Rational Expectations, Information Signalling and Dividend Adjustment to Permanent Earning

Publication Type

Journal Article

Publication Date

1994

Abstract

We propose a rational signalling model to investigate the information content of dividends. The model provides a direct test on the relation between unexpected dividend and earnings changes. In identifying the component of unexpected dividend changes, we suggest an expectations framework that accounts for the process of dividend adjustment to firms' permanent earnings. A nonlinear regression method is used to estimate the model and test the rationality and signalling hypotheses. Consistent with Healy and Palepu's (1988) findings, the results show that dividends reflect past, current and future earnings information. [ABSTRACT FROM AUTHOR]

Discipline

Business

Research Areas

Finance

Publication

Review of Economics and Statistics, The

Volume

76

Issue

3

First Page

490

ISSN

0034-6535

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