Dividend Signaling Costs: Coarse vs. Separating Equilibria

Posted: 26 Aug 1999

See all articles by Michel A. Robe

Michel A. Robe

University of Richmond - E. Claiborne Robins School of Business

Date Written: November 1994

Abstract

This paper rationalizes corporate practices of smoothing the impact of earnings shocks on net dividends, as an optimalmanagerial response to conditions that would otherwise seriously harm the welfare of shareholders. It also shows that the deadweight losses arising from informational asymmetries between managers and firm owners are, surprisingly, significantly smaller than is commonly believed. The major assumptions are that managers face budget constraints, know more than outsiders about corporate sources and uses of internally generated funds, and maximize the current level of their firm's market value rather than its intrinsic value.

JEL Classification: G35, C72, D82

Suggested Citation

Robe, Michel A., Dividend Signaling Costs: Coarse vs. Separating Equilibria (November 1994). Available at SSRN: https://ssrn.com/abstract=6127

Michel A. Robe (Contact Author)

University of Richmond - E. Claiborne Robins School of Business ( email )

Richmond, VA 23173
United States

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