Dividend Signaling
The theory that managers use dividend changes to convey their private information about future cash flows to outside investors. Building on Lintner (1956) and formalized by Bhattacharya (1979) + Miller-Rock (1985): managers smooth dividends and only raise them when they are confident the new level is sustainable, so an increase is a credible signal. Empirically, dividend initiations trade up ~3-5%; cuts trade down ~6-9%. The size of the announcement effect calibrates how much new information the change conveyed.
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Related terms
Ambiguity Aversion · Anchored Assumption · Asset Beta · Bank ROE Spread · Banker Pitch Deck · Beta
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