Comment: Bhattacharya Paper

Extract

Sudipto Bhattacharya's paper, “An Exploration of Nondissipative Dividend–Signaling Structures,” is in two parts. The first develops a nondissipative “quota–based” signaling model. Optimal contingent (wage) contracts are shown to induce workers, whose productivity is not directly observable, to “self–select” by the choice of level of committed productivity. However, the most novel feature of the paper is the attempt to apply the quota–based signaling model to the problem of dividend signaling in the capital– –market that is, the modeling of the “information content” of corporate dividends as an ex–ante signal of future earnings. As Bhattacharya notes, the “information content” of hypothesis of dividend payment is somewhat ill–defined to date, so such an application of the quota–based signaling model, if successful, would be a definite contribution to dividend theory.