Signaling safety

Roni Michaely, Stefano Rossi and Michael Weber

Journal of Financial Economics, 2021, vol. 139, issue 2, 405-427

Abstract: Contrary to signaling models’ central predictions, changes in the level of cash flows do not empirically follow changes in dividends. We use the Campbell (1991) decomposition to construct cash-flow and discount-rate news from returns and find the following: (1) both dividend changes and repurchase announcements signal changes in cash-flow volatility (in opposite directions); (2) larger cash-flow volatility changes come with larger announcement returns; and (3) neither discount-rate news, nor the level of cash-flow news, nor total stock return volatility change following dividend changes. We conclude cash-flow news—and not discount-rate news—drive payout policy, and payout policy conveys information about future cash-flow volatility.

Keywords: Dividends; Payout policy; Cash-flow volatility; Signaling model (search for similar items in EconPapers)
JEL-codes: G35 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Signaling Safety (2019)
Working Paper: Signaling Safety (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:139:y:2021:i:2:p:405-427

DOI: 10.1016/j.jfineco.2020.08.013

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