Signaling Safety

Stefano Rossi, Michael Weber and Roni Michaely

No 14174, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 direction); (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: 2019-12
New Economics Papers: this item is included in nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP14174 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Signaling safety (2021)
Working Paper: Signaling Safety (2018)
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:cpr:ceprdp:14174

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP14174

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().