Costly Dividend Signaling: The Case of Loss Firms with Negative Cash Flows

Peter Joos and George Plesko

Working papers from Massachusetts Institute of Technology (MIT), Sloan School of Management

Abstract: We examine the dividend-signaling hypothesis in a sample of firms for which dividend increases are particularly costly, namely loss firms with negative cash flows. When compared to loss firms with positive cash flows, we find the predictive power of dividend increases for future return on assets to be greater for loss firms with negative cash flows, consistent with the predictive power of the dividend signal being stronger when its cost is higher. Our results provide support for the dividend-signaling hypothesis and have broader implications since loss firms comprise a large and increasing share of publicly-traded firms.

Keywords: dividends; dividend signalling; losses (search for similar items in EconPapers)
Date: 2004-12-10
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