Journal of Financial Economics 24 (1989) 181-191.

North-Holland

DIVIDEND ANNOUNCEMENTS;
Cash Flow Signaling vs. Free Cash Flow Hypothes~s?*
Larry H.P. LANG
New York University, New York, N Y 10000, USA

Robert H. LITZENBERGER
University of Pennsytvania" Philadelphia, PA 19104, USA
Received March 1988, final version received December 1988
We test the cash flow signalling and free cash flow/overinvestment explanations of the impact of
dividend announcements on stock prices. We use "robin's Q ratios less than unity ta designate
overinvestors. The average return associated with announcements of large dividend changes is
significantly larger for firms with Q's less than unity than for other firms. This evidence, the
results of further tests involving a finer partition of the data, and an analysis of changes in
analysts' earning forecasts surrounding dividend announcements support the overinves~ment
hypothesis over the cash flow signalling hypothesis.

|. Introduction
The positive association between announcements of dividend changes and
stock-price movements has been documented in several empirical studies.
Fama, Fisher, Jensen, and Roll (1969) find that firms announcing stock splits
accompanied by increases in cash dividends have a statistically significant,
positive mean. risk-adjusted stock return during the announcement months,
and those accompanied by dividend decreases have a significant negative
return. Studies by Pettit (1972) and others find that the mean risk-adjusted
return for firms announcing dividend increases is significantly positive over the
two days surrounding the announcement, and for those announcing dividend
decreases the two-day return is significantly negative. More recently, Aharony
and Swary (~980) report similar results after controlling for contemporaneous
*The authors acknowledge helpful commeats from Yakov Am/hud, Michael Barclay. K.C
Chart, Michael Jensen, Kose John, David Mayers, Richardson Petfit (the referee), Andrei Shleiter,
Cliffo:t Smith (the editor), Rene Stulz, and participants of a seminar at the 1988 American
Finance Association meeting in New York. The data collection, calculation of Tobin's Q~ aL,d
computer erogramming assistance of Anne Cheng ~ e gratefully acknowledged. The research
assistance of C.T. Chen, Jose Puyol, Lin Shaw, and David Sun are case acknowledged. The
gemaining errors are the sole responsibility of the al:thors. The original rifle of this paper was
'What information is contained in dividend annouvcements?'.
0304-405X/89/$3.50~ 198% Elsevier Science Publishers B.V. (Nc,rth-Holland)

182

L.H.P. Lang and R.H. Litzenberger, Dividend ,r :nouncements

quarterly earnings reports. These studies indicate that announcements of

dividend changes do convey information to the market. However, the question
~Wnat info~lnatioa is contained in dividend announcements?' has not been
fully resolved.
Lintner 0958) and Fama and Babiak (1968) find a times-series relation
between annual dividends and earnings that is consistent with the view that
dividend-paying firms increase their dividends only when management is
relatively confident that the higher vayments can be maintained. If managers
have information about future and/or current cash flows that investors do not
have, investors will interpret a dividend increase as a signal that management
anticipates permanently higher cash flows, and a dividend decrease as a signal
that management expects permanently lower cash flows. The dividend signalling models developed by Battacharya (1979), John and Williams ,laoex
and Miller and Rock (1985) predict that dividend ~anouncements convey
information about future and/or current cash flows. However, this pt~Jiction
is not supported by the empirical studies of Watts (1973) and Gonedes (1978),
who are unable to find an economically significant relationship between
dividends and subsequent earnings. Further, they find that current and past
dividends forecast future earr&ngs no more r.ccurately than do current and
past earnings. A more recent study by Ofer and Siegel (1987), in contrast, finds
that knowledge of dividend announcements does improve the accuracy of the
average analyst's preannouncement forecasts of future earnings.
In a recent article extending the work of Berle and Means (1932) on the
separation of ownership from control, Jensen (1986) argues that a firm with
o,,~'-~'~'"-':"'o~,o.,,,a~free cash flows will have a tendency to overinvest by accepting
marginal investment projects with negative net present values. If managers are
overinvesting, an increase in the dividend will, all else being equal, reduce the
extent of overinvestment and increase the market value of the firm, and a
decrease in the dividend will have the opposite result. Jensen views the
empirical evidence of a positive association between dividend-change announcements and stock-price movements as supporting the free cash flow
hypothesis.
In an attempt to distinguish between the predictions of the cash flow
signalhng hypothesis and the free cash flow hypothesis, the present study uses
empirical estimates of T(;bin's Q ratio to determine a group of overinvesting
firr,~. If it is assumed that a fi_~'s iavestments are scale-expanding and exhibit
decreasing marginal effici~ency of capital, an average Q less than unity implies
ovefinvestment, if a firm is underta~ng the value-maximizing level of investment, its average Q will exceed unity. The overinvestment hypothesis predicts
that the average return in response to announcements of sizable dividend
changes is larger for ovefinvesting firms than for value maximizers.
We find that the avera~,e return associated with announcements of sizable
dividend changes is significantly hJghe~ for firms with average Q's less than
umty than for those with average Q's greater than unity.

L. H.P. Lang and R.H. Litzenberger, Dividend announcements

183

Although t~s empirical evidence is consistent with the overinvestment

hypothesis, J~ is also consistent with the cash flow signalling hypothesis if
investors anticipate large dividend increases for firras with average Q's greater
than unity. Further tests involving a finer partition of the data and the relation
between announcement of dividend changes and subsequent changes in analysts' earnings forecasts support the overinvestment hypothesis over the cash
flow signalling hypothesis.
Section 2 describes the theoretical basis of the subsequent tests. Section 3
describes the data and provides evidence tb.at is consistent with both ovefinvestment and cash flow signalling hypotheses. Section 4 presents a test that
attempts to distinguish between the two hypotheses, and section 5 summarizes
the implications of the study for interpreting the information in dividend
announcements.
2. gob|n's Q ratio as an indicator of overinvestment

We use the Modigliani and Miller (1966) limited growth model to describe
the ovednvestment hypothesis and the rationale for using Tobin's Q ratio as
an indicator of overinvestment. Using this model the value of firm V is
X

V~

(1)

where X is expected earnings from existing assets, / is the cost of capital, P

is the average rate of return on investment, I is the anticipated level of current
investment, and T ~s the firm's finite growth horizon. The first term in square
brackets is the contributiov of the firm's ,~xisting assets to its market value and
the second is the net present value of future investmem opportunities. The
term ( P - K ) / K is the average net present vame profitability index (net
present value per dollar of investment) for the firm's investments when they
are made. The cash flow sitgaalling hypothesis predicts that announcemems of
dividend increases vail signal higher cash flows or earnings X from current
assets, and vice versa, i.e., dV/dD=(dX/dD)/K> O, but ~he net present
value of future investments is assumed to be unaffected.
As suggested by Easterbrook (1984, p. 655), capital markets serve a monitoring function when management raises capital through security offerings. Investment bankers and other financial intermediaries evaluate proposed
projects and put their reputations on the line by implicitly certifying that the
new securities are backed by the represented earrfi~-~ potential. As pointed
out by Jensen (1986, p. 324)~ value-maximizing firms with their P > K are able
to withstand capital markets' monitoring, whose investment is carried to the
point where the marginal Q (present value of mar~nal investment) is unity,
whether m:arginal investment is financed internally or externally. Announce-

L.H.P. Lang and R.H. Litzenberger, Dividend announcements

184

ments of dividend changes by value-maximizing firms, therefore, will have no

impact on investors' expectations about investment policies, and should on
average have no effect on the firms' stock prices.
Jensen (1986) argues that firms with substantial free cash flow have a
tendency to overinvest by accepting marginal investment projects that have
negative net present values. Those firms will be reluctant to subject negativenet-prescott-value projects to the monitoring associated with external financing.
Furthermore, the fixed interest obligation associated with debt issues provides
an additional disincentive to finance negative-net-present-value projects with
debt. Announcements of dividend changes by overinvesting firms will change
investors' expectations about the size of the firms' future investment in
negative-net-present-value projects. An increase in the dividend will, all else
being equal, lessen the overinvestment and increase the market value of the
firm, and vice versa for dividend decrease. We call this extended form of the
free cash flow hypothesis the overinve-:,:ment hypothesis.
Under the overinvestment hypothesis, the impact of a dividend change
ann~,a~c~2~r,~ on the firm's market value is found by differentiating V in (1)
w.r.t. D:

dV

~' [~T K+I dP

dD-dDt\

-d-i

/K]T,

(2)

where dP/dl < 0 because of decreasing marginal efficiency of capital and the
term in square bracket is the marginal net present value profitability index
(marginal Q less unity). For value-maximizing firms, marginal Q is unity and
the level of investment is independent of the dividend, thus dl/dD = 0 which
imphes t~at dV/dD = 0. For overinvesting firms the marginal Q is less than
unity a n a the level of investment is inversely related to the dividend, i.e.,
dl/dD = - 1 which implies that dV/dD > O.
To obtain the average Tobin's Q ratio, both sides of (1) are divided by the
firm's current capital stock, C:

Uc

K (e-K)r,

(3)

where R = X/C is the average return on the current capital stock. Under
scale-expanding invesu~:~*nt and diminishing marginal efficiency of capital, if
the average return on investmca~, i% is greater than K, then the average return
on the er,dsting capital stock, R, must also be greater than g. and Tobin's Q
will be greater than unity. Conversely, if the average return on the existing
capital stock, R, is less than K, then the average return on investment, P,
must also be less than K and Tobin's Q will be less than unity.

L H.P, Lang and R.H. Litzenb~,.,'ger, Dividend announcements

i 85

Proposi~'ion 1. An average Q ratio greater than unity is a necessary condition for

a firm to be at the value-maximizing .level of investment.
Proof. For a v a l u e - m ~ g
firm, investment is car, ied to the point where
the marginal-net-present-value profitability index is zero (the marginal Q ratio
is unity). From decreasing mar~aal efficiency of capital, l ( d P / d l ) < O, and
P - K must be greater than zero at the level of investment where d V / d I = O.
Under decreasing marginal efficiency of capital, P - K > 0 implies that R is
also greater than K; thus Q is greater than 1 by (3). Q.E.D.
Proposition 2. An average Q ratio less than unity is the sufficient condition for a
firm to be overinvesting.
Proof. For an overLlvesting firm, investment is carried to the point where the
marginal-net-present-value profitability index is negative (the marginal Q is
less than unity). Under decreasing marginal e~ciency of capital, I ( d P / d I ) <
0; therefore, the aver-age rate of return on investment, P, is greater than the
marginal return on investment [P + l ( d P / d l ) ] . It follows from (3) that
Q < 1 implies that P < K [because Q < 1 implies either (R < K, P < K) oz
(R > K, P < K)]. Therefore, [P + I ( d P / d l ) ] < K, which indicates overinvestmont. Q.E.D.
Using estimates of average Q's rather than true marginal Q's to separate
firms into value maximizers and overhwestors causes some potential problems.
First, the preceding discussion is based on scale-expanding investment. For
firms with different types of investment projects, an average Q less than unity
is not a sufficient condition for overinvestment. Second, average Q's are
measured on reported replacement costs, which are unaudited and may differ
from true economic replacement costs, Finally, an average Q equal to unity is
chosen as the cut-off point in dividing firms into v a l u e - m ~ n g
and
overinvesting categories, some ovefinvez,'.ing firms (with marginal Q's less than
unity) may be incorporated into the group with average Q's greater than unity
along with value-maximizing firms. In spite of these caveats, if investor':
perceptions of marginal Q's are directly related to average Q's, then the
overinvestment hypothesis predicts that the average returns associated with
dividend announcements will be larger for firms with average Q's less than
unity than for those with average Q's greater than unity.
3. Emp[rica| test of the ovefinves~ent hyp:~thesis
Tobin's Q is the ratio of the market value of the firm's equity and debt to
the replacement cost of its assets. The caleb.clarions of the individual items and
the data sources are summarized below. Wc obtain common stock prices and

186

L.H.P. Lung a,ld R.H. Litzenberger, Dividend announcements

numbers of shares outstanding from the Center for Research in Security Prices
(CRSP) monthly return file. The book value of preferred stock is used as a
surrogate for its market value because pre~er~ed stock is a very small portion
of the sample firms' capital structures. The prices of long-term bonds are
obtained from Moody's Bond Record. If the price of a nonconvertible bond is
not reported, the yield to maturity of, another bond with a similar maturity
and coupon rate issued by the same firm is used to calculate the first bond's
price. Bonds with less than a year remaining to maturity, floating-rate bonds,
convertible debt for which price data are not reported, and debt with an
unknown coupon and/or maturity date are valued at book value. Replacement costs of net plant and equipment and inventories for 1979 to 1984 are
btained from the Financial Accounting Standard Board (FASB) regulation
33 tape edited by Columbia University.
<Our sample includes dividend-change announcements that meet two criteria: (1) the absolute dividend changes by more than 10% and (2) we are able to
calculate +~he average Q's for the firm announcing the change. The daily
returns an_d the date of di'Adend announcements are retrieved from the CRSP
daily return file and master file, respectively. Stocks that have split in the
q,_,arter before the dividend announcements are excluded, as are financial
organizations and public utilities. The final sample consists of 429 dividendchange announcements from 1979 to 1984.
Daily risk adjusted returns are measured as unadjusted returns minus the
product of a Scholes-Williams beta and the equally weighted CRSP index
returns. To test the hypothesized difference in average returns for firms with
average Q's greater than and less than unity, returns associated with announcements of dividend increases greater than 10 percent are averaged with
the negative of returns of firms with dividend decreases greater than 10
percent in absolute value. As shown in table 1, the average returns for firms
with average Q's less than unity is more than three times as large as that for
firms with average Q's greater than unity. The difference is significant at the
1 % 'l 'e q e l .
Da~ly returns are influenced by information other than dividend announcement. To reduce the impact of other information, we examine mtraday
returns. Because of the data availability, the sample of in)raday returns
consists of 76 dividend-change announcements over the period 19o2-1984.
The exact minute of dividend announcement is obtained from the Dow Jones
News. Service. To a~oid mixing intraday and overnight returns, in our intraday
anal)sis we use only announcements that occur within the trading day. The
intraday stock price data are obtained from the Fitch tapes.
Intvaday returns are measured over the period one hour before to two hours
after dividend announcements, beginning with the first trade price of the
onehow preannouncemen~ period and ending with the last trade of the

L.H.Po Lang and R.H. Litzenberger, Dividend announcements

187

Table 1
Average daily returns on dividend announcement days for firms with average Q's less tl,,~ unity
and for firms with average Q's greater than unity over the period 1979-1984.
Our sample of daily returns consists of 429 dividend-change announcements that meet two
criteria: (1) th~ absolute value of the percentage dividend change is greater than 10% and (2) we
are able to calculate the average Q ratio for the firm announcing the change. We divide the sample
into two groups using a cut-off point of Tobin's Q = 1. Returns for dividend increases are
averaged with the negative of returns of firms for dividend decreases.

Average return
p-valuea

Q> 1

Q< I

~Q< 1 ) - ( Q > 1)

0k03
(0.02i)

0.011
(0.000)

0.008
(0.000)

a The p-values based on a conventior,.al t-test and those based on a bootstrap procedure [see
Barclay and Litzenberger (1988)] are identical to three decimal places.

Table 2
Average intraday returns on dividend announcement day for firms with average Q's less than
unity and for firms with average Q's greater than unity over the period 1982-1984.
Our sample of intraday returns consists oi 76 dividend-change announcements that meet three
criteria: (1) the absolute value of the percentage dividend change is greater than 109~, (2) we are
able to calculate the average Q ratio for the firm announcing the change, and (3) we are able to
retrieve the exact announcement time from the Dow Jones News Service. Intraday returns are
measured over the period one hour before to two hours after dividend announcements, be#nning
with the first trade price of the one-hour preannouncement period and ending with the last trade
of the two-hour postannouncement period. We divide the sa__mpleinto two groups using a cut-off
point of Tobin's Q = 1. Returns for dividend increases are averaged with the negative returns for
firms for dividend decreases.

Average return
Bootstrap p-value a

Q> 1

Q< 1

( Q < 1 ) - ( Q > 1)

- 0.0001
(0.595)

0.0178
(0.007)

0.0179
(0.012)

at-test p-values are lower: (0.483), (0.005), and (0.008), respectively.

two-hour postannouncement period. Intraday returns are not adjusted for

market movements because of the problem of nonsynchronous trades. To
accommodate the missing-observation problem inherent in intraday re:urns,
we use the bootstrap algorithm developed by Barclay and Litzenberger (1988)
to determine significance level that takes account of a random sample size.
Table 2 shows that the average retarn is significantly larger for firms with
average Q's less than unity than for those with average Q's greater than unity.
Announcements of sizable dividend changes have a significant impact on the
stock price of the firm with average Q's less than unity, but no impact fo~
firms with average Q's greater than unity.

188

L.H.P. Lang and R.H. Litzenberger, Dividend announcements

4. An alternative interpretation of the cash flow signalling hypotheses

While the previous evidence is consistent with the ove~a~vestment hypothesis, it is also consistent with a conditional cash flow signalling hypothesis. If
investors anticipate large dividend increases for firms with average Q's greater
than unity, the impact of suck changes on average return will be small.
However, if large dividend decreases by these firms are not anticipated, the
price impact will be substantial. In the previous tests we average the returns
associated with large dividend increases and the negative of returns associated
with large dividend decreases. The sample of firms with average Q's greater
than unity includes many more increases (103) than decreases (8); therefore,
the average effect will be small. However, if dividend increases are not
anticipated for fi~aris with average Q ratios less than unity, the price impact
will be substantial. In our sample only 55 of 318 firms with Q's less than unity
announce sizable dividend cuts, it is reasonable to argue that investors are not
anticipating large dividend decreases. Since neither increases nor decreases are
anticipated, the average effect will be substantial.
Under the conditional cash flow signalling hypothesis, for firms with average
Q's greater than unity the predicted impacts on returns of announcements of
dividend changes is larger in absolute value for dividend decreases than for
increases. However, the overinvestment hypothesis predicts a symmetrical
ffnpact. For firms with average Q's less than unity, the two hypotheses predict
a significant impact on return in both dividend increase and decrease cases.
Table 3 shows that the average return in response to dividend announcements for firms with average Q's greater than unity is significant for dividend
increases and insignificant for dividend decreases. However, the absolute value
of the average returns associated with dividend-increase and dividend-decrease
announcements are similar in magnitude, and are not significantly different
from each other. This evidence is inconsistent with the conditional cash flow
signalling hypothesis.
The average returns for firms with average Q's less than unity are significant
for both dividend increases and decreases, in either dividend increase or
decrease case, the absolute value of the average return is significantly larger at
the 5% level for firms with average Q's less than unity than those with average,
Q's greater than unity, in the dividend decrease case, this larger price impact
is inconsistent with the predictions of the conditional cash flow signalling
hypothesis. Thus, these tests reiect the conditional cash flow signalling hypothesis.
The conditional cash flow signalling hypothesis predicts that announcements of dividend changes by firms with average Q's less than unity will cause
investors to revise their c~sh fi~w expectafiens in the sam_e direction, whereas
the overinvestment hypothesis predicts no impact on current cash flow expectations. For firms with average Q's greater than unity, both hypotheses predict

L.H.P. Lang and R.It. Litzenberge~. Dividend announ:'ements

189

Table 3
Average daily returns on &vidend announcement day for each group over the period 1979-1984.
Our sample of daily returns consists of 429 dividend change announcements :.hat meet t~o
criteria: (1) the absolute value of the percentage dividend change is greater than 10% and (2) we
axe able to calculate the average Q ratio for the firm. We divide the sample into ~our groups:
(1) Tobin's Q > 1 with dividend increase, (2) Tobin's Q > 1 with dividend decrease (3) "robin's
Q < 1 with dividend increase, and (4) Tobi~'s Q < 1 with dividend decrease.

Dividend
increase

Dividend
decrease

Difference in absolute
values for increases
and d~~:reases

Q > 1.0
t-test p-value

0.003
(0.016)

- 0.003
(0.371)

(0.5C0)

Q < 1.0
t-test p-value

0.008
(0.000)

- 0.027
(0.000

(0.005)

0.005
(0.008)

-0.024
(0.027)

(Q< :)-(Q>
t-test p-value

1)

0.000
0.019

that announcements of large dividend increases will have little or no impact on

investors' current cash flow expectations. For such firms announcing dividend
decreases, however, the conditional cash flow signalling hypothesis predicts
downward revisions in cash flow expectations, whereas the ovennvestment
hypothesis predicts no impact on current cash flow expectations.
Analyzing the impact of dividend announcements on current cash flow
expectations requires data on expectations. We obtain analysts' forecasts data
from the Investment Brokers Estimate System ( I \ B \ E \ $) data base developed by Lynch, Jones, and Ryan Company. Ttds data base contains summary
statistics for analysts' forecasts of annual eart~ings per share for the current
fiscal year. The individual forecasts are collected monthly from all major
brokerage firms. We don't know when in the month these forecasts are
surveyed, so we use the earnings forecasts reported at the end of the month
before the dividend-announcement month for tt~e preannouncement forecasts
and the forecasts reported at the en:J of the month following the dividend
announcement month for the postannouncement forecasts.
The impact of announcements of sizable dividend changes on analysts'
forecasts is measured using the median of the elasticity of the average of
analysts' earnings forecasts with respect to large dlvidend changes (percentage
change in earnings per share forecasts divided by percentage dividend change).
The use of a median instead of a mean avoids the distortions resulting when
the average of analysts' preannouncement earnings forecasts is close to zero. A
few very large positive or negative percentage revisions resulting from a
denominator close to zero would have no material impact on a median
calculated over a large number of firms.

J.F.E.--G

190

L. H P. Lang and R.H. Litzenberger, Dividend announcements

Table 4

Medians of elasticity of the average of analysts' earnings forecasts with respect to dividend-change
announcements over the period 1979-1984.
Our sample of analysts forecasts consists of 429 current year's earnings per share (EPS) forecasts
that meet two criteria: (1) the absolute value of the percentage dividend change is greater than
10% and (2) we are able to cMculate the average Q ratio for the firm aanouncing the dividend
change. We divide the sample into four groups: (1) Tobin's Q > 1 vdth dividend increase,
(2) Tobin's Q > 1 with dividend decrease, (3) "i'obin's Q < 1 with db, idend increase, and (4)
Tobin's Q < 1 with dividend decrease.
Dividend increase
Current-year EPS

Dividend decrease
Current-year EPS

Q > 1.0
l~ootstrap p-value

"0.0053
(0.544)

- 0.0483
(0.406)

Q < 1.0
Bootstrap p-value

0.0993
(0.375)

-0.3685
(0.298)

Bootstrap p-value
of(Q < 1 ) - (Q > 1)

(0.370)

(0.329)

To test whether the median of the elasticity of the average of analysts'

earnings forecasts is different from zero, the bootstrap technique, is used [see
Efron (1982) for details]. Table 4 reports the median earnings forecasts for
four groups, and shows that the effect of dividend announcements on ear.tings
expectations is not statistically significant. The small economic differences
between the median percentage changes and the lack of statistical significance
indicate that postannouncement revisions in analysts' earnings forecasts are
not consistent with the predictions of the conditional cash flow signalling
hypothesis. Thus, the tests based on revisions in analysts' earning forecast
reject the conditional cash flow signalling hypothesis and support the overinvestment hypothes;,s.

5. Conclusion
This paper investigates the informational content of dividends in the frame,
work of the principal-agent conflict model developed by Berle and Means and
extended by Jensen. If managers are overinvesting, an increase in the divMend
will reduce the overinvestment and increase the market value of the firm.
Similarly, a dividend decrease signals that more aegati,~e-net-present-value
projects will be undertaken. For value-maximizing firms the level of investment is theorized to be independent of dividends. -Fhe present study divides
firms into overinvestors and a mixed group of value maximizers and marginal
overinvestors on the basis of Tobin's Q. The average ~etarn for firms with
average Q's less than unity is significantly larger than :::~ firms with average

L.H.P. Lang and R.H. Litzenberger, Dit,idend ennouncements

191

Q's greater than unity. This evidence is consistent with the hypothesis that
dividend changes for overinvesting firms signal information about investment
policies. It is also consistent with the conditional cash flow signalling hypothesis if investors anticipate large dividend increases for firms with average Q's
greater than unity. Further test involving a finer partition of the data and
changes in analysts' forecasts fail to reject the overinvestment hypothesis in
favor of the conditional cash flow signalling hypothesis.
References
Aharopy, J. and I. Swary, 1980, Quarterly dividend and earnings announcements and stockholders' return: An empirical analysis, Journal of Finance 35, 1-12.
Asquith, P. and D. Mullins, Jr., 1983, The impact ef initiating dividend payments on shareholders'
wealth, Jom nal of Business 56, 77-96.
Barclay, M.J. and R.H. Litzenberger, 1988, Announcement effects of new equity issucs azd the use
of intraday price data, Jo, rnal of Financial Economics 21, 71-99.
Bhattacharya, S., 1979, Imperfect information, dividend policy and the 'bird in the hand' fallacy,
Bell Journal of Economics and Management Science i0, 259-270.
Bhattacharya, S., 1980, Nondissipative signalling structures and dividend policy, Quarterly Journal of Economics 95, 1-14.
Berle, A.A. and G.C. Means, 1932, The modern corporation and private property (Macmillan,
New York, NY).
Brickley, J., 1983, Shareholder wealth, information signalling, and the specially designated
dividend: An empirical study, Journal of Financial Economics 12, 187-209.
Eades, K., P. Hess, and E.H. Kim, 1985, Market rationality and dividend announcements, Journal
of Financial Economics 14, 581-604.
Easterbrook, F.H., 1984, Two agency costs explanation of dividends, American Economic Review
74, 650-659.
Efron, B., 1982, The jackknife, the bootstrap and other resampfing techniques (Society for
Ir~dustrial and Applied Mathematics, Philadelphia, PA).
Fama, E. and H. Babiak, 1968, Dividend policy: An empirical analysis, Journal of American
Statistical Association 63, 1.t32-1161.
Fama, E., L. Fisher, M. Jensen, and R. Roll, 1969, The adjustment of stock prices to new
information, Intemat ional Economic Review 10, 1-21.
Gonedes, N.L, 1978, C,rporate signalling, external accounting, and capital market equilibrium:
Evidence on dividerds, income and extraordinary items, Journal of Accounting Research 16,
26--79.
Jensen, M., 1986, Agency costs of free cash flow, corporate finance, and takeover, American
Economic Review 75. 323-329.
John, K. and J. Williar~ls, 1985, Dividends, dilution and taxes: A signalling equilibrium, Journal of
Finance 40, 1053-1070.
Kalay, A. and U. Lowemtein, 1985, Predictable events and excess returns: The case of dividend
announcements, Jou~al of Financial Economics 14, 423-449.
Lintner, J., 1956, The distribution of ~ncomes of corporations among dividends, retained earnings
and taxes, American Economic Review 46, 7-113.
Miller, M.H. and F. Mocagliani, 1966, Some estimates of the cost of capital to the electric utility
industry, 1954-i957, American Economic Review 61,333-391.
Miller, M.H. and K. Rock, 1985, Dividend policy under asymmetric information, Journal of
Finance 40, i031-1051.
Ofer, A.R. and D. Siegel, 1987, Corporate financial policy, information, and market epectafions:
An empirical investiga',ion of dividends, Joornal of Finance 42, 889-911.
Pettit, R.R., 1972, DMdend announcements security performance, and capital market efficiency,
Journal of Finance 27, 993-1007.
Watts, R., 1973, The informational content of dividends, Journal of Business 46, 191-211.