Testing Dividend Signalling Models

Dan Bernhardt, Ray Farrow and J. Fiona Robertson

No 895, Working Paper from Economics Department, Queen's University

Abstract: This paper derives a key monotonicity property common to dividend signalling models: the greater the rate that dividend income is taxed relative to capital gains income, the greater the value of information revealed by a given dividend yield, and hence the greater the associated excess return. This monotonicity condition allows us to distinguish the hypothesis that dividends are used as a signalling device from the hypothesis that dividends contain information but are not used as Spencian signals. The monotonicity conditions are tested with robust non-parametric techniques. Although we find strong evidence that dividend announcements contain information, we find no evidence to support dividend signalling. The same results are inconsistent with tax-based CAPM arguments.

Keywords: non-parametric; signalling (search for similar items in EconPapers)
JEL-codes: G0 (search for similar items in EconPapers)
Pages: 49 pages
Date: 1994-01
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https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_895.pdf First version 1994 (application/pdf)

Related works:
Journal Article: Testing dividend signaling models (2005)
Working Paper: Testing Dividend Signalling Models (1993)
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:895

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