Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/189217
Authors: 
Bernhardt, Dan
Robertson, J. Fiona
Farrow, Ray
Year of Publication: 
1994
Series/Report no.: 
Queen's Economics Department Working Paper 895
Abstract: 
This paper derives a key monotonicity property common to dividend signalling models: the greater the rate that dividend income is taxed relative to capital gains income, the greater the value of information revealed by a given dividend yield, and hence the greater the associated excess return. This monotonicity condition allows us to distinguish the hypothesis that dividends are used as a signalling device from the hypothesis that dividends contain information but are not used as Spencian signals. The monotonicity conditions are tested with robust non-parametric techniques. Although we find strong evidence that dividend announcements contain information, we find no evidence to support dividend signalling. The same results are inconsistent with tax-based CAPM arguments.
Subjects: 
signalling
non-parametric
JEL: 
G0
Document Type: 
Working Paper
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