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Essay / Research Paper Abstract
This 8 page paper looks at the concept of dividend signaling, looking at what it is, how it developed, the underlying theory, contradictory ideas and the influences which may impact on the way it is perceived by the market. The bibliography cites 13 sources.
Page Count:
8 pages (~225 words per page)
File: TS14_TEdividendsig.doc
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Unformatted sample text from the term paper:
be that of dividend signaling. There have been numerous studies which have looked at the way dividend policies may be perceived by the market as providing signals to overcome the
asymmetries of information which are inherent in the way the operations of the final markets. The concept of dividend signaling is controversial, with research gaining mixed results. Theories have considered
the relevance of dividend signaling and its potential accuracy as a performance indicator; some research indicates dividends may be a signal indicating the potential future performance of the firm, others
have seen it only as an indicator of past performance (Filbeck, 2009, p166). Research has also looked at potential influences which may impact on the way dividend policies, arguing there
are different market reactions in different scenarios (Grullon and Michaely , 2001, p2; Lippert et al, 2000, p69; Pettitt, 1972, p993. The aim of this paper is to look at
the concept of dividend signaling, looking at whether the theory of dividend signaling is accurate and considering some of the influences which may be observed. The concept of dividend signaling
originates with Lintner (1956, p97). It was Lintner who suggested that the dividend polices and payments adopted by firms are relevant to the firms performance (Lintner, 1956, p98). The basic
hypothesis, based in research with a sample of 28 firms and interviews with senior management responsible for financial decision making, states that when management are confidence of the firms
future growth they will be happy to increase dividend payments (Filbeck, 2009, p366). Interestingly, the converse does not apply; there is a reluctance to decrease dividends unless there is a
high degree of certainty regarding future permanent declines in earnings (Lintner, 1956, p98). The leads to the concept of sticky dividends, where managers are reluctant to decrease dividends due
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