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 directions); (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.

Signaling safety

Stefano Rossi;
2021

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 directions); (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.
2020
Michaely, Roni; Rossi, Stefano; Weber, Michael
File in questo prodotto:
File Dimensione Formato  
signaling safety.pdf

non disponibili

Descrizione: Articolo
Tipologia: Documento in Post-print (Post-print document)
Licenza: NON PUBBLICO - Accesso privato/ristretto
Dimensione 792.49 kB
Formato Adobe PDF
792.49 kB Adobe PDF   Visualizza/Apri   Richiedi una copia

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11565/4031058
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 8
  • ???jsp.display-item.citation.isi??? 8
social impact