling; Disappearing dividend puzzle; Loss-aversion (search for similar items in EconPapers)
JEL-codes: G02 G35 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0148619515000028
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:79:y:2015:i:c:p:62-81

DOI: 10.1016/j.jeconbus.2014.12.005

Access Statistics for this article

Journal of Economics and Business is currently edited by Emanuele Bajo and Moritz Ritter

More articles in Journal of Economics and Business from Elsevier
Bibliographic data for series maintained by Catherine Liu ().