Dividend Signaling: What Can We Learn from Corporate Bond Responses?

Ruoyun (Lucy) Zhao ()

Published Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: The literature has reported significant abnormal returns associated with the announcements of dividend changes. Various hypotheses such as information signaling hypothesis, agency theory and wealth transfer hypothesis, have been suggested to explain the abnormal returns and volumes following the corporate stock dividend changes. The response of corporate bond, as a related security not subject to the immediate capitalization changes are used to provide evidence to help distinguish between the signaling and wealth transfer hypothesis. Corporate bonds have a significant decline in bond yields following dividend increase and a significant increase in bond yields following dividend decrease, supporting signaling hypothesis rather than wealth transfer effect.

Keywords: Dividend Change; Signaling Hypothesis; Wealth Transfer; Corporate Bonds (search for similar items in EconPapers)
Pages: 16 pages
Date: 2016-01-01
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Published in: Zhao, R.L., 2016, "Dividend signaling: What can we learn from corporate bond responses?", Journal of Internet Banking and Commerce, 21(1), 1-16.

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Persistent link: https://EconPapers.repec.org/RePEc:uts:ppaper:2016-3

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