Rational expectations, information signalling and dividend adjustment to permanent earnings

Chihwa Kao, Chunchi Wu

Research output: Contribution to journalArticlepeer-review

17 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)490-502
Number of pages13
JournalReview of Economics and Statistics
Volume76
Issue number3
DOIs
StatePublished - Aug 1994

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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