Corporate Risk Management and Dividend Signaling Theory
Georges Dionne and
Cahiers de recherche from CIRPEE
This paper investigates the effect of corporate risk management on dividend policy. We extend the signaling framework of Bhattacharya (1979) by including the possibility of hedging the future cash flow. We find that the higher the hedging level, the lower the incremental dividend. This result is in line with the purpoted positive relation between information asymmetry and dividend policy (e.g., Miller and Rock, 1985) and the assertion that risk management alleviates the information asymmetry problem (e.g., DaDalt et al., 2002). Our theoretical model has testable implications.
Keywords: Signaling theory; Dividend policy; Risk management policy; Corporate hedging; Information asymmetry (search for similar items in EconPapers)
JEL-codes: G35 G32 D82 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-cta and nep-rmg
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Journal Article: Corporate risk management and dividend signaling theory (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:lvl:lacicr:1008
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