Signaling Safety

Roni Michaely, Stefano Rossi and Michael Weber

No 24237, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: G35 (search for similar items in EconPapers)
Date: 2018-01
New Economics Papers: this item is included in nep-cfn
Note: AP CF PE
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Published as Roni Michaely & Stefano Rossi & Michael Weber, 2020. "Signaling Safety," Journal of Financial Economics, .

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Related works:
Journal Article: Signaling safety (2021)
Working Paper: Signaling Safety (2019)
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